Inside Modular: The Podcast of Commercial Modular Construction
Inside Modular is the official podcast of the Modular Building Institute, the Voice of Commercial Modular Construction. This series will highlight industry news and trends, include conversations with industry thought-leaders, and discuss the advantages of modular building construction.
Inside Modular: The Podcast of Commercial Modular Construction
Contract Clarity: Templates Tailored for Modular Construction Success w/ AIA Contract Documents
For years, modular construction stakeholders have struggled with traditional contracts that fail to account for the dual-site nature of prefabrication, the split responsibilities for design between architects and manufacturers, and the complex permitting processes spanning multiple jurisdictions. Now, new agreements from AIA Contract Documents tackle these challenges head-on by clearly delineating responsibilities and risks where they're best managed.
Listen as Sara Betancorth from AIA Contract Documents and Sal Verrastro from Spillman Farmer Architects detail how these new contracts were created through years of collaboration between architects, attorneys, and industry experts. Now available to the public, these contracts represent a balanced approach that acknowledges the realities of modern modular construction. The result? Contracts that reduce risk, clarify responsibilities, and ultimately facilitate smoother project delivery for all stakeholders.
Whether you're an owner, architect, contractor, or modular manufacturer, these new documents promise to transform how modular projects are structured and executed.
Hello and welcome to Inside Modular, the podcast of commercial modular construction brought to you by the Modular Building Institute. Welcome everyone. My name is John McMullen. I'm the marketing director here at MBI. Today I'm joined by Sarah Bettencourt of AIA Contract Documents and Sal Verastro with Spillman Farmer Architects. Sarah and Sal are here to talk about AIA Contract Documents new agreements that have been designed specifically with modular project stakeholders in mind. Sarah and Sal welcome.
Speaker 2:Nice to be here, thank you.
Speaker 3:Thank you so much for having us, John.
Speaker 1:It's my pleasure. Tell me about AIA Contract Documents. What are the reasons behind its formation?
Speaker 3:Yeah, so AIA Contract Documents were first developed way back in 1888.
Speaker 3:That's when AIA first published the owner-contractor agreement. So it was at that time that the AIA recognized the need for standardized agreements and this was to help really clarify roles and responsibilities for project participants, and this really includes the owner, general contractor and the architect. So our documents have always been created by the AIA Documents Committee. This is a standing committee of the AIA. It's comprised of about 30 to 35 architects who are all AIA members and who all commit to serve on 10-year terms, which is absolutely incredible Documents Committee members, along with our staff of attorneys, and then we have outside legal, insurance and industry advisors. We all work together and collaborate to draft and update our standard form agreements. Overall, the goal of the Documents Committee is to create agreements that are fair and balanced, while balancing the competing interests of contracting parties and placing the risk where it's best managed. Since the time, since 1888, when AIA first published documents, our library has exponentially grown and I think at this time we have about 250 agreements and forms in our suite.
Speaker 1:Wow, I feel like I've learned so much already.
Speaker 3:A little history lesson for you. I feel like I've learned so much already A little history lesson for you.
Speaker 1:What prompted the development of contracts specific to volumetric modular construction?
Speaker 2:I'll jump in there, John volumetric construction projects using project delivery methods that were not fully compatible, let's say, with the modular process, since it was relatively new to us but it obviously had been done before, but not for the, I would say, the commercial industry. But we did do a few and they were successful. But we were swimming into what we considered unknown territory and proceeding using just our past experiences and trusting our judgment at the time and, luckily, working in partnership with a trusted owner and a trusted construction manager at that time, we were really lucky that the projects were successful. I can't stress that enough at that time. What I did learn through this process is that modular can be achieved in a variety of ways. There's no question about it, even as I worked with Sarah the last five years or so. But there is an optimum delivery method that we came across and we personally have used, but I say the committee came across and that we thought it worked best. We personally have used, but I say the committee came across and that we thought it worked best, but there wasn't any contract type in our repertoire at the time that can be easily edited and for this particular delivery method being modular.
