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Carts & Horses: Common Issues in AIA Dispute
3:15 p.m. - 3:45 p.m.
Presented byAdam Tarr
Pugh, Hagan, Prahm PLC425 E. Oakdale Blvd., Suite 201
Coralville, IA 52241Phone: 319-351-2028
2017 Construction Law Seminar2017 Construction Law Seminar
Friday, April 7, 2017
Why AIA Dispute Resolution?
Why AIA Dispute Resolution?
AIA Dispute Resolution• 2007 Revisions
• A101‐Standard Form of Agreement Between Owner and Contractor
• A201‐2007: General Conditions of the Contract for Construction
Dispute Resolution• A101‐2007: Section 6 (new)
• §6.1 – Initial Decision Maker: “The Architect will serve as Initial Decision Maker pursuant to section 15.2 of AIA Document A201‐2007, unless the parties appoint below another individual, not a party to this Agreement, to serve as Initial Decision Maker.”
• Requires insertion of name, address and contact information of Initial Decision Maker if other than the Architect.
Dispute Resolution• §6.2 – Binding Dispute Resolution:
• For any Claim subject to, but not resolved by, mediation pursuant to Section 15.3 of AIA Document A201‐2007, the method of binding dispute resolution shall be as follows:• check one of three boxes:
• Arbitration pursuant to Section 15.4 of AIA Document A201‐2007• Litigation in a court of competent jurisdiction• Other (Specify)
Dispute Resolution• If the Owner and Contractor do not select a method of binding dispute resolution
• or do not subsequently agree in writing to a binding dispute resolution method other than litigation
• then Claims will be resolved by litigation in a court of competent jurisdiction.
Dispute Resolution• A201‐2007
• Claims• Notice: claims initiated by written notice given to the IDM (2007) and the architect (if not the IDM) and to the other party. (15.1.2) • What is written notice?
• Little guidance in A201 documents. See Bruner & O’Connor §5.106. • “There is no requirement that the amount of time or money involved be
submitted at the time the claim is submitted. The claim is only a notice of the general nature of the claim, although it should be as detailed as circumstances will allow at the time.” Sabo, Legal Guide to AIA Documents (5th ed.), §4.85, pp. 516‐17.
Dispute Resolution• Timing for providing information is also unclear:
• See 15.2.4 (within 10 days of IDM request provide information, advise when will provide, or inform IDM will not provide)
• Bruner & O’Connor query what happens if IDM fails to request additional information, then fails to make initial determination within 30 days?• parties then bypass IDM pursuant to 15.2 and proceed to mediation. • Can other party assert in arbitration that failure to provide timely
information bars claim?
Dispute Resolution• Best practice: provide all available information no later than 20 days after
submitting claim to IDM • (i.e., 10 day deadline for IDM to request information + 10 days to respond
to request = 20 days post‐claim (see “Stages of Resolution”, below))• or, at a minimum, by 20 days post‐claim advise IDM, architect (if not IDM)
and other party when information will be available.• “Point of no return”: prejudice to other party
• See, e.g., Bruner & O’Connor §4:35
Dispute Resolution• Type of supporting information to be provided:
• additional time: include estimate of cost and duration of delay• for continuing delay, only one notice required. 15.1.5
• weather: document by written data showing abnormal weather could not be anticipated, with adverse effect. 15.1.5.2
• injury or property damage: enough documentation to enable adequate investigation of claim. (1997) 4.3.8
Dispute Resolution• Generally, adequacy of notice is jury question turning upon contract terms.
• See Bruner & O’Connor §5.106• Compare: Port Chester Elec. Const. Corp. v. HBE Corp., 782 F. Supp. 837,
841‐42 (S.D.N.Y. 1991)• contract only required written notice of claim• plaintiff subcontractor satisfied requirement by sending letter alerting general that
revised schedule was inconsistent with contract and “will result in very obvious unanticipated costs [listing several]”
• Court: Whether or not sub called his letter a “notice of claim,” it served that function to general• General’s response to letter accused sub of setting groundwork for “future
fabricated delay claims”
Dispute Resolution• with:
• County Commissioners of Caroline County v. J. Roland Dashiell & Sons, Inc., 747 A.2d 600, 603‐05 (Ct. App. Md. 1999)• letters did not satisfy claim notice required by contract where:
• letters indicated future intent to prepare and submit claim• did not state present demand for adjustment• did not provide documentation required by contract
Dispute Resolution• Notice timing:
• 21 days from occurrence giving rise to claim • or from first recognition of condition giving rise to claim, whichever later
15.1.2/4.3.4• claim for additional cost:
• written notice of intent to make claim must be given before proceeding to execute work giving rise thereto. 15.1.4.
