Following the construction industry and related legal topics in the United States.

Tuesday, February 19, 2008

ABA Forum Meets in New York to Discuss New 2007 AIA Contract Documents

On January 31, 2008, the American Bar Association Forum on the Construction Industry (the "Forum") met in New York City to discuss the new 2007 American Institute of Architects ("AIA") Contract Documents. In a widely attended program with close to 1000 attendees present to enjoy the Forum's Midwinter Meeting entitled "The 2007 AIA Documents: New Forms, New Issues, New Strategies", members of the Forum spent the day parsing and dissecting the the 2007 changes to the AIA Contract Documents published by the AIA in November, 2007.

Throughout the day, presenters outlined the changes to the new Contract Documents and even engaged in an entertaining "Point-Counter-Point" debate style presentation regarding the changes made to the A201 General Conditions. After enduring a long, but very substantive, Forum presentation, the take away for this particular attendee was, for the most part, that while the drafters of the new 2007 documents have attempted to address some of the issues that caused concern for design and construction professionals during the period between the 1997 version and the most recent 2007 version of the Contract Documents, many of the problems and vagaries present in the 1997 AIA Contract Documents will endure for at at least another ten years until the 2014 version of the Contract Documents, the next opportunity for the AIA to revise the Contract Documents.

Of all of the changes discussed at the Forum, however, the discussion surrounding the changes to the Consequential Damages provision of the A201 General Conditions struck this attendee as particularly interesting. For starters, other than its new location in Section 15.1.6 of the A201, there was really only one substantive change to this section in 2007; the deletion of the word "direct" from the phrase "liquidated direct damages" in relation to the disclaimer that the mutual waiver of consequential damages does not preclude an award of liquidated [direct] damages under the mutual waiver of consequential damages provision. What I found to be, frankly, hard to believe, was the assertion made by the presenters of this topic that in the ten (10) years from 1997 to 2007 in which the A201 has contained a mutual waiver of consequential damages (there was no such waiver in the previous 1987 version of the A201) there have only been two (2) reported cases to deal with the application of the Consequential Damages provisions contained in the A201 General Conditions. What's more, the cases themselves, Commonwealth v. Cornerstone, Case No. 046-10-101 2006 WL 2567916 (Del. Super. Aug. 31, 2006), and Congress Construction Co., Inc. v. Geer Woods, Inc., Case No. 3:05cv1665, 2005 WL 3657933 (D.Conn. Dec. 29, 2005) really didn't even address or discuss the application of consequential damages in any great detail. In light of the "hot button" status of consequential damages, it is amazing that litigants have, for the last ten years, apparently been able to largely avoid judicial review of this issue.

While the author of this blog has not endeavored to verify the dearth of case law on this subject, I thought this to be one of the most interesting points to come out of the Forum Meeting in light of the amount of time and attention this provision commands in most contract negotiations. While experience suggests that most parties usually agree to include a mutual waiver of consequential damages provision in their construction contracts, the agreement to include the waiver is typically preceded by both sides outlining the doomsday catastrophic results that will occur in the event that the mutual waiver is deleted from the contract. With apparently so few reported cases on this subject it is hard to know whether these predictions hold precedential water. One must also wonder, however, whether and to what extent there have been significant awards of consequential damages during this period that were settled in order to avoid judicial review. Unfortunately, our presenters were not tasked to answer any of these questions.

Another explanation posited in the paper published in connection with the presentation (cited below) is that the drafters of the 1997 A201 achieved their stated objective in drafting the mutual waiver provision; to provide "a clear and unambiguous statement defining consequential damages ... [which] is at once both exact and comprehensive, precise and far-reaching, distinct and inclusive." See Mark J. Heley and Shannon J. Briglia, "Lessons Learned: How 1997 Revisions to A201 Have Fared After 10 Years. Litigation Experience and negotiation tips" at 12 (ABA Forum on the Construction Industry/TIPS Fidelity & Surety Law Committee's Joint Midwinter Meeting - January 2008). While there was no consensus reached at the Forum Meeting as to the reason why so few cases have analyzed the Consequential Damages provision contained in the A201 General Conditions, at least in theory, its inclusion in Section 4.3.10 of the 1997 A201 and the very minimal changes made in new Section 15.1.6 of the 2007 A201, might suggest that some consensus has been reached among design and construction professionals and that this provision is here to stay -- of course, only time will tell. (This entry published by Culley Carson, a member of Womble Carlyle's construction law practice group.)


Anonymous transpalet said...

great post. thank

10:13 AM  

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