“Creation of the Initial Decision Maker (IDM) position is one of the most significant changes made in A201–2007. This change was make in response to several contractor concerns. Historically, contractors have viewed the architect as biased because the architect was both selected and paid by the owner. Many also believe the architect could not be impartial in response to allegations of negligent design or failure to timely respond to requests made during the construction phase. The architect would likely be reluctant to render an initial decision blaming himself, both for psychological reasons and in the event of future legal disputes with the owner.”1
20.1 Adjudication is generally understood as a mechanism which allows the parties to a contract to resolve their dispute quickly, including the exchange of money, whilst avoiding costly delays to the ongoing projects. The process is usually administered by a neutral third party, often mutually chosen by the parties, in order to resolve any disputes whilst the works are ongoing. However, adjudication, as known in the United Kingdom, does not exist in the United States,2 at least, not in the form of statutory adjudication, which was originally introduced into the UK by the Housing Grants, Construction and Regeneration Act of 1996.
20.2 Whilst, in the United Kingdom, a statutory right to adjudication is impliedly guaranteed for any construction contract, after 1 May 1998, such a legislative system has not yet made it across the Atlantic. The closest arrangement, which resembles the British type of adjudication, is contractual in nature and often includes the use of dispute review boards (DRBs).3 This form of alternative dispute resolution (ADR) is, however, often prone to delays, undesired by either party, where the dispute board process is sluggish, or board members indecisive.
20.3 As observed by Jaffe and McHugh, the most frequent steps that lead to construction disputes conflicts in the United States are the following:
- The contractor notifies the owner of a contract-related issue subsequent to starting work; this may involve any type of issue, ranging from uncertainties in design to the timely supply of sufficient material, with potential effects for the overall programme, or cost, of the project;
- After having received the contractor’s notice, the owner serves upon the contractor change instructions,4 or similar on how to proceed;
- On receipt of those instructions, the contractor proceeds either by implementing such instructions or by requesting additional information;
- In the event that those instructions alter the scope of the contract, the contractor generally informs the owner of the change in scope, as well as requesting additional remuneration and (potentially) an extension to the contractual due date.
20.4 More often than not, it is the owner’s rejection of the contractor’s request for an extension of the latter contractual parameters (ie time and compensation) that triggers a dispute. The dispute resolution process that follows (generally arbitration) is adversarial in nature and normally takes place after a substantial part of the performance has already been finished.5 By contrast to the detailed adjudication process in England and Wales,6 arbitration proceedings are seldom subject to precise time restrictions and can therefore drag on for months, in particular where a complex contract requires, inter alia, multiple hearings, the exchange of expert reports and the reconstruction of events.
20.5 Since the current ADR system in the United States is a contractual one, certain standard contract forms have emerged over the years that include a provision, allowing for quasi-adjudication, similar to that found in the England and Wales.7 The contract form, which is most widely used in the construction industry for this purpose, is A201–20078 by the American Institute of Architects (the AIA) or “the General Conditions of the Contract for Construction”. Since its last revision in 2007, this standard form not only provides for mediation and arbitration, but also introduces the so-called Initial Decision Maker (the IDM), who, in their work, comes close to the English adjudicator.
20.6 The AIA is, in its own words, “a professional membership association for licensed architects, emerging professionals, and allied partners”.9 Founded in 1857, the AIA started to draft contractual documents not long afterwards, with its first national building contract being published in 1871;10 the first Uniform Contract (an early version of its modern standard form) followed in 1888.
20.7 During the 120 years between the first standard contract in 1888 and the publication of its current contractual documents, the AIA remained true to its original approach, granting the architect decision-making authority over any disputes arising in relation to the contract.11 This meant that, whatever the circumstances, only the architect was entitled to determine additional payment claims for a change of scope, or in case of delay. Their decision could then, subsequently, be referred to mediation, arbitration, or civil litigation. This practice has significantly changed with the AIA’s most recent revision of its general conditions for construction projects, which will be discussed further below.