Speaker 2:So, as a member of the contract documents committee and this is going back at least five years, maybe six years ago. The committee members are always encouraged to discuss new ideas and potential new trends in design and construction. So with that conduit available to us, we're always throwing things out. And, of course, I suggested we look at full volume metric documents, since I had that experience and I know it could be better when we struggled with it and we gave that feedback and it was positively received by AIA Contract Documents Committee and they put the wheels in motion to develop the family of documents for full volumetric construction. The great thing about being on the edge of developing these documents is that many of us architects and attorneys like Sarah, who experienced doing modular we didn't have the benefit of effective documents, so we knew what to look for, we knew the pitfalls and that helped us develop strong documents. So that's how it really got started.
Speaker 1:What was the real process for creating these contract templates? Obviously, you had some experience designing for modular construction committee. It sounds like 30 plus people, which is seems nuts to me. But what was? What was that process dealing with the formation of that contract and how did they evolve?
Speaker 3:Yeah, so the documents they underwent the same process that all of our documents go through and so just taking a step back, just talking about the documents committee and that process as a whole, so our documents are updated on a 10 year cycle.
Speaker 3:So every decade, a group of documents, typically like a family of documents or a delivery method, are updated and published. So when a document comes up for review, we begin by analyzing data from so many different sources. The lawyer in me we first go to case law. We'll see how, over the past decade, how have courts interpreted our documents? How have they interpreted certain sections and standardized language? Is that something we agree with? Is that something we want to continue?
Speaker 3:We also talk to industry experts. We perform a bunch of interviews. We try to gather as much data as possible by talking to the people who are on the ground performing the work, and then we attend as much educational programming as possible as well. And then, once we get around after the research portion, research is ongoing but we begin then drafting the documents, and this is an iterative process. So for drafting, once a task group, which is about five or six folks on the committee, once a task group finishes a draft of the document, they circulate that draft for review to the committee and our outside liaisons. The committee and those liaisons then provide feedback on the documents and that feedback is discussed, debated, presented on it is just talked about so long by the committee and the task group and incorporated into our documents, and then rinse and repeat.
Speaker 3:We do that same cycle again. We send the document out for a second review to the committee, to outside liaisons, take a look at their feedback, incorporate it to a certain extent and then, ultimately, the documents are put up for approval by the committee and the committee is the group that actually approves the documents and then they're published. So, talking about these documents in particular, our research started about three years prior to the publication, so they were published this year, in 2025. I vividly remember in 2022, first starting out researching these documents and figuring out what is so different about modular. In fact, a little plug to your own show. Three years ago, I will never forget, I stumbled upon this podcast.
Speaker 3:And you know I was living in LA at the time. It was still like pandemic era-esque, so there weren't many places to go and I would take a daily walk and I'd put on this podcast and I'd listen to the folks that you interviewed to really understand the nuances of what people were going through in this industry. So that's part of the educational programming that me and other folks on the task group all attended in preparation for these documents. And then, sal, I'll turn it over to you for the other part.
Speaker 2:Yeah, so interestingly enough and I think I told you how Modular came to get on the list of documents in the future for AIA but about five years ago the AIA was approached by another outside group to participate in the development of what we at the time coined the first modular construction guide.
Speaker 2:And the AIA was a part of that along with other groups, by the way and so the management at AIA came to us and said we're looking for volunteers and they went right to the Contract Documents Committee and they solicited people from my fellow members to assist in developing this, what would be a modular guide, a design guide, and several of us myself included, kevin Miller, peter Noon on the committee jumped at the chance because we all had a little bit of modular experience and we jumped at the help in writing this guide and it was a very collaborative document At the time.
Speaker 2:It was pretty much right before COVID, but we were still doing Teams meetings or Zoom meetings at the time and it helped us because we had experience. We all gave us our opinions, but there were people on these calls from the Modular Institute. There were people, contractors and fabricators on these calls, and we all gave our input and developed what is still a pretty good standard guide and we used it. Sarah and our task group used it heavily. When we were writing, the documents went back and referred to that and what was said. So that was really an integral part of how these developed, along with the things Sarah said how we developed these documents.
