By AIA Contract Documents
July 7, 2023
It’s tempting to want to use a short construction contract. After all, there are significant advantages that make short contracts appealing. Short contracts tend to be easier to understand, which can reduce the chances of misinterpretation or confusion. They also streamline the contract negotiation process by requiring less time for review, revision, and approval. Perhaps most importantly, short contracts come with the benefit that they don’t intimidate potential clients. Their simplicity eases the concerns of potential clients who are afraid to enter a complicated looking contract with legal terms they might not understand.
While there are advantages to a short construction contract, using one is not a decision to take lightly. Risk lurks around the corner of every abbreviated sentence and in every paragraph and page left out. In most scenarios, the risk of using an abbreviated contract cannot be outweighed by its perceived efficiencies. Here are just a few of the reason to look skeptically at the prospects of using a short contract on your next construction project.
Inadequate Coverage: Short contracts may not address all project-specific considerations comprehensively. They may lack detailed provisions for important aspects such as dispute resolution, change orders, construction change directives, payment procedures, submittals, project closeout, and unknown site conditions. This can lead to ambiguity or gaps in contractual coverage.
Increased Risk: Short construction contracts may not provide sufficient protection for both parties. Important contractual safeguards and risk mitigation measures may be omitted or insufficiently addressed, potentially exposing the parties to increased risks and disputes.
Limited Flexibility: While short contracts can offer flexibility in some cases, they may not be suitable for larger or more complex projects. These projects often require more comprehensive and detailed contracts to address the specific requirements, technicalities, and risks involved. For example, some short construction contracts (like the A105TM-2017 discussed below) only allow the contractor to be paid on a stipulated sum basis.
Difficulty in Change Management: While short contracts can offer flexibility in some cases, they may not be suitable for larger or more complex projects. These projects often require more comprehensive and detailed contracts to address change orders, construction change directives, and unknown conditions.
Luckily, AIA Contract Documents offers a variety of construction contracts that can be used for any type of project. The A201- 2017 General Conditions of the Contract for Construction is the most commonly used document in the construction industry. It is comprehensive, detailed, and well-known. And while A201 is suitable for all projects, it is particularly important to use this document on large and complex projects given the breadth of risk management, dispute resolution, and insurance provisions included in it (and in its affiliated documents). In a traditional design-bid-build project, the A201 should be paired with either the A101-2017, Standard Form of Agreement Between Owner and Contractor where the Basis of Payment is a Stipulated Sum; A102-2017, Standard Form of Agreement Between Owner and Contractor where the Basis of Payment is the Cost of the Work Plus a Fee with a Guaranteed Maximum Price; or A103- 2017, Standard Form of Agreement Between Owner and Contractor where the Basis of Payment is the Cost of the Work Plus a Fee without a Guaranteed Maximum Price. Each of these A100 series documents also comes with an Exhibit A that contains detailed provisions for insurance and bonds.
If you prefer a lighter owner/contractor agreement for a less complex project, the A104-2017, Standard Abbreviated Form of Agreement Between Owner and Contractor might be preferable. Considered an intermediate size agreement, the A104 includes both the general conditions and insurance provisions integrated into one agreement. Whereas the A201 must be paired with a A100 series document and its Exhibit A, the A104 operates all on its own. The A104 has language that deals with key topics like submittals, payment procedures, project closeout, and unknown conditions; however, these topics are covered in far less detail than in the A201 general conditions.
Lastly, the A105-2017, Standard Short Form of Agreement Between Owner and Contractor is the shortest owner/contractor agreement offered by AIA Contract Documents. At just 10 pages, this agreement touches on only the most essential terms in a construction contract. For example, A105 only allows for stipulated sum contract pricing and only has prompts for the most common insurance coverages typically held by a contractor. A105 also doesn’t account for many of the complicated scenarios that can arise during a construction project.
So, should you use a short construction contract? The answer, of course, is that it depends. If you have a small, simple project for a client with whom you have a good working relationship, then a short contract might be appropriate. However, if you have large, complex project – or even a small project where you perceive there to be unknown factors or significant risks – the best route is to opt for a more robust agreement.
AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.