20.8 At the time of writing, the AIA is one of the most influential building associations in the United States. It comprises approximately 300 component organisations (known as chapters), including, at least one in each US state, one in the District of Columbia, as well as a variety in several locations all over the globe.12 Overall, the Institute offers its members a platform for networking and obtaining up-to-date information about market practices.13 However, its most prominent activity is arguably the creation of standard contracts, that are revised every ten years in order to reflect and keep pace with current practices in the construction industry.14
20.9 Main changes: A201–2007, the General Conditions of the Contract for Construction, belongs to one of the oldest branches of contractual documents drafted by the AIA, dating back to 1911.15 As with all of the AIA’s publications, A201 is revised on a ten-year basis, taking into account feedback by its members and industry representatives.16
20.10 In particular, the 2007 revision included two major adaptations by comparison with the AIA’s 1997 (and, in fact, any of its previous) editions:
- The introduction of the Initial Decision Maker (the IDM), as a new and neutral dispute resolver in the event of any conflict; and
- The elimination of arbitration as the mandatory and default form of dispute resolution.
20.11 Traditionally, the architect was the main party in charge of all dispute-related decisions under the AIA’s standard forms of contract.17 Their decision represented a mandatory pre-condition, before either party to the contract could file for mediation or arbitration.18 Even up until the 1997 version of A201, the termination of the contractor had to be certified by the architect to be valid.19 With A201–2007, most of the architect’s former powers have been transferred to the newly-created IDM. The rationale behind this move stemmed from the ever-growing feeling amongst industry contractors and associations that the architect could not truly be regarded as an impartial third party in the event of a dispute.20
20.12 In particular, it was perceived that the architect, as the paid agent of the owner, would be biased in favour of the latter in their judgment and would be unlikely to give an impartial decision when having to judge possible flaws in their own design plans. Next to this perceived bias, however, there might have been another factor, rooted in the development of society in the 21st century, which has led to the decline in the influence of the architect. As Carl M Sapers (a distinguished lawyer based in Boston) has phrased it, one essential reason for the AIA’s move:
“has been the change in the way that professionals now fit into American society. At least until the end of World War II, doctors, lawyers, and architects, as members of the ‘learned Professions’, operated with broad independence and with the broad respect of the community. In general, they were perceived as pursuing professional interests rather than personal enrichment. That independence, applied to the construction industry, gave the architect the special standing to resolve in a fashion which both sides accepted as disinterested.”
20.13 In today’s North American society, the general view vis-à-vis the “learned professions” has shifted and the previous special standing no longer exists, or, at least, not to the degree it formerly used to. As a consequence, the foundation upon which the architect’s authority used to rest in the past, has steadily crumbled away.
20.14 Accordingly, the AIA introduced the option of a neutral third party to be mutually elected by the parties to the contract in the event of any dispute. The IDM is chosen by the owner and the contractor in the Owner-Contractor Agreement (A101–2007): see section 15.2.1 of A201–2007. If no candidate is there specified, the architect will automatically take the rôle of the IDM by default. In order to guarantee impartiality in the decision-making process, the parties should obviously ensure that a person of their mutual choice is appointed IDM.
20.15 Under A201–2007, a claim is defined as “a demand or assertion by one of the parties seeking, as a matter of right, payment of money, or other relief with respect to the terms of the contract”: see section 15.1.1 thereof. Furthermore, the document lists two principal requirements, which need to be fulfilled in order to file a claim for an initial decision.
20.16 First, the standard procedure of application requires that the party initiating the claim (the claimant, often the contractor), must do so by serving a written notice, both upon the other party and upon the IDM, as well as by sending a copy to the architect, should the latter not be acting as IDM: see section 15.1.2 of A201–2007. Notwithstanding this condition, the claimant need not include all the information regarding their claim in the initial notice.21
20.17 The second requirement under A201–2007 is that claims must be brought within 21 days after either:
- The event that led the claimant to initiate the claim, or
- The date upon which the claimant encounters the condition that results in their claim (whichever is the later): see section 15.1.2 thereof.
