What is an AIA Contract - Full Episode

Commercial cash flow show. Hey guys, Brandon butto and Martin Gore here with the Commercial Cash flow show. Third week of client questions. We only have three this week because a few others were all regarding funding and we're going to do an extended episode on the questions about funding because there's a myriad of different avenues we could take with that one. So. Well, a couple of things. This past week, Brandon, there is another one though. I found this out. Did you know that being a waiter is a difficult job? It is. I assume perspective. What's the truth on the table? This guy. So the first question. How do we title that one? So one of the questions that came across is what is an AIE contract? As most of you may know, it's American Institute of Architects and it's basically an organization that was created by architects to standardize contract or contracting as it relates to projects. The significance of it as a subcontractor is that you are given a certain set of stipulations as to how you get your money. There is a process that you go through when the contract is done. Let me take a step back for a second. The AIE is a standardized contract by this organization. What's the difference between that and a regular contract? Regular contract is two people coming to terms. Anything to be a contract. Any agreement, it fits the four corners of the contract, obviously. But typical paper contract non-AIE would be two parties or more than two parties coming together to have amicable terms. Now I don't want to get into and preface this. We're not attorneys. Do you consult with a license attorney at law and not an attorney in fact before entering into a contract that you feel a little bit concerned with? To address your concerns. The other, some of the positives of an AIE contract is what you were talking about where it's kind of two people coming together to agree on something. Sometimes that works out and sometimes it can. Whereas the AIE is standardized, verbiage is really the only thing you're changing or where you're doing the work, how much you're going to get paid and who are the players involved. All the verbiage and forms are standardized. Standardize as well as the process and how contractors get paid, grievance services or grievance applications or have you. When it's customizable to your specific project, it allows you to set retainage for a specific amount that isn't oftentimes included in a two party contract. Sometimes that might happen more often than not. It doesn't. Whereas with an AIE, it's kind of given. It's going to happen with the interest of protecting the architects. It's also been my experience that the AIE can be expensive. There's retainage by default. If you've got a contract between you and whomever and you don't want to get into a retained state, maybe it's 10% upfront, pay me when I'm finished. Whereas the retained is just going to happen right off the bat and that money's being held from you, being the person performing the services until the AIE contract aspects are satisfied. So there is that drawback. It might also limit you as a subcontractor access to certain information about the project. This is true. In a former life, I did quite a few AIE contracts and the G703 scope of work all standardized, right? You submit your, however the master contracts written, you submit your buildings that month and they pay out the following month after architectural approval. The difference also is you're probably going to be required to do prevailing wage. Yes. On these type of contracts. Especially important when you're dealing with states that might have a prevailing wage is significantly higher from maybe your headquarters. Exactly. That's what I was going to get at. If you're going into an AIE contract, it is. I haven't personally dealt with one that wasn't prevailing wage because that comes with the territory. So if you know you're bidding a job that's an AIE job, be sure to check the prevailing wage for the labor positions that you have under you. I know when I was doing concrete, they consider a form setter, a lumber specialist, right? That's what they did on a project. In the federal, I was doing government work, the federal AIE prevailing wage for a form setter. In concrete was like three or four times what the local wage was. That can really throw your contract numerics. And also if you don't have an accounting system or a payroll or a contracting system that's set up for those numerics. Those numbers can go real crazy, real quick. And you're trying to put the worms back in the can whenever you come time to produce the documentation. So let me ask you this. If you had to do it all over again, given that was what you've done in the past, you've got some experience with it and the life, what you're doing now. What's your preference? Would you do an AIE? Would you do a one-off contract, a private party? If you're going for the type of work that I was doing, you have no choice but to do AIA. County, city, municipal, state, federal, military. But all things equal if I was given an opportunity. Given a choice between the two. Given the choice, I would absolutely go for the non-AIE contract. Being is a little older, a little bit more accustomed to reading contracts these days. Read every page, pass it by an attorney. There could be a clause in there on page 37 of 258 that you know what I find? A lot of the issuing parties of contracts. Let's say prime contractor, general contractor. A lot of the clauses in their contracts may not be legally binding, but they're there and they'll scare the hell out of you whenever it comes time to enforce those. A lot of those clauses have already been proven to not adhere to UCC, universal commercial code for it's not mutual aspect of a contract. It's a one-way clause meant to