School Construction Projects – Addressing Unfavorable AIA Contract Clauses
- Matt Komac, Assistant Director of PC Pool Operations
When a school district undertakes a construction or renovation project, the process typically involves complex contracts, often based on standard forms provided by the American Institute of Architects (AIA). While AIA contracts serve as a strong starting point, schools should carefully review and modify them to address provisions that may conflict with the district's best interests. One of the most critical clauses to evaluate is the waiver of subrogation, which can limit the school’s ability to recover damages and reduce contractor accountability.
Understanding the Waiver of Subrogation Clause
The waiver of subrogation clause typically states that if the owner (in this case, the school district) suffers a property loss covered by insurance, the owner cannot pursue claims for damages against the contractor, architect, or other parties involved. This is intended to minimize litigation by relying on insurance coverage to protect all parties. However, it can create problems for schools, particularly when they provide insurance. In construction projects, this clause can restrict the district’s ability to seek reimbursement from responsible parties if damage occurs due to contractor negligence or misconduct. Without modification, the waiver may:
- Increase Financial Exposure: If the insurer pays a claim related to a covered event, they usually hold the right to “step into the shoes” of the insured (the school) and pursue recovery from responsible third parties. Waiving subrogation rights prevents the insurer from doing so, leaving the school to bear any additional costs not covered by insurance. When insurers cannot recover losses through subrogation, this can lead to higher premiums for the district.
- Shield Responsible Parties from Accountability: The waiver benefits contractors, architects, and other parties by protecting them from legal consequences for their actions. Failing to modify or remove the waiver of the subrogation clause reduces accountability for preventable mistakes or negligence.
Strategies for Schools to Address Unfavorable Waiver of Subrogation Language
- Remove or Limit the Scope of the Waiver: Schools can negotiate to remove or limit the waiver of subrogation. For example, a waiver could apply only to minor damages, rather than comprehensive losses resulting from contractor negligence.
- Exclude Gross Negligence and Willful Misconduct: Schools should request that the waiver of subrogation not apply in cases of gross negligence or willful misconduct, ensuring the district can seek recovery for damage from extreme or intentional carelessness.
- Ensure Alignment with Insurance Policies: Schools should consult with their insurance providers to understand how a waiver of subrogation could impact coverage. Some insurers might not cover certain risks if subrogation rights are waived.
Additional AIA Contract Provisions to Review
- Indemnification Clauses: Ensure that the contractor indemnifies the school against liabilities arising from their work. Avoid provisions that require the district to indemnify the contractor.
- Insurance Requirements: Review the insurance requirements to ensure contractors carry sufficient coverage for their risks. Verify that policies align with the school’s needs and are adequate to cover potential losses.
Best Practices for Schools Reviewing AIA Contracts
- Engage Legal and Insurance Professionals: Have your school attorney and insurance providers review draft contracts before finalizing them. They can identify unfavorable clauses and recommend adjustments to better protect the district. Architects and engineers are often protected under the AIA contract and may not always prioritize the district’s best interests.
The standard AIA contract is widely used but is not a one-size-fits-all solution. By thoroughly reviewing and modifying the waiver of subrogation and other key clauses, schools can better protect themselves financially and legally. Proactive contract management not only safeguards school resources but also ensures accountability and higher project quality from all construction partners. Return to newsletter