20.18 Although straightforward with respect to conventional dispute situations, this process is slightly more problematic in the context of unknown and concealed conditions: see section 3.7.4 of A201–2007. In such cases, the contractor is required to inform the owner and the architect of the condition, after which it is the architect’s responsibility to investigate the nature of the condition and to determine whether or not it is likely to have a material impact upon the contractor’s ability to perform their obligations. As also observed by others,22 this procedure, outlined in section 15.2.1 of the General Conditions, provides no guidance as to what the starting days for the 21-day period would be in such a scenario. Without further clarification, two dates are equally likely, namely, either:
- The date upon which the contractor encounters the condition; or
- The later date upon which the architect renders their decision.
20.19 The contracting parties should therefore ensure, when drafting their agreement upon the basis of A201, that they specify which of these two dates is to constitute the starting point in the event of an unknown or concealed condition, since, otherwise, the ambiguity thereby created might lead to further unnecessary conflict.
20.20 Once a claim is made and pending the IDM’s decision, the contractor must proceed with the performance of their work, whilst the owner is obliged to continue payment of the contractual sums: see section 15.1.3 of A201–2007. There are only three exceptions to this approach of continuing performance:
- Where the parties have expressly agreed to this in the contract;
- Where the owner has omitted to pay, or where the architect has failed to issue a certificate of payment, the contractor may “upon seven additional days’ written notice to the owner and the architect” suspend their work: see section 9.7 thereof; or
- Where a termination, or suspension, of the contract (within the meaning defined at section 14 of the General Conditions) has occurred.
20.21 A201–2007 further provides for claims related to additional costs23 (ie an increase in the contractual sums) and additional time.24 Both types of claim require the contractor to serve a written notice upon the owner before continuing to perform their contractual obligations. Moreover, with respect to a claim for additional time, the contractor also needs to include an estimate of the expected additional costs and the likely effect that the delay will have upon the progress of the project, ie the critical path: see section 22.214.171.124 thereof.
20.22 Notwithstanding all other types of claims, claims for consequential damages are expressly excluded by way of mutual waiver under any basic contract concluded on the basis of A201–2007, as set out under section 15.1.6 thereof. That is, of course, unless the parties decide to vary, or omit, this particular provision of this section in their own agreement.
20.23 Whilst (in the previous version of A201) all decision-making powers were vested in the architect, the creation of the third-party IDM has led to a separation of jurisdictions, with some matters reserved to the IDM, whilst others are retained by the architect.
20.24 Under A201–2007, the IDM is authorised to terminate25 the contract and to determine all disputes which arise during the period of contractual performance, save for a selected few. These exceptions include claims relating to:
- Hazardous materials: see section 10.3 of A201–2007;
- Emergencies affecting the safety of persons and property: see section10.4 thereof; and
- The owner’s property insurance: see sections 11.3.9 and 11.3.10 thereof.
- Disputes which emerge between the parties to the contract, not between a party to the contract and a third party; this therefore excludes disputes that may arise between the owner, or contractor, and the architect (eg for a deficiency in the latter’s design plans), or between the contractor and a sub-contractor; and
- Claims that arise prior the date of final payment after such date, the parties can go directly to mediation, or binding dispute resolution:26 see section 15.2.1 of the General Conditions.
20.26 However, any jurisdiction over operational decisions, which relate to the performance of the contract, are not within the IDM’s scope of authority, but remain within the architect’s ambit of determination:27 see section 4.2.14 of A201–2007. This includes any interpretation of the contractual documents and any information relating to these. Accordingly, a situation may arise in which the IDM’s decision is in conflict with the architect’s prior determination. The AIA provides no guidance upon how the architect and the IDM should proceed in this case, whether the IDM can continue with their task, without taking the architect’s view into account, or whether there should be a co-ordination of their responsibilities.
20.27 Indeed, this type of overlapping powers has the potential to bring back bias through the backdoor, since the whole point of the A201–2007 revision was to eliminate the architect’s influence in the dispute resolution process. It is suggested that it would therefore be contrary to the objective of the AIA’s new procedure to bind the IDM to the architect’s earlier decision. Hence, it is highly recommended to clarify this position and the relationship between the IDM and the architect in the individual contract so as to avoid conflict at a later point.