wrangle someone in. However, if you're if you're none the wiser or you don't know any better and you read that you think that you've been had and you don't realize that that's might not hold up throughout. They clause to quite you before the storm can even be thought about. But as we've stated, we're not licensed attorneys. There are pros and cons to both between an AIA and a private party contract, as Brandon just explained. But if you do get into an AIA, it is very wise, even if you do have experience with it to have an attorney review the contract before you enter into it. There was another question that came up. Before I get into that though, I was talking to my cousin Vinny. He looked lips up in the Bronx. He used to be out on a Befford style. But he would have brought. Really? He was out on the Bronx. This guy. Cousin, cousin, cousin, cousin, you know, some of my mother's side. Second cousin, twice removed. Well, lots of times removed. We're not really sure how far removed Vinny is. Anyway, claims to be a cousin. But he was telling me that he grew up in the Bronx, left. You know, did his thing on Queens and Bedford style. What have you? Tried to run a hustle out of Manhattan and didn't quite work. Vinny, way into the day, ended up back in the Bronx. And he's telling me he's like, "Oh, you don't have you." Cool. You don't know how things have gotten bad. It's so bad. It's nibbled. Now, is he from Pennsylvania? No, he's not. No, he's not. He's not Dracula. You know, he's like a guy. And he sit on his three corners. So Vinny tells me he's like, you know, I'm not bad. The neighborhood's got him. I was like, how bad is it gotten, Vinny? He's like, we renamed it. I was like, what is it? Spagato. I live in a spagato. Vinny's a knight. Vinny is a nut. I don't think he's anybody's cousin, but I'm my cousin Vinny from Transylvania. So the other question that came up, handshake deals. Can you afford to see? Segway. Okay. Preface this. All right. Our handshake deals enforceable to get paid. Sorry. So preface this, not an attorney at law, not an attorney at law. And every jurisdiction is slightly different on this. Absolutely. I do know that from experience, but handshake deals are technically contracts. That's the root of it. And the bigger question I think was the enforceability because Ben, my experience is at one point for the most part, both parties have agreed and acknowledged they agreed to a contract. Something happens in the interim from that brokering to finalization and that might influence the interpretation of a verbal handshake deal when it comes to fruition and trying to get paid. So what do you do? I have quite a bit of experience with a verbal deal that had five people in the room corroborated, went to litigation the whole night, have a legal synopsis for lack of a better word. I had people from their company say, yeah, that's what was said. And it was pretty simplistic, pretty linear. Don't do this until I call or email you and whatever. Whatever the case was to the tune of a lot of money. Don't do that. So they are a contract. However, how do you have this? There's a reason for a contract and the reason is to iron out the details. Of course, I'm going to do X and you're going to pay me Y, right? That's usually how a handshake deal goes. Whenever it screws up, that doesn't cover it, right? You didn't do X, you didn't do this in this time. You didn't inform me. There's a lot of specifics as far as communication protocols, late date, tons of stuff that is not going to be delineated on a handshake deal. One of those things that came up was what about the rights for mediation or arbitration? Are you giving up that because you didn't enter into a state recognized? So I don't think you ever lose the contract or just I don't think you never go up the rights to mediation or arbitration. Well, anybody can sue anybody for anything. Again, we're not attorneys. But we do all know that anybody can sue anybody for anything. Does that mean that it's not going to get thrown out on its face? No. However, mediation is usually in my experience, not an attorney. Mediation would be after we go through depositions and discovery and then we're like, "Okay, we see where things are at. Let's go ahead and not take this another year or two." So it sounds to me like you're. It's going to be a mutual mediation, almost always. Unless the judge orders mediation. Mediation is non-binding. Arbitration, some states have automatic arbitration clauses in any paper contract. So I think that's what you were asking me. Are you waving that? If both parties agree that there was some kind of contract, I would think, first of all, you better consult somebody on that jurisdiction. Secondly, I would assume that would be an automatically attaching stipulation because if they do recognize verbal as a contract, which almost everywhere it does, and you both have agreed that there was some type of verbal agreement, then there would be. So by default, the normal course of action is a written con. Complete assumption. I.e. Yes, but yes. So there are a few exceptions to the handshake deal. Again, it is tantamount that you contact an attorney in your local jurisdiction because. Or the jurisdiction where this pursing contract. It's taking place. Yes. Because it varies state by state. It can vary by municipality to municipality. But typically things that kind of might complicate a written contract are if it's a promise to pay for another debt of another person, like you're promising to pay somebody else's debt, that verbal contract might not override the contract you had with a person who owed you the debt. Initially, again, we're not attorneys. That's why you need to consult your local council with regard to that. But these are some things that commonalities that come up. Also, any contract that involves the sailor