The American Institute of Architects (AIA) creates and sells contracts used in construction projects, among other types of documents. They are widely used throughout the construction industry in the Bay Area, by many parties to a project including subcontractors. These contracts cover all aspects of the construction project, including conditions, scope of work and how the parties will be paid. The following is a brief overview of some advantages and disadvantages of AIA contracts for subcontractors.
Advantages of AIA contracts
First, AIA contracts can be customized to suit the parties needs. This means specific terms can be negotiated to meet everyone’s interests. If a company has standard language they like to use in their contracts, they can be included as an exhibit.
Second, AIA contracts are, simply put, popular. Most parties to a construction project are familiar with them, so they understand their rights and obligations behind the contract. Having the legal framework to the document already in place makes the entire contracting process easier to understand and finalize.
Third, under certain AIA contracts, a subcontractor is provided with a remedy if they are not paid. Under these contracts, subcontractors can exit the project if the general contractor fails to pay them what they are owed within a week of the time for payment stated in the contract. Because the contract provides the subcontractor with the right to walk off the job “without prejudice to any other available remedies,” subcontractors do not need to seek an alternative resolution before they exit the project.
Disadvantages of AIA contracts
First, by default certain AIA contracts require retainage, which is an amount of funds held back from the subcontractor until the construction project is completed. Retainage is usually around 5% to 10% of the contract price. For subcontractors this can be a disadvantage, as it can negatively impact their cash flow.
Second, subcontractor agreements take on the terms of the general contractor’s contract with the owner. This means that subcontractors have to review and follow multiple documents, and they have to be aware of any changes that the project owner and general contractor made through negotiations.
Third, AIA contracts give the architect certain powers by default. For example, only the architect can propose modifications to the scope of the project, rather than having these proposals brought forth through the negotiation process. In addition, by default the architect is the party responsible for determining when a claim arises during other disputes.
Learn more about construction litigation
This is only a short list of some advantages and disadvantages of AIA contracts for subcontractors. This post is for educational purposes only and does not contain legal advice. Our firm’s website on construction litigation may be a useful resource for those who want to learn more about this topic.