Construction Law

Finality in the Initial Decision under the 2007 A201

By Werner Sabo

One of the new provisions of the 2007 AIA Documents is the establishment of an Initial Decision Maker. See Section 15.2 of AIA Document A201. In the past, this role was fulfilled by the architect, but there were often problems with this setup. Many contractors, justifiably or not, believed this to be a conflict of interest for the architect. This new provision, if implemented by the parties (the owner and contractor), calls for a third-party neutral to be named in advance and to make preliminary decisions concerning disputes between the owner and contractor. If no one is named, then the architect undertakes this role by default.

Buried within the various paragraphs that discuss how this will work, is an opportunity for owners to limit future litigation if done properly. Here is the relevant paragraph:

§ 15.2.6.1 Either party may, within 30 days from the date of an initial decision, demand in writing that the other party file for mediation within 60 days of the initial decision. If such a demand is made and the party receiving the demand fails to file for mediation within the time required, then both parties waive their rights to mediate or pursue binding dispute resolution proceedings with respect to the initial decision.

What this contemplates is that an initial decision will be made by the Initial Decision Maker (either the architect or a third party) concerning a dispute between the owner and contractor. Most of these disputes will likely revolve around changes or extras to the contract. Often, the contractor will make a claim for additional money that will be the subject of such an initial decision. Once that initial decision is made, under most circumstances, nothing else will happen until the conclusion of the project, when the unhappy party (most likely the contractor) will aggregate all of these decisions and begin the final claims process consisting of mediation first, followed by either arbitration, if selected, or litigation (the default). The more of these unsuccessful claims there are, the more likely it is that the contractor will pursue litigation to obtain relief after the conclusion of the project.

However, if the owner is aware of Section 15.2.6.1, he can, effectively, cut off such future litigation by making a 30 day demand. Under this procedure, within 30 days of the date of an initial decision, the party in whose favor the decision is made can file a written demand with the other party to commence mediation within 60 days after the date of the initial decision. The failure to commence mediation (this would be done by filing a written demand for mediation with the American Arbitration Association) within this time period cuts off that particular claim and waives it for all future purposes.

Of course, this theoretically works the other way, with a decision in favor of the contractor by the Initial Decision Maker, followed by a 30 day written demand by the contractor served on the owner to commence mediation. If the owner fails to commence mediation within 60 days, the initial decision is final and, presumably, a change order to reflect that would be processed by the architect. In most cases, it can be assumed, this will not work in favor of the contractor, since most claims are by the contractor against the owner, not the other way around.

The parties, and their attorneys, should be aware of this powerful tool. While this is similar to Section 4.4.6 of the 1997 version of A201, this does not require any special language in the initial decision itself. The burden is on the parties to invoke this for their own benefit.

Full post as published by Construction Attorney Blog on November 09, 2007 (boomark / email).