disposition or transfer of real assets, such as homes and what have you, or any agreement that you can't do with any year. That's going to be a real weird one. Yeah, I think. The real estate transaction with the deed. I just bought your house. In the office in County, just take our word for it. He's dead. We did all the title research at any rate. But that is. Also, I do know this. In majority of states, verbal contracts have a lesson to statute limitations to written contracts. Most states are almost half. So while verbal handshake deals could be enforceable, obviously it's best to have everything in writing, but that's a circumstance you're finding yourself in. It's better to be educated ahead of time than after the fact. So just make sure you know what your local laws and procedures are as relates to enforcing something like that if you find yourself an imposition. In my experience, the safest way, if you're doing a handshake deal to make that deal happen, if you're the one receiving the money, is part of that handshake needs to be the money passing into your hands. If that doesn't happen at that moment, put it in writing. Yes. So. So, I'm out of dad jokes for now. I can only remember two. Another question that came up. Change orders. One of the key points in bettering success at getting paid for the additional work. You've got the consiment. You show up on a job site. You've got a GC that's higher. You're a tier one sub. You're contracted to do specific wiring for this house. Well, they find that they need to do a little extra wiring for the outside lining, but because the homeowner changed their minds and they want to go ahead and build out the patio, they were going to leave until later and they ask you, the subcontractor, "Hey, do this extra work." That, in and of itself, is the definition of a change order. You're changing the contract and its original form and are expected to perform additional work. The scope of work has now changed. Yes. So, there's a. Mary had a voice that this ends up happening. Had it happened to me tons of times. And if you are a contractor or a subcontractor, this I can tell you from experience. And I, family, friends, no tons of business owners, don't get pigeonholed into, come on, just get it done. We'll send the paperwork three days later. The office is lagging. We got to get it done in the field. No. Do not. It's an emotional thing. It's the project manager out in the field. We got to keep the project moving. Guess what? It's not my contract. It's your contract. I contracted with you. You have. You're the one that wrote the contract documents and definitely have purchase orders, change orders, time and material and everything written into the contract. Because at the time that that happens, you got to. You got to. For lack of a better word, man up and let them know, look. I'm not. I'm doing it your way. I'm submitting. You want to change this? I'm submitting the change order. See you in whatever means that they had asked and go about it. In those channels, don't start the work until the change order is given. That last statement right there, don't start the work until the change order is given. And sign. I also want to take you back to something else. You said, "Hey, come on, just do it. We'll. Every time. Every time." So, here is what. And the parties that I'm talking to with their fear is that if I put that kind of. Well, in their mind, that kind of pressure on the GC, you know, they hold their hands over them like you're lucky you got the job. Because they got your money, yeah. And if you want to get paid, you'll do this. What do you do? And I got another job for you, neck, whatever. Whatever the case may be, here's the deal. It's their contract, right? That's the way it contract works. That's why you're a subcontractor or a general contractor, sometimes to a prime contractor. You're not doing something that you're not doing something that wasn't already written into the contract. You're asking them just to adhere to their own contractual terms, which they damn sure should. And if they nine times out of ten, we'll try and hold it over your head. You're slowing my project down. You're right. No. You're slowing your project down. You had this written into your contract. You should have already had a system in place with whoever you have in your office or however it needs to go from your end. But I'm subcontracting for you, your change order policy or procedure or whatever the case may be. I'm not asking you to do something that we didn't agree on. I'm asking you to do exactly what we did agree on. And if they issue you a change order, if the contract says it has to be signed by two people whatever, whatever the case may be, make sure that you know the verbiage, if it has to be assigned to change order by the director, whatever. Make sure that that change order when it's sent to you is signed by the director, not a, not a, unsigned change order, because that is a tactic I've seen crimes in general's use. As have I lots of times, lots, lots of times. And sometimes even the subs can kind of get lost in the mix when they cut these, I look, I called them little one off deals like, hey, do this extra concrete, do this extra electrical, I got you covered, I'll take carry you. And suddenly, the GC or the prime has cut so many side deals they've forgotten half of them. Unless you're the squeaky wheel sub, you might not ever get you money and saying, hey, even if you are the squeaky wheel sub, sometimes that might even pose a challenge if you don't have any sort of proof. Correct. And then it also limits your ability to be able to go after the entity that hired the prime in the first place. Because that's where the flow down contract comes from. As a subcontractor, just so that you guys know this, your contract with the GC is actually an extension