AIA Document A102–2017: Standard Form of Agreement Between Owner and Contractor Where the Basis of Payment Is the Cost of the Work Plus a Fee With a Guaranteed Maximum Price
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Overview of the AIA A102–2017 Construction Contract
AIA Document A102–2017, Standard Form of Agreement Between Owner and Contractor, where the basis of payment is the Cost of the Work Plus a Fee with a Guaranteed Maximum Price, serves as a comprehensive agreement between an owner and a contractor structured to manage construction projects where flexibility in costs is essential, yet needs to be capped for owner security.
The cost-plus fee model with a guaranteed maximum price (GMP) establishes a definitive cap, ensuring the owner is protected from cost overruns by setting a clear upper limit on reimbursable costs while still allowing the contractor the flexibility to undertake necessary work adjustments. The AIA Document A102–2017 is intended to be used in conjunction with AIA Document A201–2017, which details the General Conditions of the Contract for Construction.
Key Features and Benefits of the Cost-Plus Fee with GMP
The AIA Document A102–2017 is designed to offer an optimal balance between financial flexibility and predictability, providing a framework well-suited for large, complex projects where design-phase changes and adaptations may be frequent. With this construction contract, the owner reimburses the contractor’s costs and an agreed-upon fee, with the added assurance that these costs will not surpass the Guaranteed Maximum Price. This mechanism is particularly advantageous in dynamic project environments where evolving requirements may necessitate budget contingencies.
In addition to the contract itself, AIA Document A102–2017 includes an Exhibit A dedicated to Insurance and Bonds, which forms a critical part of the overall agreement. This exhibit delineates the necessary insurance coverage and bonding requirements, a crucial aspect in protecting against potential construction litigation and ensuring that all parties are adequately covered. Engaging legal and insurance experts in reviewing Exhibit A before construction begins is crucial to establishing robust risk management practices tailored to the project’s unique needs.
Comparison: AIA A102 vs. A101, A103, and A104
Unlike AIA Document A101-2017, Owner-Contractor Agreement, which binds the project to a fixed price (Lump Sum), AIA Document A102–2017 allows for fluid adjustments within a protected cost framework, ideal for situations where technical, site-specific, or regulatory complexities are likely to influence the project development.
While AIA Document A102–2017 is widely used on projects requiring a cost-plus fee arrangement with a Guaranteed Maximum Price (GMP), no singular construction contract can flawlessly address every specific project need. Each construction project possesses its own distinct characteristics, site-specific challenges, and state legal considerations that a standard form may not entirely capture.
Consequently, modifying or drafting specific contracts’ terms to suit the particularities of the project is necessary. This approach guarantees that the agreement properly reflects the project’s unique conditions, including any site-specific factors, stakeholder expectations, or regional regulatory requirements. Accordingly, while standardized contracts like AIA Document A102–2017 offer an excellent foundation, professional legal evaluation and potential alteration of their terms are key to ensuring the contract is well-suited to the project’s specific demands and complexities.
Detailed Section-by-Section Breakdown of Key Provisions
Article 4 – Date of Commencement and Substantial Completion
Article 4 establishes when the Work officially begins and the deadline for achieving Substantial Completion. The Date of Commencement may be defined in the Agreement or tied to a Notice to Proceed. Substantial Completion is typically certified by the Architect and marks the point when the Owner can occupy or use the project for its intended purpose. Because A102 is a cost-plus contract with a Guaranteed Maximum Price (GMP), the timing provisions directly affect general conditions costs, liquidated damages (if included), and eligibility for bonuses or savings.
Article 5 – Contract Sum
Article 5 establishes that the Owner will pay the Contractor the Cost of the Work plus the Contractor’s Fee, subject to a Guaranteed Maximum Price if one is set. It defines how the Fee is calculated, whether as a lump sum, percentage, or other agreed method, and confirms the GMP amount along with any alternates or allowances. This provision sets the financial ceiling for the project and explains how savings below the GMP are treated, including whether they are retained by the Owner or shared with the Contractor.
Article 7 – Costs to Be Reimbursed
Article 7 defines what qualifies as reimbursable Cost of the Work. Only documented, reasonable, and necessary expenses directly tied to the project may be billed. These typically include on-site labor and certain off-site personnel, subcontractor payments, materials and equipment incorporated into the Work, temporary facilities and utilities, required insurance and bonds, and site supervision. Because these costs directly affect the GMP calculation, this article is often closely reviewed and negotiated.
