FAQs: C197™-2008, Standard Form of Agreement Between Single Purpose Entity and Non-Owner Member for Integrated Project Delivery

 

Who enters into C197–2008?

C197–2008 is an agreement between the Single Purpose Entity (“SPE”) and a non-owner member of the SPE. In most projects, the non-owner members consist of the architect and the construction manager, although other parties may be non-owner members as well. All non-owner members enter into separate C197-2008 agreements with the SPE. The C197–2008 provides the terms and conditions under which the non-owner member will provide services to the SPE for the completion of the project.

 

Why do the architect and construction manager perform their services under C197–2008 agreements with the Single Purpose Entity and not as members of the SPE itself?

The SPE is a limited liability company. The licensing laws in many states prevent a limited liability company from performing architectural services, unless all, or a majority of, its members are architects. Therefore, the SPE furnishes the necessary services to complete the project through C197–2008 agreements with its non-owner members and through agreements with nonmembers.

 

Why do non-owner members enter into C197–2008 agreements with the SPE?

C197–2008 provides the terms under which the non-owner member agrees to provide services to the SPE. In its agreement with the owner, C196–2008, the SPE is required to deliver the project to the owner, but the SPE does not directly provide any of the services itself.  Rather, the members, as well as non-members provide the necessary services through agreements with the SPE.

 

Can C197–2008 be used as a construction contract?

No, it is not intended to be used as a construction contract. If a member will be providing labor and materials to construct the project, in addition to the services required of it under C197–2008, the member must enter into a separate agreement with the SPE for those construction services. As a precondition to entering into a construction contract with the SPE, the member must fully disclose all information relevant to the SPE’s assessment of any potential conflicts of interest.

 

What services are required of the non-owner members in C197–2008?

C197–2008 initially requires the non-owner members to provide the services described in C195–2008 in order to develop a Target Cost proposal that the SPE can present to the owner. Upon the owner’s acceptance of the Target Cost proposal and the SPE’s execution of the Target Cost Amendment, which includes a table in which the member’s responsibilities for services are assigned, the non-owner member is required to perform those services required of it in the Target Cost Amendment.

 

How is the non-owner member compensated for services provided under C197–2008?

The non-owner member receives reimbursement for its direct and indirect costs incurred in rendering the required services under C197–2008. Compensation representing profit is received as Incentive Compensation and Goal Achievement Compensation. The non-owner member will receive reimbursement of direct and indirect costs up to the point where Actual Cost equals the Target Cost. If the Actual Cost exceeds the Target Cost, the non-owner member is required to continue rendering services, but it is not entitled to reimbursement for any additional direct or indirect costs it incurs. Additionally, if the Actual Cost exceeds the Target Cost, there will be no Incentive Compensation available to the non-owner member. The non-owner member may, however, receive profit in the form of Goal Achievement Compensation for any Project Goals that are actually met on the project even if the Actual Cost exceeds the Target Cost.

 

What constitutes direct costs under C197–2008?

Under C197–2008, direct costs consist of those costs directly attributable to the project that are set forth in the agreement. Direct costs include labor costs, consultant and subcontractor costs, certain miscellaneous costs, and any other costs incurred in the performance of services that the SPE approves in advance.

 

Does C197–2008 allow for the non-owner member to receive payment for indirect costs?

Yes, under C197–2008 the non-owner member may receive reimbursement for indirect costs.

 

What is Incentive Compensation under C197–2008?

Incentive Compensation is a profit payment from the SPE that the non-owner member may be entitled to under C197–2008. If the Actual Cost of the project is less than the Target Cost, the non-owner member is entitled to a portion of the savings as Incentive Compensation. The SPE and non-owner members will establish the portion of any savings in C197–2008. Any Incentive Compensation the non-owner member is entitled to receive becomes payable upon the final reconciliation of the project accounting. If the Actual Cost of the project is equal to or greater than the Target Cost, there are no savings from which Incentive Compensation can be paid.