of the GC or prime's contract with the owner. That's why it's considered a subcontract. It is an amendment or a denim, it's an attachment where the contracts are flowing down. So there is one general contract, but each subcontractors separate scope of work, you know, different little idiosyncrasies sometimes they'll allow disclosure or inclusion of other clauses. But that is the way that it works. But all general contracts, I guess I can't say all because I would have to know all things. Most general contracts will have a change order policy. Most of them do. And the general portion, sometimes the subcontractor, if they don't have a change order policy. And that change order policy, sometimes depending on if you're a labor and materials provider, we'll have the time of materials atter so that your margins built in, but it doesn't get out of hand too crazy. So that kind of leads into some of the things to pay attention to like what you're talking about lumber. That's a big deal right now. lumber any material. Well, that's more the value of lumber right now. Well, if that if that time of material was built into the scope of work, getting off subject, but this is this is in the same manner, people that how would that be handled? If if you do a time of materials or maybe you do a bitter and estimate for a certain amount and then the world of topsy teruvian suddenly lumber is like five times what he used to cost. All right now. And we have a client that's seven figure contract doubled and it's valid because of the cost of lumber lumber. It was contracted in 2019. It was starting at late 2020. At so it's a real weird scenario whenever a stick of lumber was one 80, that's a whole 90. That's a hold and now it's $8 self as far as doing this, you know, getting your commercial cash flow going, you know, post code. It's that's a weird one. The lumber industry right now is very, very. I'm also talking about gas getting squirrely too. So that's probably going to tie it into it. What does Vinnie think about that? Vinnie, you know, he's got a cousin who drives, drives tanker trucks and he says, you know, I don't know. I don't really trust with Vinnie says these days, especially when he's living in the spaghetti. That's crazy. So thanks to look for on a change order, change orders, the whole policy, the whole conceptual act of it happening, be clear on the change order policy in the contract. If it's their contract, make sure it's clear you understand it. If it's your contract maker, sure, it's clear, they understand it. The absence of Vinnie whatsoever is pretty much going to put your fate in the hands of who knows a big fat question mark. Make sure they're in writing any change orders. What Randy was referring to, hey, you know, do this for me, I got you'll take care of it and just, you know, on the slide. It's going to feel and if you're new or especially if you're new and you have it, dealt with this before, it's it's going to be an emotional push from their part because they tend to be pretty good at it. Your point is you're not you're not pulling anything tricky. You're trying to adhere to the purchase order process. Right. And I've seen it. It's got to be thousands of times. And it's the same song and dance each time. Do this look, I got a extra budget built into this, but whatever the case, maybe we got another job, it's only a $20,000 job will give you $50,000, whatever, whatever, doesn't matter. Now, I just want to be paid what we contracted for. So kids learn from Brandon, Mr. Boutel, and make sure that your change orders are signed, acknowledged easier to learn from my mistakes. Siner authorized party makes your this detail dates times of its material, how much was it, where was it delivered, who signed off on for it, memorialize everything. Do here, and that's the other things. I don't want to say do this as far as all of these all, all of these are memorialization aspects of of doing work and how whenever you're in the middle of doing a project, you know, 15 minutes here to fill whatever, if you don't have that process in place, get it in place, because the year or two later, or when something does go wrong, it's easy when everything's fine, but when something goes wrong, and it will, if you do enough work, you are going to be up the creek without a paddle, because it, especially if you got to go to court, if you got to go to court documentation is everything. Absolutely. And memorialization, but to make the memorialization pretty much almost an auto pilot act is what you were talking about have a systemic procedure in place when A happens, and it can be a simple, it can be a simple process, an internal process. It can, a one per, a one man band can do it, but you got to, you got to adhere to your own process. So another thing is I said, if it goes to litigation documentation, ski, another key is you have proper documentation. Sometimes you can avert litigation, because even when you go to whomever is and you're working it out, given that information, so they're doing it in my chain. Exactly. So documentation may avert litigation, which is all in my opinion, is a good thing. Absolutely. Come into terms professionally and getting something handled is way better than litigation, because I know going a litigation, there are a couple of people that always win, and that's the attorneys that make good money. And my wife, that's another episode of commercial cash flow show with Martin Gore and Brandon Boutot and guest, guest, guest speaker cousin, Vinnie, the Transylvanian from the Bronx, Transylvanian from the Bronx. Hey, yo, if you have any questions, questions at commercial cash flow show.com, and look forward to talking about the business funding next week, should be an extended episode. Ooh, more dead jokes. There we go. Transylvanian. Colin Denny. Commercial cash flow show.