Commonly known in the design and construction industry as the “Applications for Payment,” architects and engineers (A/Es) have a contractual responsibility in professional association model documents to see that contractors get paid timely on their projects. This process is critical in the construction phase of a project, as it is the lifeblood of how contractors order and install materials in accordance with the design intent by design professionals. While seemingly just an administrative task, approval or rejection of an improper application has an important impact. An A/E can approve an application in whole or in part, resulting in a “Certification” of payment.
THE RESPONSIBILITY WITHIN THE STANDARD OF CARE
As outlined below, an A/E’s professional practice must be conducted within the standard of care of its profession. Otherwise, a design professional could fall below that standard resulting in a dispute or a claim of negligence or breach of contract. Like all other construction phase services, this includes the review and processing of contractor(s) applications for payment.
For example, one pitfall for the A/E would be if they mistakenly approved the contractor’s monthly application for a percentage, well exceeding the actual completed work. This would lead to overpayment of the contractor’s work and create budgetary issues down the road. And of course, the A/E’s client would be very upset. On the other hand, if the A/E’s underpayment is well below what the contractor expected as a reasonable payment amount, the contractor would be upset.
The bottom line is that the responsibility to process payments can be a delicate task. Not to mention, it is customary for the A/E to withhold a certain amount (perhaps 10%) as a retainer—something contractors understand. See excerpt below from the AIA A101, Standard Form of Agreement Between Owner and Contractor.
THE CERTIFICATION
The Certification is a representation to the project owner that the contractor’s work is completed for the period of, normally on a monthly basis, based upon the A/E’s review. And then, the owner shall pay the contractor for their work so the project can proceed on schedule. The basic representations are:
- The work has progressed to the point indicated in the application by the contractor as reviewed by the A/E.
- The work is in general accordance with the construction documents.
- The contractor is entitled to be paid.
NOT ALL APPLICATIONS FOR PAYMENT ARE ENTITLED TO PAYMENT
To entitle a contractor to receive payment, the application must be accurate, timely, and contractually compliant. Defective, unverified, or late submissions by the contractor sent to the A/E may reject the application or reduce the payout. To protect the project owner, there are instances when a contractor is not to be paid. These include, but are not limited to:
- Contractor’s repeated failure to carry out the work in accordance with the contract documents.
- Repeated defective work is not remedied.
- Improper format when a format is agreed upon or missing critical information.
- Contractor’s work is not performed in accordance with the project’s schedule.
- Contractor’s failure to pay its subcontractors or suppliers’ labor, materials, or equipment.
IN CONCLUSION, PROFESSIONAL ASSOCIATION MODEL DOCUMENTS ARE A SOURCE HOW THESE RESPONSIBILITIES ARE PROCESSED
The American Institute of Architects Standard Form of Agreement Between Owner and Architect, AIA B101, contains an architect’s responsibility as follows:
§ 3.6.3 Certificates for Payment to Contractor
§ 3.6.3.1 The Architect shall review and certify the amounts due the Contractor and shall issue certificates in such amounts. The Architect’s certification for payment shall constitute a representation to the Owner, based on the Architect’s evaluation of the Work as provided in Section 3.6.2 and on the data comprising the Contractor’s Application for Payment, that, to the best of the Architect’s knowledge, information and belief, the Work has progressed to the point indicated, the quality of the Work is in accordance with the Contract Documents, and that the Contractor is entitled to payment in the amount certified. The foregoing representations are subject to (1) an evaluation of the Work for conformance with the Contract Documents upon Substantial Completion, (2) results of subsequent tests and inspections, (3) correction of minor deviations from the Contract Documents prior to completion, and (4) specific qualifications expressed by the Architect.
§ 3.6.3.2 The issuance of a Certificate for Payment shall not be a representation that the Architect has (1) made exhaustive or continuous on-site inspections to check the quality or quantity of the Work, (2) reviewed construction means, methods, techniques, sequences or procedures, (3) reviewed copies of requisitions received from Subcontractors and suppliers and other data requested by the Owner to substantiate the Contractor’s right to payment, or (4) ascertained how or for what purpose the Contractor has used money previously paid on account of the Contract Sum.
