By Joseph M. Leone, Esq.
The ConsensusDocs family of standard form construction contract documents are developed through the involvement of 40 different construction trade associations representing all aspects of the construction market, including owners, Constructors, subcontractors, and design professionals. As a result, ConsensusDocs advocates that its standard form documents more fairly represent all participants in the
design and construction process.
Last month ConsensusDocs issued a revised version of its Standard Agreement and General Conditions Between Owner and Constructor. The ConsensusDocs 200 (“CD200”), as it is known, is a standard form agreement intended to be used on general construction projects and is analogous to the AIA A101/201 forms. The revised CD200 contains numerous revisions from its predecessor, however, there are a handful of major changes of which anyone using this document should be aware.
The section where the most significant changes were made is Article 10, Insurance, specifically, terms elated to builder’s risk insurance. Traditionally, construction contracts required the Owner to provide builder’s risk insurance covering the partially completed work as well as property insurance covering existing structures, if any. However, since builder’s risk insurance, is, essentially, for the benefit of the Constructor, ConsensusDocs felt that the Constructor was in a better position to determine the type and extent of coverage best suited for a given project. Therefore, the new CD200 requires the Constructor, as opposed to the Owner, to procure the builder’s risk insurance covering the partially completed work as well as any existing structures. Interestingly, a new provision was added to this section which requires the builder’s risk policy to cover physical loss resulting from terrorism. Typically, in order to obtain this coverage, a separate terrorism rider will have to be purchased.
The party responsible to pay the deductible on the builder’s risk policy has also been changed. In the previous edition of the CD200, the Owner was responsible for payment of any deductible on the builder’s risk policy. The theory was that the Owner procured the policy and, therefore, controlled the amount of the deductible. In the new version, with the Constructor procuring the builder’s risk policy, the deductible is now the responsibility of the entity who is the primary cause of the builder’s risk claim. If neither entity is the primary cause, such as in a weather event, then the Constructor will be responsible for payment of the deductible, provided it provided the policy. The practical reality is that the Constructor will now almost always be responsible to pay the deductible. This incentivizes the Constructor to procure a policy with as small a deducible as possible. The larger premium for the lower deductible policy will, presumably, be passed through to the Owner. Likely, most projects will involve a negotiation between the Owner and Constructor regarding the precise policy terms which provide the greatest benefit for both parties.
Also, in Article 10, the indemnification provision, Section 10.1, underwent a slight modification. In the previous version of the CD200, the Constructor was obligated to indemnify the Owner for damages caused by the Constructor’s negligence. That provision was expanded to include an indemnification obligation for the Constructor’s intentionally wrongful acts as well.
The termination provisions underwent a fairly significant modification. In the new CD200, if the Owner terminates the contract, the Owner may only use the materials on-site if the Constructor has been paid for such materials. Also, the Owner must now obtain written permission from the Constructor to use the Constructor’s tools and equipment after termination. Prior to these changes, and typical in most contracts, the Owner was entitled to take over the materials, tools, and equipment on-site after terminating the contract. In addition, the conversion clause has been removed from the termination for cause section. The conversion clause deemed any wrongful termination by the Owner to be converted to a termination for convenience if it was later determined that the Owner did not have the right to terminate the contract for cause. In the new version, the Owner will be liable for wrongful termination damages, which can be much greater than the Owner’s liability to the Constructor in a termination for convenience. Finally, under the termination for convenience provisions, the Constructor is now entitled to receive reasonable attorney’s fees and costs it incurs as a result of a termination for convenience.
The payment process has been revised in the new CD200 to eliminate certification of the Constructor’s payment application by the design professional. Formerly, the Constructor submitted its payment applications to the design professional who certified the amount of payment due to the Constructor. In the new version, the Constructor will submit its payment applications to the Owner who must accept or
reject, partially or in whole, Constructor’s payment application within 7 days of its receipt. The Owner must then pay the Constructor the accepted amount within 20 days of such acceptance.
Finally, the new CD200 clarifies the Constructor’s obligation for scheduling the work by requiring the Constructor to provide a detailed precedence style critical path method schedule which graphically represents all planned activities. The Constructor must also identify the total float value for each activity and each date that is critical to completion of the project on time. Traditionally, standard form agreements have left the specific details of the type of schedule and the scheduling process up to the parties to agree upon prior to commencement of the work. This change represents a more proactive approach to the scheduling process. With the continued proliferation of scheduling technology, these more sophisticated scheduling techniques should be accessible to nearly every Constructor for projects large and small.
The revisions identified above have all been incorporated into ConsensusDocs 240, Agreement Between Owner and Design Professional, and ConsensusDocs 750, Agreement Between Constructor and Subcontractor, as well. As one can see, some of the revisions are intended to benefit the Owner, some the Constructor, and some are neutral. However, with these revisions, ConsensusDocs continues to enhance its reputation as a publisher of balanced standard form agreements.
Joe Leone is a partner in the Indianapolis construction law firm Drewry Simmons Vornehm, LLP and is a member of the Associated General Contractors of America Contract Drafting Forum through which he has been part of numerous ConsensusDocs contract drafting working committees.
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Used with permission.
PDI is an Indianapolis-based wholesale brokerage firm with a national network that includes thousands of insurance agents, brokers, architects, engineers and contractors in all 50 states. Since PDI’s beginning in 1980, we’ve handled a single line of coverage: errors & omissions (E&O) for design professionals. Contact Us today for a review of your design client's insurance program.