There’s nothing like a near economic meltdown to make you rethink the agreements and forms you use for your construction projects. When ConsensusDOCS launched its original suite of documents on September 28, 2007, no one could have anticipated just how much the construction industry was going to change in such a short period of time. ConsensusDOCS has responded with earlier-than-expected revisions to its library of contract documents and forms. A number of the changes impact subcontractors.

In 2007, a coalition of 20 subcontractor, general contractor, owner, surety, and other construction industry associations, including the American Subcontractors Association (ASA), published more than 70 different ConsensusDOCS documents and forms. Since then, more than a dozen other industry associations, including groups representing design professionals and the National Insulation Association, have joined the coalition. The 2011 editions of these documents, released on January 19, 2011, happened earlier than the 5 years anticipated for major revisions. The 2011 releases, which bring the ConsensusDOCS library to more than 90 documents and forms, include a revised prime agreement for design-bid-build, design-build, and CM-at-risk, as well as revised subcontracting agreements and other documents.

One of the first changes subcontractors will notice in the 2011 editions of the ConsensusDOCS documents is that the term “contractor” has been replaced with “constructor,” while “architect/engineer” has been replaced by “design professional,” and references to the “Owner-Contractor Agreement” are replaced by references to the “prime agreement.” A “time is of the essence” clause has also been added to all the documents, where it did not exist in earlier editions.

Subcontractors have reason to celebrate expanded project financing assurances in the 2011 editions. These provisions give the project team earlier warning of potential problems with project financing. The constructor must now promptly provide its subcontractor with notice of any material variation in the owner’s ability to pay. The subcontractor may still obtain information about the owner’s ability to pay for the services provided by the subcontractor, upon request. The 2011 editions also provide the project owner with the right to audit the constructor’s books.

ConsensusDOCS 750: What’s New

With the 2011 release, the ConsensusDOCS coalition continues to foster the “balanced approach” to project administration, affording more protections to subcontractors than traditional construction industry documents.

The 2011 edition of the 750 form adds a description of the “Parties’ Relationship” (2.1), which states that the parties will “proceed with the Subcontract Work on the basis of mutual trust, good faith, and fair dealing. The Parties shall endeavor to promote harmony and cooperation.” This provision furthers the ideals of the collaborative nature of the ConsensusDOCS.

One significant change may reduce disputes and the costs of dispute resolution for subcontractors. Under the 2007 edition of the 750 document, the party that did not prevail in a binding dispute resolution procedure (typically arbitration or litigation) bore most of the costs of the dispute, but did not pay all the fees of the prevailing party. Each party was responsible for its own attorney fees. In the 2011 edition, the non-prevailing party must also pay the other party’s attorney fees. This change will be helpful to subcontractors as they pursue payment claims against constructors. It may even hasten the resolution of disputes and create an incentive for disputes to be resolved earlier.

A change in the retainage provision (8.2.2) of the 750 document is also a plus for subcontractors. If the constructor’s retainage is reduced per the prime agreement and the subcontractor’s work is satisfactory, then the constructor must reduce the subcontractor’s retainage when its retainage is reduced.

The 750 document’s requirements related to review of contract documents have also improved. If subcontract work is indicated in either the drawings or specifications but not both, the subcontractor must perform the work as is “reasonably inferable” from them, as if they appeared on both documents. This change eliminates the 2007 edition’s ambiguous phrasing that the subcontractor should perform work that is inferable “as being necessary to produce the indicated results.”

Further, in the 2007 edition of the 750 document, the subcontractor was required to make a “careful analysis and comparison of the drawings, specifications, other Subcontract Documents, and information furnished by the Owner.” The 2011 edition eliminates the “careful analysis and comparison” wording and replaces it with a standard of “examine and compare.” In addition, this provision (3.3) now affirmatively states that the subcontractor does not have liability for errors, omissions, or inconsistencies. Note, however, that the liability is excused “unless the Subcontractor knowingly fails to report a recognized problem to the Constructor.”

The consequential damages provision in the revised ConsensusDOCS 750 specifically limits the damages that an owner is entitled to recover to those it recovers “against the Constructor under the prime agreement.”

Subcontractors are now provided with a second notice to cure defective work. In the 2007 edition, a constructor could proceed with remedies against a subcontractor that failed within 3 business days of notice to begin and satisfactorily progress on curing a default. In the 2011 edition, the constructor must give a second notice to the subcontractor (and surety, if any) within 2 business days of its failure to cure. However, under Section 10.1.1.1, the subcontractor is liable for the payment of any amount by which the expense to cure may exceed the unpaid balance of the subcontract. The subcontractor has the right, upon request, to obtain from the constructor a detailed accounting of the costs to finish the work.

Other changes to the 750 subcontract include:

• “Substantial completion” is defined as being reached when succeeding work is allowed to proceed, or when partial owner occupancy or use occurs. The latter triggers the commencement of the warranty period.
• The dispute resolution section clarifies that the requirement for senior executives to meet is within 5 business days of failure of the parties’ representatives to resolve a dispute, as opposed to 7 days.

Subcontractors should note that the abbreviated ConsensusDOCS 751 Short Form Agreement Between Contractor and Subcontractor includes the changes made in the 750 subcontract, where the 751 has parallel provisions.

ConsensusDOCS 200: What’s New

The ConsensusDOCS 750 document incorporates by reference the prime agreement, special conditions, general conditions, specifications, and other documents. The changes to the ConsensusDOCS 200 document may impact subcontractors when the document is used as the prime agreement.

First, the 200 general conditions more clearly define the “Contract Documents.” They require the owner to identify whether a document provided to the parties is actually considered to be a contract document. Addenda to be made part of the contract must now be “issued and acknowledged” prior to the execution of the agreement.

