Getting Architects Paid and Reducing Risk on Problem Projects

By: Robert B. Zelms and Paul O. Mittelstadt, Zelms Erlich & Mack

The relationship between a property owner, their chosen architect, and a general contractor is, at its best, a model of cooperation and single-minded progress towards a common goal. Often, however, these relationships become fraught with infighting and blame shifting when a construction project runs off course because of delays, defects, or abandonment. When an owner and a contractor butt heads, it is likely that the architect will be caught in the middle due to the requirements of the architect's contract with the owner.

Construction delays and costs overruns are rampant due to labor shortages, volatile materials costs, and supply chain delays brought on by the COVID pandemic. Our firm is seeing increasing litigation and arbitration between owners and contractors when buildings are not completed on time, are completed with substandard materials, or simply cannot be completed by the chosen general contractor because the contractor cannot source trades or employees for an amount that will allow the contractor to make any money on the project. Of course, contractors are not likely to follow through with the construction of the project without complaint if that means they will take a loss. Contractors will often try to create controversy in order to claim that the delays are the result of design defects and owner caused delays in order to justify radical and expensive change orders as a means to increase their margin on the project. This façade will include a hugely above-normal number of requests for information from the architect, change orders submitted for repair of non-conforming work, feigned ignorance as to how to read drawings, and constant expressions of outrage and foot-stamping to distract from the fact that the contractor cannot or will not be able to complete the project correctly and on time.

When this scenario plays out, the architect is often forced by the terms of his or her contract with the owner to expend hundreds of hours dealing with unwarranted requests for information, proposed change orders, and disingenuous pay applications. It is imperative that the architect negotiate proper contract terms to ensure that he or she is compensated for the unusual amount of time the architect will spend dealing with a problem contractor on a problem project.

Most architects wisely use American Institute of Architects form contracts. They can select from the standard and conventional B101™-2017 form which includes scope of services, the B102™-2017 which appends the scope of services as an attachment using various other AIA forms, B103™-2017 which is designed for use on complex projects, B104™-2017 which is the abbreviated form (formerly called a "project of limited scope"), and B105™-2017 which is a short-form agreement. Each of these contracts is well thought out and, if the right form is selected based on the scope of the project, they are an excellent starting point. To avoid obligating themselves to continually parry attacks from the contractor regarding the design documents for no compensation, architects should pay careful attention to the scope and compensation portions of each of these agreements to ensure that the owner will be responsible for compensating the architect for his or her time.

The AIA forms lay out the architect's "basic services" including design development, construction documents, procurement, bidding, construction, evaluation, pay application, submittals, changes, etc. The forms then move on to "supplemental and additional services" which are not part of the basic services and are not part of the base compensation to the architect. Generally, if the architect performs work that is not listed in the basic services and not added as a supplemental or additional service, the owner will not be obligated to compensate the architect for that work.

In the context of the problem contractor on a problem project, the basic services that are often included in the architect's scope can become extremely onerous. The basic services often include the responsibility to respond to requests for information and proposed change orders on a short timescale, evaluate the work and handle any objections from the contractor, and be the initial decisionmaker in disputes between the owner and the contractor (which we have seen become a many-times-a-day process). If the project has been significantly delayed (which is often the case when these types of conflicts arise) an architect may find themselves several years down the road from the execution of their agreement with the owner and still dealing with multiple issues per day initiated by the contractor. Under the typical terms of the AIA contracts we generally see, all of this work is part of the "basic services" and not subject to any additional compensation from the owner. The architect becomes stuck in a seemingly-never- ending loop of conflict and excuses for no pay. There is, however, a way around this.

The AIA forms also allow for compensation to the architect for "additional services" which generally include excessive requests from the contractor, requests that are disingenuous (i.e., requests for information that the contractor could easily have figured out for him or herself), and, often, any work performed beyond a specific date. The catch here is that the architect needs to be keeping track of his or her time and promptly reporting these additional services to the owner for approval and payment. If too much time elapses between the work and the submission or if the architect has no ready way to identify how much time was expended, it is very possible that the architect will be leaving money on the table or, worse, working for free.

Another benefit of keeping the owner well-apprised of the architect's additional services and the charge for them is that it tends to keep the conflict between the owner and the contractor at a distance from the architect. When owners can lean on the architect for no additional compensation, they tend to do just that. When the owner realizes that he or she will be paying potentially hundreds of dollars per hour to force the architect to repeatedly intervene with the contractor, it is amazing to see how well the owner deals with these issues on their own. This has the added effect of keeping the focus in any resulting litigation or arbitration off the architect and on the owner and the contractor where it belongs, keeping the architect's risk and insurance premiums as low as possible.

About the Authors

Robert B. Zelms is a Founding Partner of Zelms Erlich & Mack and Paul O. Mittelstadt is a Partner heading the Firm's Design Professional Practice in Arizona. They can be reached at [email protected], [email protected], or at 480-608-2114.