5 Things to Know about AIA’s New Home Builder Agreements

By Susan Van Bell, Esq. AIA Documents Committee Consultant

The AIA has published two new agreements for use by home builders: A111™–2021, Standard Form of Agreement Between Owner and Home Builder for Construction of a Single Family Home, and A112™–2021, Standard Form of Agreement Between Owner and Home Builder for Design and Construction of a Single Family Home. These are the first documents published by the AIA that were specifically developed for use between home builders and residential homeowners. The documents provide the essential terms and conditions that define the roles of the home builder and the owner and can assist the home builder with educating the client and setting expectations about the course of the project. The documents are also structured to effectively manage risk.

When to use the new Home Builder documents

The A111–2021 is intended to be used for a single family residential project when the owner engages a home builder to perform only the construction. A111 assumes that the drawings, specifications, and any other documents necessary for construction of the project, are procured and provided by either the owner or the home builder. A111 does not include design phases or construction administration services provided by a third-party architect. A111 is a streamlined document developed to meet the needs of residential owners and home builders for a relatively straightforward home construction project.  A111 is not intended to be used for remodeling or renovation projects.

The A112–2021 is intended to be used for a single family residential project when the owner hires a home builder to provide both design services and construction. A112 contains a design development process in which the owner provides criteria that the home builder uses to develop a preliminary design. After the owner approves the preliminary design, the home builder provides a proposal that includes the information requested in Exhibit A, the Construction Phase Amendment, such as a listing of the drawings and specifications, contract sum and time, allowances, and owner selections. When the owner and home builder have agreed on the proposal, they execute the construction phase amendment to commence the construction phase work.

How is Preconstruction Compensation handled?

Compensation for the preconstruction phase work is provided in a separate fill point in the agreement. This allows home builders flexibility to structure the payment for the design development that is separate from payment for the construction process. It also allows the home builder to be paid for the design process if the construction does not go forward. Payment for the construction phase is assumed to be a fixed price, but the documents also contain a fill point that allows the home builder to provide another method for determining the construction compensation.

What are the Terms and Conditions?

The general terms and conditions of A111 and A112 are basically the same. Both documents contain fill points to provide the dates of commencement of construction and substantial completion. The parties agree on a payment schedule based upon completion of construction milestones. However, the documents also contain an alternative section that addresses the situation where payments are to be made in accordance with a schedule established by a construction lender. In addition, prior to commencement of construction, the home builder may request the owner to provide reasonable evidence that the owner has made financial arrangements to fulfill the owner’s obligations under the Contract and that any applicable contingencies for funding have been satisfied. The Home Builder does not have to commence the Work until the owner complies with the request. If the work is delayed, the contract time will be extended.

Addressing Contractual and Licensing requirements

The contractual and licensing requirements for construction of a single family home may vary in different jurisdictions. A111 and A112 contain fill points to prompt the parties to consider whether there are jurisdictional requirements, such as consumer protection notices, warranty requirements, mechanic’s lien notification requirements, and other jurisdiction-specific or statutory requirements that the home builder must comply with.  Both documents also contain provisions requiring the owner to provide information that is specific to residential projects, such as information about property or site covenants, conditions, and restrictions, and Homeowners’ Association requirements.

Insurance, Termination and Dispute Resolution provisions

The documents contain provisions requiring standard insurance coverages. The home builder’s required coverages are commercial general liability, automobile liability, workers’ compensation, employers’ liability, and builder’s risk insurance. There is also a fill point for other insurance that the home builder may be required to have. The owner must have property insurance and liability insurance.

Termination provisions address termination for cause and termination for the owner’s convenience. There is a process by which the home builder may terminate the contract for non-payment. In that situation, the owner is required to pay the home builder for work executed and costs incurred due to the termination. The documents provide a list of situations in which the owner may terminate for cause, and there is a process for completion of the project and payment to the home builder. The owner may also terminate for convenience, in which case the home builder is compensated for executed work and costs incurred. The documents also contain a fill pint for a termination fee that the parties may agree upon prior to execution of the agreement. Use of this termination fee provision may help to deter an owner from terminating for convenience and, if that should happen, provide the home builder with the extra compensation of the termination fee.

The documents address dispute resolution by use of a check box provision where the parties may select arbitration, litigation, or fill in some other method for binding dispute resolution. Arbitration is administered by the American Arbitration Association (AAA), in accordance with the AAA Home Construction Arbitration Rules and Mediation Procedures. Disputes that exceed the limitations on the use of those rules, such as claims exceeding one million dollars or involving joinder of other parties, are administered under the AAA Construction Industry Arbitration Rules.

Other important issues that are addressed in the documents include retaining consultants and other contractors, owner material selections, warranties, owner rejection of work, changes in the work, correction of work, and project completion.

In residential construction, the client relationship is especially important. Clients are, after all, emotionally involved with construction of their new homes. These new documents provide all of the important contract provisions that the home builder and home owner need to manage expectations and achieve a successful completion of a single family residential project.

Learn more

Key Legal Considerations for Home Builders  Watch on-demand >

Complete Guide to Preparing Home Builder Agreements  Watch on-demand >