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IPD Contracts Draw Criticism from Lawyer

June 15, 2009

By Nadine M. Post
A version of this story appeared in Engineering News-Record

Several of the American Institute of Architects’ 2008 model contract documents for integrated project delivery are being challenged by a prominent lawyer who also is an architect and general counsel for a major A/E/C firm.

The documents under fire are all related to the creation of a limited-liability company called a single-purpose entity (SPE). Their names are: C-195, or “Standard Form Single Purpose Entity Agreement for Integrated Project Delivery”; C-196-2008, or “Standard Form of Agreement Between Single Purpose Entity and Owner for Integrated Project Delivery”; and C-197-2008, or “Standard Form of Agreement Between Single Purpose Entity and Non-Owner Member for Integrated Project Delivery.”

Do not use these model documents without “competent legal counsel review,” because they are “flawed,” says Bill Quatman, FAIA, a vice president of Burns & McDonnell Engineering Co., based in Kansas City, Missouri. Quatman delivered his warning during a May 1 session about IPD during the AIA’s annual convention in San Francisco. The session drew nearly 500 people.

The alleged flaws in the SPE documents relate to issues of indemnity, mutual waivers of claims, and insurance, says Quatman. He also takes issue with the makeup of the SPE’s governance board because it not only guarantees the owner majority control, Quatman says, but it also may violate licensing laws in some states.

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Quatman says the AIA's documents committee does "great work and puts out the best documents,” but it should “not put out a document that mandates you have a lawyer to fix it. It should be able to be used off the rack.”

The AIA has no plans to pull the SPE models off the market and has not set a timetable to revise them. “I don’t believe the documents are flawed,” says Kenneth Cobleigh, AIA counsel. “We believe they meet the needs [of architects] and are generally enforceable. We recognize jurisdictions might require modifications.” He adds that the AIA knew the documents would be “thought-provoking.”

The AIA’s SPE contractual arrangement (C195-2008), released in May 2008, creates an LLC whose members are the owner, architect, construction manager, and perhaps other key project participants. The LLC, funded by the owner, is established for the purpose of planning, designing, constructing, and commissioning a project, according to the AIA. The architect and CM share in the project’s risk and reward. The architect gets paid its direct costs. If the project comes in below the target cost, SPE members share in the profits.

Last fall, the AIA released the standard form of agreement between the SPE and the owner (C196-2008) and the SPE and non-owner member (C197-2008).

For more details about Quatman’s concerns, go to ENR.com

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