• emergency exception: endangering life or property requires no written notice prior to performance. § 10.4
Dispute Resolution• Type of notice depends on type of claim:
• increase in contract time: 21 day written notice (1997) ¶ 4.3.7.1; 15.1.5
• differing site condition: “promptly and before conditions are disturbed”• in no case later than 21‐day notice• note: no express mention of written notice. 4.3.4
• Architect/IDM to investigate, then issue decision• Parties then have 21 days to assert claim if oppose determination. 4.3.4
Dispute Resolution• Differing site conditions (continued):
• Human remains/burial markers/archeological site/wetlands: • immediately cease work• notify owner and architect • owner must seek gov’t approval to resume construction (2007)
• Personal injury or property damage due to omission: • “reasonable time” • not more than 21 days. ¶ 4.3.8
Dispute ResolutionStages of Resolution
• Failure to agree to change order: • triggers Article 15 claim process
• 4.42/7.3; Legal Guide to AIA Documents, pp. 409‐10
• Initial Decision: • Claims between Owner and Contractor must be submitted to
IDM (architect is default) for initial determination as precondition to making arbitration demand• Art. 15.1.2; 15.3.2
Dispute Resolution• Exception:
• hazardous materials, insurance claims and emergencies • proceed directly to mediation. Sabo, §4.86, p. 526
• Contractor must proceed diligently with performance pending resolution of claim
• Owner must continue to make payments • (unless contract provides otherwise) 15.1.3
Dispute Resolution• IDM reviews claim and within 10 days:
• IDM may request additional supporting data• parties have 10 days from request to:
• provide info• advise when will provide
• IDM does not have to wait for information• advise IDM will not furnish. 15.2.4 IDM request for additional data extends 30 day period for
decision until data received. B&O’C §4.86, p. 526
Dispute Resolution• IDM may reject or approve claim in whole or part
• decision must:• be rendered in writing• specify whether contract sum and/or time are being modified, and
reasoning. B&O’C§4.86, p. 528.• prevailing party may, within 30 days of decision, demand other party invoke mediation within 60 days of decision under penalty of forfeiture. 15.2.6.1 (new 2007)
• otherwise other party may file for mediation of initial decision at any time. 15.2.6
Dispute Resolution• IDM may suggest compromise; or • IDM may advise that IDM is unable to evaluate:
• on merits • or because inappropriate task for IDM. 15.2.2.
• IDM may consult experts. 15.2.3
Dispute Resolution• IDM renders initial decision
• within 30 calendar days of claim referral to IDM • If not, party can bypass IDM and proceed to mediation. 15.2.
• mandatory mediation as intermediary step under AAA construction industry mediation rules (1997)
• IDM initial determination or failure to render decision triggers right to mediation and arbitration demand. 15.2.1
Dispute Resolution• mediation demand
• must be in writing• delivered to other party and • filed with mediation administrator. 15.3.2
• mediation may be filed concurrently with demand for binding dispute resolution• mediation must come first• stays binding dispute resolution 60 days or longer if parties so agree.
15.3.2; 8.3.1.1• Parties split mediator’s fee. 15.3.3; 8.2.3
Dispute Resolution• Arbitration
• parties may select own arbitrator (new 2007); 15.4.1• 1997 required AAA administer arbitration proceedings per AAA Construction Industry Arbitration Rules • (still default)
Dispute Resolution• Check box system
• parties may check box to select dispute resolution process (new 2007); 8.2.4• arbitration• litigation
• if no box checked, litigation is default selection• parties may post‐hoc agree to adjust this
• other
Premature Litigation
Premature Litigation
• Aggrieved party bypasses AIA dispute resolution procedure• Files lawsuit
• breach of contract• foreclosure of mechanic’s lien
Q: As Defendant, what do you do?
