AIA Contracts: The Nuances of Seemingly Clear Provisions
By Jan A. Gruen
Many architects and builders enter into standard AIA contracts for architectural services relating to the design and construction of commercial and residential housing projects. These contracts contain generic terms bearing on all aspects of the architect/builder relationship from the scope of services to be performed to dispute resolution procedures. The form contracts are a good beginning, but they are nothing more than a beginning.
Architects often prepare the contracts for signature by their client, the builder. A careful builder will review it (or have their attorney review it) and raise questions or concerns as they arise. During the course of contract negotiation, beware of a response to the effect that language of concern is "standard in the industry", "neutral" or "fair." AIA contracts should be carefully evaluated and negotiated to ensure necessary protection and consistency with other projects' contracts.
This article is the first in a series that ex- amines the pitfalls of standard AIA contracts. Without modification, they are often a trap for the unwary.
To begin, read this:
"Architect shall defend, indemnify and hold harmless builder of and from any and all claims, demands, obligations, actions, causes of action, suits, judgments, awards, fines, penalties, damages of any type (including, without limitation, bodily injury, property damage and costs to repair), costs, expenses, actual attorneys' fees, consultant fees, expert fees, losses or liability, in law or equity, of every kind and nature whatsoever, whether or not well founded (Claims) directly or indirectly arising out of or in any way connected or related to architect's work. Architect shall not be obligated to indemnify builder to the extent the claims are determined by final judgment to arise out of the sole negligence or willful misconduct of builder."
Read it again.
Does this paragraph give a builder a right to recover attorneys' fees and costs in an affirmative action against an architect for losses or damages suffered by the builder to correct design deficiencies and related defects?
Answer: No.
While the seemingly broad language quoted above appears to obligate the architect to pay both the costs to repair defects related to its work and to pay attorneys' fees and costs if a builder is sued or if it becomes necessary for the builder to file suit to secure reimbursement from the architect, it does not. The latest California cases addressing the recoverability of attorneys' fees and costs pursuant to a typical indemnity provision reject this broader interpretation and state clearly that an indemnitor is only obligated to pay the attorneys' fees and costs incurred by a builder in connection with third-party claims against the builder (Varco-Pruden, Inc. v. Hampshire Construction Co. (1975) 50 Cal.App.3rd 654; Myers Building Industries v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949).
California law further provides that if an indemnity provision is to apply to both third-party claims and affirmative claims brought by the builder against its indemnitor ("intra-party" disputes), the provision must clearly and expressly indicate the broader intent of the parties to include intra-party disputes (Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547).
Addressing indemnity in the standard AIA contract to ensure the recovery of fees and costs:
In addition to including "intra-party" language in an indemnity provision, a separate provision for attorneys' fees and costs can be included in the contract. Regardless of whether attorneys' fee language for "intra-party" disputes appears under an indemnity provision or in a separate attorneys' fees and cost provision, keep in mind that a builder may ultimately have to pay the architect's attorneys' fees and costs if the builder is not the "prevailing" party to the lawsuit (California Civil Code Section 1717). What is good for the goose is good for the gander.
This is only one example of the need to read and understand AIA contract terms. Only then can these contracts be tailored to provide adequate protection for parties before litigation commences.
June 2006 Builder Architect Edition Issue