 

What is Goal Achievement Compensation under C197–2008?

Goal Achievement Compensation is a profit payment from the SPE that the non-owner member may be entitled to receive if certain Project Goals are met. The SPE establishes certain Project Goals in the Target Cost Amendment and assigns an amount available for payment to the non-owner members for the achievement of those Project Goals. If a Project Goal is achieved, the non-owner member receives a portion of the amount available for the achievement of the award as Goal Achievement Compensation.  The portion paid to the non-owner member as Goal Achievement Compensation is set forth in C197–2008. Goal Achievement Compensation is payable upon achievement of a Project Goal. If the Actual Cost exceeds the Target Cost, the Non-Owner Member can still retain Goal Achievement Compensation for any Project Goals previously paid.

 

Who owns the non-owner member’s Instruments of Service?

The non-owner member, and their consultants and contractors, retain all ownership rights in their respective Instruments of Service. The non-owner member licenses the use of the Instruments of Service to the SPE solely and exclusively for use on the project. The license conditions on the SPE’s substantial performance of its duties under C197–2008, including prompt payment.

 

Does C197–2008 require the non-owner members to carry specific types of insurance?

C197–2008 sets forth specific requirements with regard to insurance. Prior to the execution of the Target Cost Amendment, the non-owner member is required to maintain insurance policies as listed in the agreement, such as Commercial General Liability, Automobile Liability, Workers’ Compensation/Employers Liability, and Professional Liability (if applicable). After the execution of the Target Cost Amendment, the agreement provides a similar list of policies with the addition of Excess Liability that the non-owner member is required to maintain. If the SPE institutes a Company-Controlled Insurance Program (CCIP), the non-owner member is required to obtain any insurance the CCIP requires of it.

 

Under C197–2008, what happens to the non-owner member’s Instruments of Service after the SPE dissolves?

According to C197–2008, upon the SPE’s dissolution, the non-owner members permit the SPE to grant a license to the owner member for the use of their Instruments of Service. The license is contingent upon the SPE’s performance of all its obligations and the non-owner member receiving from the owner an agreement to release the non-owner member from all claims and causes of action arising from the owner’s use of the Instruments of Service without retaining the author. Additionally, the owner is required to indemnify and hold harmless the non-owner members from all costs and expenses related to third party claims.

 

Does C197–2008 allow the non-owner member to bring a claim against the other members for claims relating to the project?

Under C197–2008, the non-owner member may not bring claims directly against the other members. The non-owner member assigns any right it may have against the other members to the SPE. The SPE is empowered to bring and resolve any claims the non-owner member may have through the dispute resolution process established in C195–2008. The assignment of claims to the SPE, however, does not apply to claims arising from the non-owner members’ willful misconduct.

 

What happens to C197–2008 if the owner chooses to terminate its agreement with the SPE for its convenience?

If the owner requests to terminate its agreement with the SPE, the SPE is required to provide the non-owner member a notice of the owner’s request. Upon the non-owner member’s receipt of the notice, C197–2008 terminates. The non-owner member is entitled to compensation for all services rendered prior to termination plus any expenses directly attributable to the termination and an amount for customary profit earned as of the date of termination.

 

How are claims related to the termination of C197–2008 addressed?

The non-owner member agrees to resolve any claims arising from the termination of C197–2008 in accordance with the dispute resolution procedures set forth in C195–2008.

 

Under C196–2008 & C197–2008, what happens to the non-owner member’s claims once the SPE has dissolved?

Upon dissolution of the SPE, the owner and non-owner agree to resolve all claims and disputes they may have against the other members through the dispute resolution process set forth in C195–2008, the SPE Agreement.

 

What provisions in C197–2008, if any, survive the dissolution and winding up of the SPE?

Upon dissolution and winding up of the SPE, the non-owner member is required to cooperate with the other members to establish any of the non-owner member’s rights and responsibilities under C197–2008 that will continue. C197 provides a partial list of such rights and responsibilities the members must consider.

 

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