Premature Litigation• Because parties may post‐hoc waive IDR procedure,
objection to jurisdiction is Defendant’s to raise• Contractual forum selection• Court will not decline jurisdiction sua sponte
Premature Litigation• Remedy
• Move to Dismiss or Stay• Dismissal for breach of contract claims and arbitration election,
but not for lien foreclosure action?• Iowa Code Section 572.27 (2 years to foreclose)
• DiGiorgio v. Guedes, 2014 WL 6765413 (Conn. Super. Ct. Oct. 23, 2014) (upholding IDM/project architect’s final decision regarding contract dispute pursuant to A101−2007 and A201−2007).
• Kane Builders S & D, Inc. v. Maryland CVS Pharmacy, LLC, No. CIV.A. DKC 12‐3775, 2013 WL 2948381, at *3−4 (D. Md. June 13, 2013) (staying and compelling mediation pursuant to A201−2007 after contractor filed suit to foreclose mechanic’s lien without first submitting claim to mediation).
Dispute Resolution• Joinder
• architect and/or other parties may be joined in arbitration • (new 2007) 8.3.4.3; 15.4.4.2‐.3• “if presence required for complete relief” • involving “common question of fact or law”
Dispute Resolution: Limitations• Owner’s claim period
• applicable state law on statute of limitations • discovery rule applies
• “knew or should have known” of claim• 10 year statute of repose
• from substantial completion• new 2007; 8.1.1
Dispute Resolution• Accord and satisfaction
• final payment so designated• disputed sum (possibly even of undisputed sum)• received by other party • may constitute accord and satisfaction under common law rules
• = waiver of recipients’ claims • other party cannot avoid by unilaterally annotating check “with
reservations” or “under protest” and then cashing • 9.10.4, 9.10.5
AIA Dispute Resolution: Take Aways• Know your clients’ contracts
• Advise your clients to negotiate or at least understand docs before execution
• Train clients to understand processes• Get involved early as legal counsel
AIA Dispute Resolution: Take AwaysGet Horse Before the Cart
3/21/2017
1
Carts & Horses: Common Issues in AIA Dispute
ResolutionAdam Tarr
Why AIA Dispute Resolution?
Why AIA Dispute Resolution?
3/21/2017
2
AIA Dispute Resolution• 2007 Revisions
• A101‐Standard Form of Agreement Between Owner and Contractor
• A201‐2007: General Conditions of the Contract for Construction
Dispute Resolution• A101‐2007: Section 6 (new)
• §6.1 – Initial Decision Maker: “The Architect will serve as Initial Decision Maker pursuant to section 15.2 of AIA Document A201‐2007, unless the parties appoint below another individual, not a party to this Agreement, to serve as Initial Decision Maker.”
• Requires insertion of name, address and contact information of Initial Decision Maker if other than the Architect.
Dispute Resolution• §6.2 – Binding Dispute Resolution:
• For any Claim subject to, but not resolved by, mediation pursuant to Section 15.3 of AIA Document A201‐2007, the method of binding dispute resolution shall be as follows:• check one of three boxes:
• Arbitration pursuant to Section 15.4 of AIA Document A201‐2007• Litigation in a court of competent jurisdiction• Other (Specify)
3/21/2017
3
Dispute Resolution• If the Owner and Contractor do not select a method of binding dispute resolution
• or do not subsequently agree in writing to a binding dispute resolution method other than litigation
• then Claims will be resolved by litigation in a court of competent jurisdiction.
Dispute Resolution• A201‐2007
• Claims• Notice: claims initiated by written notice given to the IDM (2007) and the architect (if not the IDM) and to the other party. (15.1.2) • What is written notice?
• Little guidance in A201 documents. See Bruner & O’Connor §5.106. • “There is no requirement that the amount of time or money involved be
submitted at the time the claim is submitted. The claim is only a notice of the general nature of the claim, although it should be as detailed as circumstances will allow at the time.” Sabo, Legal Guide to AIA Documents (5th ed.), §4.85, pp. 516‐17.