Speaker 1:Well, that's quite a process. I'm tickled pink that I had some small role to play.
Speaker 3:That's a very cool story, Sarah.
Speaker 1:Thank you for sharing that. So let's dig into these documents a little bit. How well do these AIA contracts reflect the unique workflows and delivery methods used in commercial modular construction?
Speaker 3:The documents are definitely tailored for volumetric modular projects. So just to give you more background, when we first started looking at this, we looked at our conventional agreements, we looked at our design bid build. We looked at our construction manager family of agreements. We took a look at our design build documents as well, but our design build documents were being updated by a different task group simultaneously as these documents were being created.
Speaker 3:So, anyhow, we took a look at what our library already offered and compared them against the things that we were learning during the research. And you know we didn't want to change too much the baseline agreements that we were working with because our documents already set out processes that are accepted by the industry. So every time we changed our documents we said to ourselves this has to be a modular related change. We have to be able to justify it to the committee, to outside liaison, saying hey, we're making this change because it's modular related and we learned this through the research. So we started with our construction manager as constructor agreements and if you're familiar with our library, that's our A133 and our B133 agreements, and going through this exercise like just making tweaks saying if we just tweak this a little bit and tweak this a little bit, then can we accommodate VMC projects.
Speaker 3:And this exercise made us realize we cannot. We cannot just take one of our baseline agreements, our very popular agreements, and simply tweak it for all the unique workflows that do occur in modular. So that is what resulted in the creation of four new agreements. It's a whole new family that we've created. So we have an owner construction manager as constructor agreement for VMC, we have a new owner and architect agreement, we have a new general conditions document and then, of course, in the A133 agreement that I was talking about earlier, our standardized owner construction manager as constructor agreement, there's a really robust set of pre-construction services that are supposed to be performed by the CM and that you know.
Speaker 3:We took a look at that. We were like we already have an agreement that has so many pre-construction phase services to be performed. Can we just use this? And we couldn't, because it didn't account for the modular subcontractors design services that are performed on the module. And this all occurs in pre-construction. And to that end we took a look at the B133 and we added a whole new section called pre-design services. So it's additional services that are supposed to be performed well. Basic services for the architect to perform in the pre-design phase Like these, are all just unique things that happen on BMC projects that weren't accounted for in the other agreements that we currently have in our library.
Speaker 1:So, speaking of the differences between volumetric, modular and traditional construction, I'm sure one of the things you came upon in your research was the difference in risk allocation, so I wanted to ask about that specifically. What can you tell me about how these contracts address risk allocation between modular manufacturers, general contractors, architects and owners?
Speaker 2:I can answer that this was obviously a very key aspect for these documents, as the scopes of work can vary between who's really responsible for the design due to the fact that there's two design entities. There's an architect and there's a modular fabricator who's also doing subcontractors also doing design, and in fact there's two or more contractors on the project. We have usually a construction manager, you have the modular subcontractor who's the fabricator, and you could have a site contractor as well. So with all those different entities there's, obviously you have to be very careful on defining on who's doing what. So the task group created very clear scopes of work for all the parties involved.
Speaker 2:As I mentioned before, there's a lot of ways to do these project delivery methods, but we settled on the construction management, the project delivery method, and we wanted everybody to fully understand their various scopes of work. This had been a gray area in past projects and we wanted to clear that up. We heard that many times from a lot of the people that Sarah mentioned that we brought into the liaison. So, by creating very clear scopes of work for the project, this helped each party understand their responsibilities and, more importantly, their risks involved throughout the project. For an example, we clearly delegated the design and engineering for the modules to the modular subcontractor and in the past a lot of people thought that was the architect's responsibility. This was not within the architect's scope of work because we didn't design the module themselves. We gave them parameters on what to use. But the modular subcontractor, the fabricator, they're fully responsible for that and that was something that was a major gray area and we even heard that in our conversations. This is a coordinated responsibility between all the parties. Everyone knew who was doing what.