Article 8 – Costs Not to Be Reimbursed
Article 8 identifies costs that cannot be charged to the Owner as part of the Cost of the Work. These generally include unapproved overhead, expenses resulting from the Contractor’s negligence or defective work, fines and penalties, and corrective work not tied to Owner-directed changes. This section prevents the Owner from paying for inefficiencies, misconduct, or avoidable mistakes.
Article 10 – Subcontracts and Other Agreements
Article 10 governs how the Contractor procures and manages subcontractors. It typically requires written subcontracts, compliance with competitive bidding procedures when applicable, and incorporation of relevant contract terms into subcontracts. Owners may have the right to review or approve major subcontract awards. Clear subcontracting procedures promote transparency and help maintain cost control under the GMP structure.
Article 12 – Payments
Article 12 outlines the procedures for progress payments and retainage. The Contractor submits Applications for Payment supported by documentation of reimbursable costs, and the Architect reviews and certifies the amounts due. If the total Cost of the Work plus the Contractor’s Fee exceeds the GMP without an approved change, the Contractor is responsible for the overage.
Article 14 – Termination or Suspension
Article 14 addresses termination for cause, termination for convenience, and suspension of the Work. If the Owner terminates for convenience, the Contractor is generally entitled to payment for completed Work and certain reasonable closeout costs. If termination is for cause, compensation may be limited and subject to offsets. Suspension provisions outline how delays initiated by the Owner are handled.
Article 15 – Miscellaneous Provisions
Article 15 contains administrative and procedural requirements, including notice provisions, interest on unpaid amounts, assignment restrictions, and other contractual mechanics. These terms govern how rights are exercised and how communications and claims must be handled during the project.
Article 16 – Enumeration of the Contract Documents
Article 16 lists all documents that comprise the Contract, such as the Agreement, the General Conditions (A201–2017), Drawings, Specifications, Addenda, and Modifications. By clearly identifying these materials, the article establishes document hierarchy and reduces disputes over which terms control.
Dispute Resolution Provisions
Dispute resolution under A102–2017 is governed through the General Conditions, typically A201–2017. Disputes often begin with an initial decision by the Architect if required, followed by mandatory mediation. Mediation is non-binding and serves as a condition precedent to further proceedings. The parties must then pursue either binding arbitration or litigation, depending on the method selected in the Agreement. Arbitration is binding and typically administered by the American Arbitration Association, while litigation proceeds in court if chosen.
Reimbursable vs. Non-Reimbursable Costs
Reimbursable costs under Article 7 generally include direct labor wages, subcontractor payments, materials incorporated into the Work, temporary facilities and utilities, required insurance and bonds, project-specific equipment rental, and site supervision.
Non-reimbursable costs under Article 8 typically include contractor home office overhead unless expressly allowed, costs resulting from negligence or defective work, fines and penalties, legal fees unless specifically permitted, and costs that exceed the GMP without an approved change.
Strategic Project Management With AIA A102–2017
AIA Document A102–2017 provides a crucial tool for executing large, complex construction projects where flexibility combined with financial security is essential. By establishing a Guaranteed Maximum Price, this agreement allows owners to maintain budget control while enabling contractors to respond effectively to project needs. Its robust contractual framework supports strategic project development, enhancing collaboration and ensuring that all stakeholders can confidently navigate and manage the complexities associated with significant construction ventures. Through its detailed provisions for insurance and bonding, A102 further secures the project’s progress, blending cost-effective oversight with comprehensive risk management for optimal project outcomes.
Get legal guidance on using AIA Document A102–2017 for your next project—contact our firm today to ensure your construction agreement protects your budget and interests.
FAQs
What Is the A102–2017 Contract?
AIA Document A102–2017 is a standard form agreement between Owner and Contractor for a cost-plus contract with a Guaranteed Maximum Price.
When Should It be Used?
It is appropriate when the scope is not fully defined at contract execution but the Owner wants a GMP cost cap.
What Are the Key Differences from Previous Editions?
The 2017 edition aligns terminology and risk allocation with A201–2017, updates insurance and claims procedures, and clarifies cost documentation requirements.
What Related Documents Are Needed?
A102–2017 is typically used with A201–2017 General Conditions and supporting exhibits such as the Schedule of Values and GMP amendment.
How Are Disputes Resolved?
Disputes proceed through mediation and then either binding arbitration or litigation, depending on the parties’ selection in the Agreement.