Dispute Resolution• Timing for providing information is also unclear:
• See 15.2.4 (within 10 days of IDM request provide information, advise when will provide, or inform IDM will not provide)
• Bruner & O’Connor query what happens if IDM fails to request additional information, then fails to make initial determination within 30 days?• parties then bypass IDM pursuant to 15.2 and proceed to mediation. • Can other party assert in arbitration that failure to provide timely
information bars claim?
3/21/2017
4
Dispute Resolution• Best practice: provide all available information no later than 20 days after
submitting claim to IDM • (i.e., 10 day deadline for IDM to request information + 10 days to respond
to request = 20 days post‐claim (see “Stages of Resolution”, below))• or, at a minimum, by 20 days post‐claim advise IDM, architect (if not IDM)
and other party when information will be available.• “Point of no return”: prejudice to other party
• See, e.g., Bruner & O’Connor §4:35
Dispute Resolution• Type of supporting information to be provided:
• additional time: include estimate of cost and duration of delay• for continuing delay, only one notice required. 15.1.5
• weather: document by written data showing abnormal weather could not be anticipated, with adverse effect. 15.1.5.2
• injury or property damage: enough documentation to enable adequate investigation of claim. (1997) 4.3.8
Dispute Resolution• Generally, adequacy of notice is jury question turning upon contract terms.
• See Bruner & O’Connor §5.106• Compare: Port Chester Elec. Const. Corp. v. HBE Corp., 782 F. Supp. 837,
841‐42 (S.D.N.Y. 1991)• contract only required written notice of claim• plaintiff subcontractor satisfied requirement by sending letter alerting general that
revised schedule was inconsistent with contract and “will result in very obvious unanticipated costs [listing several]”
• Court: Whether or not sub called his letter a “notice of claim,” it served that function to general• General’s response to letter accused sub of setting groundwork for “future
fabricated delay claims”
3/21/2017
5
Dispute Resolution• with:
• County Commissioners of Caroline County v. J. Roland Dashiell & Sons, Inc., 747 A.2d 600, 603‐05 (Ct. App. Md. 1999)• letters did not satisfy claim notice required by contract where:
• letters indicated future intent to prepare and submit claim• did not state present demand for adjustment• did not provide documentation required by contract
Dispute Resolution• Notice timing:
• 21 days from occurrence giving rise to claim • or from first recognition of condition giving rise to claim, whichever later
15.1.2/4.3.4• claim for additional cost:
• written notice of intent to make claim must be given before proceeding to execute work giving rise thereto. 15.1.4.
• emergency exception: endangering life or property requires no written notice prior to performance. § 10.4
Dispute Resolution• Type of notice depends on type of claim:
• increase in contract time: 21 day written notice (1997) ¶ 4.3.7.1; 15.1.5
• differing site condition: “promptly and before conditions are disturbed”• in no case later than 21‐day notice• note: no express mention of written notice. 4.3.4
• Architect/IDM to investigate, then issue decision• Parties then have 21 days to assert claim if oppose determination. 4.3.4
3/21/2017
6
Dispute Resolution• Differing site conditions (continued):
• Human remains/burial markers/archeological site/wetlands: • immediately cease work• notify owner and architect • owner must seek gov’t approval to resume construction (2007)
• Personal injury or property damage due to omission: • “reasonable time” • not more than 21 days. ¶ 4.3.8
Dispute ResolutionStages of Resolution
• Failure to agree to change order: • triggers Article 15 claim process
• 4.42/7.3; Legal Guide to AIA Documents, pp. 409‐10
• Initial Decision: • Claims between Owner and Contractor must be submitted to
IDM (architect is default) for initial determination as precondition to making arbitration demand• Art. 15.1.2; 15.3.2
Dispute Resolution• Exception:
• hazardous materials, insurance claims and emergencies • proceed directly to mediation. Sabo, §4.86, p. 526
• Contractor must proceed diligently with performance pending resolution of claim
• Owner must continue to make payments • (unless contract provides otherwise) 15.1.3
3/21/2017
7
Dispute Resolution• IDM reviews claim and within 10 days:
• IDM may request additional supporting data• parties have 10 days from request to:
• provide info• advise when will provide
• IDM does not have to wait for information• advise IDM will not furnish. 15.2.4 IDM request for additional data extends 30 day period for
decision until data received. B&O’C §4.86, p. 526
Dispute Resolution• IDM may reject or approve claim in whole or part
• decision must:• be rendered in writing• specify whether contract sum and/or time are being modified, and
reasoning. B&O’C§4.86, p. 528.• prevailing party may, within 30 days of decision, demand other party invoke mediation within 60 days of decision under penalty of forfeiture. 15.2.6.1 (new 2007)
• otherwise other party may file for mediation of initial decision at any time. 15.2.6
Dispute Resolution• IDM may suggest compromise; or • IDM may advise that IDM is unable to evaluate:
• on merits • or because inappropriate task for IDM. 15.2.2.