Speaker 2:Additionally, we elected to use, as I mentioned, the CM project delivery method in lieu of the traditional design bid build method, which could be done, but it would be more difficult with a general contractor. Because, well, basically for two primary reasons. One, the owner's risks are greatly reduced if you'd introduce a CM, which would happen in the beginning and early in the early stages of the project. This traditionally wouldn't happen in the design bid build method. So with a CM contract, the CM's on board early on the process and they have much more experience in allocating the work and the responsibilities. They're used to doing that.
Speaker 2:Cms do that all the time with various subcontractors and they deal with multiple sites. General contractors generally don't have those responsibilities in that situation. Also, this project delivery method, being the CM, allows the owners to bring in a CM early in on the project to help bring the connection between a modular subcontractor and the coordination of the work more effectively, thereby reducing the risks for the owner. This would not have occurred in any other project delivery method. We even looked at design build as the project delivery method and that would be our second choice, but the CM process works very well. This is a very convoluted situation because multiple sites and things like that, so that's how we allocated the risk to the party who's best suited to handle that risk.
Speaker 1:We've been talking about the construction, the delivery, the design which is great, by the way, little sidebar. This is fantastic information. I feel like I'm in a modular 101 class or something. I'm reviewing all the stuff I should know. This is fantastic. But we've been talking about design and manufacturing and delivery of the project. What about issues like inspection and code compliance? How do the AIA contracts handle those Permitting? How responsibility is split between on-site and off-site issues like that?
Speaker 2:Yeah, great question. So we had, I'm going to say, a half a dozen major items that are really unique to modular construction, and this is one of them. It's the permitting aspect. The major difference in the permitting process for full volumetric construction is that we have two project sites the landing site, as I call it, or the landing site of the modules, where they're going to sit permanently, and then you have the fabrication site, which could be anywhere. In fact, a lot of times it's out of the state, but in either case it's out of the municipality where its final resting place is.
Speaker 2:The most obvious issue with respect to construction, the construction phase, is who's the authority having jurisdiction? Who's going to be reviewing the construction from a permitting side? In volumetric construction, as we mentioned, it's taking place in a different jurisdiction. So the question arises who is that AHC? Is it the landing site or is it the person that's looking at it at the fabrication place? And in fact, years ago and this is kind of a little sidebar as well the authorities having jurisdiction, some of them didn't want to inspect the modules in place if it wasn't going to be in their locale. In other cases they said, yeah, we want to inspect them because they're being built here, which really didn't fit the mold. So what's unique about this is we're going to in our documents the requirement to engage early on who the AHJ is and who's going to be coordinating. All that is set up early and that's really important.
Speaker 2:Typically, the landing site authority having jurisdiction is the person who's going to be stamping and allowing the permitting process, and they'll dictate whatever is required for the fabricator to abide by. The AAR document places the responsibility of complying with that AAHJ in the hands of the party who's best positioned to do that, and that party is the modular subcontractor who's actually building these modules and, although it's in a different location, that person is responsible for making sure they coordinate their construction with that AHJ. This is only for the modular units, mind you. It's not for the entire building. So that's a little bit of the convoluted issues that always happens here. Therefore, there may be multiple permits required, and typically there are Very rarely, wouldn't they be. In fact, there's going to be more than two, because there might be if you have sprinklers in the building. That's another permitting process which varies from locale to locale. So that's the third one. That most likely happened as well.
Speaker 2:But the modular subcontractor's responsibility regarding permitting and inspection of the modules is only a portion of the work, although it's a huge portion Typically those subcontractors and we have it in our documents that they're responsible for stamping, sealing and submitting the modular design documents in tandem with the architect's drawings during the permitting process.