Approved submittals are no longer considered contract documents. Alternates, which were previously considered to be contract documents under the subcontract agreements, are no longer considered as such. Furthermore, a constructor is now required to send submittal requests to not only the owner, but also the design professional. Previously, this was required only if the constructor was directed to do so. This change facilitates a faster turnaround time for responses to submittal requests that the subcontractor has forwarded to the constructor.

Other changes to the 200 document include:

• The constructor is no longer entitled to “rely” on worksite information (4.3) provided by the owner.
• A new “Compliance with Laws” section (3.21.1) of the general conditions states: “The Constructor shall be liable to the Owner for all loss, cost, or expense attributable to any acts or omissions by its…Subcontractors.”
• The general conditions allow for change orders even with a lump-sum agreement (8.3.1.3).
• The termination provisions have been revised. If a constructor is incorrectly terminated for default, then the termination reverts to a “termination for convenience.” In such a case, the owner is not subject to claims for damages related to an improper termination, but the constructor is able to recover damages pursuant to the termination-for-convenience provision.

Proponents of the ConsensusDOCS say that the documents allow contractors and subcontractors to experience a lower project cost and that owners that use these documents are worthy business partners who value fair risk allocation. The January 2011 revisions to the ConsensusDOCS continue to foster the collaborative project ideals that should help subcontractors weather the current economic storm.

What’s New in Other Documents

Several other documents have been changed, including:

• Form 721 Subcontractor’s Statement of Qualifications for a Specific Project. The time period for which information on qualifications such as licensing, safety, and project history must be provided has been greatly reduced.
• Form 221 Constructor’s Statement of Qualifications for a Specific Project. The time period for which information must be provided has been reduced, as has the type of information that is requested.
• Form 410 Standard Design-Build Agreement and General Conditions Between Owner and Design-Builder. The changes to this document do not necessarily directly affect subcontractors, but subcontractors should be aware that this document now: (1) requires an accounting for deductions to a contingency to be provided with each payment application; (2) narrows the cost of work for which a design-builder is compensated, and gives the owner the right to audit costs; and (3) requires immediate work stoppage upon encountering of unknown site conditions.
• Form 500 Standard Agreement and General Conditions Between Owner and Construction Manager (Where the CM Is At-Risk). Similar to the changes to Form 410, this document narrows the cost of work for which an at-risk CM can be compensated; however, unlike the design-build agreement, it allows recovery for damages resulting from copyright infringement.
• Form 240 Standard Agreement Between Owner and Design Professional. The owner now plays a much more active role in the project rather than allowing the flow of information to be interrupted by requiring the design professional to be the only conduit for information. Green building design and building information modeling are included as basic services if required by the owner. Finally, this agreement provides much greater flexibility to provide documents in electronic format, which is an important part of today’s construction industry.

Along with these revisions, ConsensusDOCS released two new forms in early 2011: Form 703 Standard Purchase Agreement for Non-Commodity Goods by a Constructor and the insurance exhibit (Exhibit E) to Form 725 Standard Agreement Between Subcontractor and Subsubcontractor. The buyer and seller of special project material/equipment can use Form 703 to facilitate the purchase, coordination, and installation of the material/equipment. The insurance exhibit to Form 725 is a tool for establishing liability and other insurance options and limits for subsubcontractors.

The ConsensusDOCS Guidebook, available on the ConsensusDOCS website (www.consensusdocs.org), now includes a recommended model “incentive clause” for prime contractors to receive a designated incentive amount for early completion of a project. Subcontractors can use this new recommendation in the Guidebook to negotiate with prime contractors to include an incentive clause in the subcontract agreement, along with a liquidated damages provision, so that the subcontractors can share in the incentive award for early completion.

Integrated Project Delivery and Building Information Modeling

Integrated project delivery is becoming more prevalent in the construction industry. This approach is premised on the principles of minimizing risk and delay and eliminating waste in design and construction. As a result of the January 2011 revisions of the ConsensusDOCS, Form 300, formerly known as the Standard Form of Tri-Party Agreement for Collaborative Project Delivery, is known as the Standard Tri-Party Agreement for Integrated Project Delivery (IPD). Under this document, the owner, designer, and CM/GC are all equal parties to the agreement in order to make decisions for the best interest of the project. To facilitate consensus decisions, key trade contractors, subcontractors, and suppliers may be added to the team during early project design to provide preconstruction services and facilitate an integrated, collaborative design process. Approved contractors, subcontractors, and suppliers sign joining agreements to become members of the IPD team.

The greater flexibility to provide documents in electronic format is an integral part of the ConsensusDOCS revisions. The increased use of electronic formats encourages the use of building information modeling (BIM), a tool that is sweeping across the design and construction industries with the promise of helping projects be completed on time and on or even under budget. The ConsensusDOCS 301 Building Information Modeling Addendum addresses how BIM applies to projects and apportions the legal risks. The addendum is an amendment that modifies the principal contracts between the parties; it is not intended to stand alone.

Owners are realizing the value of BIM and are requiring designers, constructors, and subcontractors to utilize IPD methods. While subcontractors may be concerned about the costs associated with BIM, experience with and the use of BIM could become the deciding factor when awarding projects to subcontractors. Some GCs are even requiring subcontractors to include the initial software costs in their bids. Each subcontractor should determine whether the advantages of BIM will be beneficial to their businesses and outweigh the costs.

The ConsensusDOCS documents are ahead of the curve in the construction industry and will continue to improve and provide the latest and best practices and fair risk allocation. Subcontractors that understand and use these documents can promote their individual businesses and remain competitive far into the future.

Reprinted with permission from ASA’s The Contractor’s Compass.