New AIA Insurance and Bond Exhibit: Owner Financing, Subcontractor Liens, Termination Fees, Notice of Claims

Description

The most notable change in the 2017 AIA documents was the release of a new Insurance and Bonds Exhibit, used in conjunction with multiple Owner-Architect agreements, including the AIA A101-2017 Standard Form of Agreement Between Owner and Architect.

The exhibit places two new obligations on the owner. First, unless the parties agree otherwise, the owner must maintain the builder's risk insurance until the completion and warranty period of the work. The prior terms only required the owner to maintain the insurance until final payment is made. If the work involves remodeling an existing structure, the owner must purchase and maintain "all-risk" property insurance on a replacement cost basis, protecting the existing structure.

A significant feature of the new exhibit is the inclusion of a la carte optional insurance coverages. Parties may require the owner or contractor to purchase specific insurance simply by placing an "x" next to the desired coverage and, where applicable, specifying the coverage limits. Although loss of use, business interruption, and delay in completion insurance are optional, owners should strongly consider purchasing such insurance.

The exhibit expands certain contractor obligations related to purchasing commercial general liability insurance. These expanded obligations increase the burdens on the contractor in maintaining a CGL policy. However, a prudent contractor should take measures to lessen those burdens during negotiations with the owner.

The contractor may assume the obligation of purchasing builder's risk insurance that would otherwise be required of the owner. By including this option, the AIA recognizes that while their prior contract documents obligated the owner to purchase builder's risk, in practice, owners often shifted that obligation to the contractor. As should be expected, the exhibit does not require the contractor to provide surety bonds on the project. Instead, it gives the parties an option to require bonds (whether payment, performance, or both) and specify the applicable penal sum.

Listen as our authoritative panel discusses the Insurance and Bonds exhibit in the AIA's attempt to provide a flexible tool to aid the owner and contractor in exploring and negotiating insurance and bond requirements. The panel will address the changes to the prior version of the AIA and best practices in modifying these terms for various stakeholders.