Speaker 2:And that's all happened. All gets bundled up and submitted, but the modular subcontractor is responsible for that and it's recommended, for example, in our documents that the modular subcontractor submit these documents on their title block and sealed by their own design professional. And that's a hard pill for the architects to swallow that somebody else is stamping drawings, but in fact we do have design input, we just don't have to seal. We're not doing the construction drawings. So that's simply the thing that we had to come to a conclusion on and make sure it was very clear, because it can get convoluted, and I also I know we like to mention this, but the new, or I should say the next version of the International Building Code is supposed to address this a little bit more clear than it has in the past. I'm sure it will. It may not be 100%, but at least they're making an effort to at least give them some direction so we can move forward on these.
Speaker 1:Well, fingers crossed for there, yeah for sure. How do these documents address transportation of the modules? I know that's a big part of any modular construction job.
Speaker 3:Yeah, absolutely. The documents explicitly delegate this responsibility to the modular subcontractor, and the reason we did this is because it's what we heard from the industry. We heard that modular subs are the most knowledgeable about the shipping routes and that they have the closest relationship with the logistics company company. And so because of these factors, as Sal keeps mentioning, as I mentioned earlier, we determined that the modular subcontractors in the best position to handle that responsibility.
Speaker 1:How flexible are these documents?
Speaker 2:you know for the installation of the modules themselves once they arrive on site. That's a great question. So this is another aspect where we thought we had a really good handle on it and after our interviews with a lot of the liaisons, we found out differently. Although the construction managers I think to a T all said listen, the responsibility for the installation, the hookup, the dropping of the modules in place, that should be all the responsibility of the modular fabricator or subcontractor. And we felt that way too. But, believe it or not, we have a lot of input from fabricators who felt differently and felt that the responsibility should be on the construction managers. So we went back and forth on this. So in the end we wanted to be flexible and we wanted to allow the users, the owners and the CMs and in fact this case the modular subcontractors have a set in this.
Speaker 2:So we put a little check box in the A481, I believe is the document to designate who is responsible. You can check the box as the CM or the modular subcontractor who would have the responsibility for installing, connecting and assembling the units. If they don't check a box, the default is the construction manager has to take on the responsibility. But it's interesting because a lot of the construction managers who get involved in this do not want to have that responsibility. They want everything on the modular subcontractor from beginning to end Set them, install them, connect them and have it ready to go for inspection. But we wanted to be flexible, and I know Sarah's sick of me saying this, but this is one of the beautiful things about AIA contract documents, because even though we thought it should be one way, the industry says it's another way. So we wanted to at least show that we were hearing what they had to say and we put it in the documents that way to give them the option to do that. And I'm sure it'll work both ways. But it's a matter of the risk.
Speaker 1:Well, kudos on you for adding in that flexibility. I know not everybody feels the same way about it, so it's nice to have the option there at the end. What's the best way for project stakeholders to get started with these contract templates?
Speaker 3:I would say please visit our website, aiacontractscom. At the top there's a little search bar. You can either just type in modular or just if you're looking for a specific contract. Our owner contract or, I'm sorry, owner construction manager agreement is the A-181. And the general conditions to that is the A-281. The CM modular subcontract or subcontract, as Sal mentioned earlier, is the A-481. And then the owner architect agreement is the B-181. So you can type in any of those document numbers or just type in modular and they'll delete at the top.
Speaker 1:If stakeholders have a question or need to get in touch with someone, is that a possibility?
Speaker 3:Yeah, you can always go on our website. We have what's called a learn page where we have some articles devoted to modular and then we have something called doc info and so it's off of a learn page. Or we have some articles devoted to modular and then we have something called doc info and so it's off of that learn page. You can type a question to doc info and we'll be able to handle some of your requests Excellent.
Speaker 1:Well, thank you both so much, Sarah and Sal. I really appreciate your time. It was great speaking with you. I really appreciate it.
Speaker 3:Thank you so much for having it. Thank you so much for having us.
Speaker 2:Thank you, my pleasure.
Speaker 1:My name is John McMullen and this has been another episode of Inside Modular, the podcast of Commercial Modular Construction. Until next time.