• IDM may consult experts. 15.2.3
3/21/2017
8
Dispute Resolution• IDM renders initial decision
• within 30 calendar days of claim referral to IDM • If not, party can bypass IDM and proceed to mediation. 15.2.
• mandatory mediation as intermediary step under AAA construction industry mediation rules (1997)
• IDM initial determination or failure to render decision triggers right to mediation and arbitration demand. 15.2.1
Dispute Resolution• mediation demand
• must be in writing• delivered to other party and • filed with mediation administrator. 15.3.2
• mediation may be filed concurrently with demand for binding dispute resolution• mediation must come first• stays binding dispute resolution 60 days or longer if parties so agree.
15.3.2; 8.3.1.1• Parties split mediator’s fee. 15.3.3; 8.2.3
Dispute Resolution• Arbitration
• parties may select own arbitrator (new 2007); 15.4.1• 1997 required AAA administer arbitration proceedings per AAA Construction Industry Arbitration Rules • (still default)
3/21/2017
9
Dispute Resolution• Check box system
• parties may check box to select dispute resolution process (new 2007); 8.2.4• arbitration• litigation
• if no box checked, litigation is default selection• parties may post‐hoc agree to adjust this
• other
Premature Litigation
Premature Litigation
• Aggrieved party bypasses AIA dispute resolution procedure• Files lawsuit
• breach of contract• foreclosure of mechanic’s lien
Q: As Defendant, what do you do?
3/21/2017
10
Premature Litigation• Because parties may post‐hoc waive IDR procedure,
objection to jurisdiction is Defendant’s to raise• Contractual forum selection• Court will not decline jurisdiction sua sponte
Premature Litigation• Remedy
• Move to Dismiss or Stay• Dismissal for breach of contract claims and arbitration election,
but not for lien foreclosure action?• Iowa Code Section 572.27 (2 years to foreclose)
• DiGiorgio v. Guedes, 2014 WL 6765413 (Conn. Super. Ct. Oct. 23, 2014) (upholding IDM/project architect’s final decision regarding contract dispute pursuant to A101−2007 and A201−2007).
• Kane Builders S & D, Inc. v. Maryland CVS Pharmacy, LLC, No. CIV.A. DKC 12‐3775, 2013 WL 2948381, at *3−4 (D. Md. June 13, 2013) (staying and compelling mediation pursuant to A201−2007 after contractor filed suit to foreclose mechanic’s lien without first submitting claim to mediation).
Dispute Resolution• Joinder
• architect and/or other parties may be joined in arbitration • (new 2007) 8.3.4.3; 15.4.4.2‐.3• “if presence required for complete relief” • involving “common question of fact or law”
3/21/2017
11
Dispute Resolution: Limitations• Owner’s claim period
• applicable state law on statute of limitations • discovery rule applies
• “knew or should have known” of claim• 10 year statute of repose
• from substantial completion• new 2007; 8.1.1
Dispute Resolution• Accord and satisfaction
• final payment so designated• disputed sum (possibly even of undisputed sum)• received by other party • may constitute accord and satisfaction under common law rules
• = waiver of recipients’ claims • other party cannot avoid by unilaterally annotating check “with
reservations” or “under protest” and then cashing • 9.10.4, 9.10.5
AIA Dispute Resolution: Take Aways• Know your clients’ contracts
• Advise your clients to negotiate or at least understand docs before execution
• Train clients to understand processes• Get involved early as legal counsel
3/21/2017
12
AIA Dispute Resolution: Take AwaysGet Horse Before the Cart