The American Council of Engineering Companies, and American Society of Civil Engineers EJCDC® E-500, Agreement Between Owner and Engineer for Professional Services, contains an engineer’s responsibility to process an application of payments as follows:
Exhibit A – Engineer’s Services
21. Applications for Payment: Based on Engineer’s observations as an experienced and qualified design professional and on review of Applications for Payment and accompanying supporting documentation:
a. Determine the amounts that Engineer recommends Contractor be paid. Recommend reductions in payment (set-offs) based on the provisions for set-offs stated in the Construction Contract. Such recommendations of payment will be in writing and will constitute Engineer’s representation to Owner, based on such observations and review, that, to the best of Engineer’s knowledge, information and belief, Contractor’s Work has progressed to the point indicated, the Work is generally in accordance with the Construction Contract Documents (subject to an evaluation of the Work as a functioning whole prior to or upon Substantial Completion, to the results of any subsequent tests called for in the Construction Contract Documents, and to any other qualifications stated in the recommendation), and the conditions precedent to Contractor’s being entitled to such payment appear to have been fulfilled in so far as it is Engineer’s responsibility to observe the Work. In the case of unit price Work, Engineer’s recommendations of payment will include final determinations of quantities and classifications of the Work (subject to any subsequent adjustments allowed by the Construction Contract Documents).
b. By recommending payment, Engineer shall not thereby be deemed to have represented that observations made by Engineer to check the quality or quantity of Contractor’s Work as it is performed and furnished have been exhaustive, extended to every aspect of Contractor’s Work in progress, or involved detailed inspections of the Work beyond the responsibilities specifically assigned to Engineer in this Agreement. Neither Engineer’s review of Contractor’s Work for the purposes of recommending payments nor Engineer’s recommendation of any payment including final payment will impose on Engineer responsibility to supervise, direct, or control the Work, or for the means, methods, techniques, sequences, or procedures of construction or safety precautions or programs incident thereto, or Contractor’s compliance with Laws and Regulations applicable to Contractor’s furnishing and performing the Work. It will also not impose responsibility on Engineer to make any examination to ascertain how or for what purposes Contractor has used the money paid to Contractor by Owner; to determine that title to any portion of the Work, including materials or equipment, has passed to Owner free and clear of any liens, claims, security interests, or encumbrances; or that there may not be other matters at issue between Owner and Contractor that might affect the amount that should be paid.
____________________________________________________________________________
About the Author of this Risk Management Building Block Article
As a risk manager for the last 20 years for the design profession, Eric O. Pempus, FAIA, Esq., NCARB has experience in professional liability insurance and claims, architecture, engineering, land use, law, and a unique background in the construction industry. Prior to risk management, he has 25 years of experience in the practice of architecture/engineering, and as an adjunct professor teaching professional practice courses at the undergraduate and graduate levels for 37 years at Kent State University’s College of Architecture & Environmental Design.
As a Fellow of the American Institute of Architects and AIA National Ethics Council 2021 Chair, he has demonstrated his impact on architectural profession. He has presented numerous loss prevention and continuing educational programs to design professionals since 2000 on topics of ethics, contracts, and professional practice in various venues across the United States and Canada. He is a former member and chair of his city’s Board of Zoning & Building Appeals for 24 years, and is a licensed architect, attorney, and property & casualty insurance professional.
His educational background includes a JD from Southwestern University School of Law, Los Angeles; Master of Science in Architecture from University of Cincinnati; and BA in psychology/architecture from Miami University, Oxford, Ohio.
The above comments are based upon DesignPro Insurance Group’s experience with Risk Management Loss Prevention activities and should not be construed to represent a determination of legal issues but are offered for general guidance with respect to your own risk management and loss prevention. The above comments do not replace your need for you to rely on your counsel for advice and a legal review, since every project and circumstance differs from every other set of facts.
Disclaimer: The viewpoints expressed in this article are those of the author(s) and are not necessarily approved by, reflective of or edited by other individuals, groups, or institutions and this article is an expression by the author to generate discussion and interest in this topic.