On small to mid-size commercial construction loans, it’s common for the bank to say:
“We require a standard AIA contract.”
That’s a reasonable position. AIA forms are widely used, generally balanced, and familiar to most contractors and attorneys.
But here’s the catch:
There isn’t just one “standard” AIA contract.
On smaller commercial projects – retail stores, coffee shops, franchise rollouts, medical offices – there are two AIA contract structures we commonly see. And they are not interchangeable.
If the bank is going to require an AIA contract, the better question becomes:
Which AIA structure best fits this project?
First, a quick note on contract type: these are lump sum agreements.
Before we compare forms, it’s important to clarify what these two contract structures are designed for.
The two most common AIA agreements used on small commercial projects are intended for:
Stipulated Sum (Lump Sum) contracts
That means the contractor is agreeing to perform the work for a fixed price, subject to approved changes.
That’s the most common setup for many smaller commercial projects – and it’s typically what lenders prefer.
However, lenders should be aware there are other legitimate AIA contract structures for other pricing methods, such as:
Cost of the Work with a Guaranteed Maximum Price (GMP)
Those are different agreements and should not be forced into the “lump sum” forms.
So when a bank says “standard AIA contract,” it’s helpful to confirm one thing first:
Is this project truly a lump sum contract, or is it a cost-plus/GMP arrangement?
Two Common AIA Structures on Smaller Projects
Assuming the project is lump sum, there are generally two AIA-based approaches used between owner and contractor:
- A more formal AIA agreement paired with detailed general conditions (commonly known as the A101/A201 structure).
- A simplified AIA agreement intended for smaller, less formally administered jobs (commonly known as the A105/A205 structure).
Both are legitimate. Both are enforceable. Both can protect a lender.
But they assume different levels of oversight.
The Key Question: Is the Architect Administering the Contract?
The more formal AIA structure (A101 paired with A201 General Conditions) is built around the assumption that an architect is actively administering the contract.
Under that structure, the architect is expected to:
- Review and certify payment applications
- Review and approve change orders
- Act as the initial decision maker for claims
- Serve as a buffer between owner and contractor
That third-party oversight can be very beneficial on complex projects.
However, on many smaller commercial builds, the architect’s involvement effectively ends after permitting. The owner and contractor manage the rest directly.
If the bank requires the more formal AIA structure – but the architect is not actually performing those administrative duties – you create a disconnect.
Legally, the contract still states that the architect must approve payment applications and certain changes. If those steps are skipped in practice, the parties are technically not following the contract.
That may not matter while everything is going smoothly. But if a dispute arises, it can complicate enforcement of other provisions.
From a lender’s standpoint, it is generally better to have a contract structure that matches how the project is actually being administered.
If there is no architect formally reviewing pay applications and change orders, the simplified AIA structure (A105/A205) is often cleaner and more aligned with reality.
What the Bank Should Focus on Instead of the Form Number
The contract number matters less than whether the key risk controls are clearly addressed.
Change Order Discipline
Every lender has been burned by uncontrolled change orders.
Regardless of form, the agreement should require:
- Written change orders
- Clear adjustments to cost and time
- Defined approval process
Many banks wisely add a provision requiring lender approval before change work begins. That single requirement significantly reduces the risk of after-the-fact budget increases.
Retainage – and What It Applies To
Retainage is often assumed to be straightforward, but ambiguity here causes problems.
The contract should clearly define:
- The retainage percentage
- When retainage is released
- Conditions for final payment
Equally important: what retainage applies to.
- Does retainage apply to stored materials?
- Mobilization?
- Deposits for long-lead equipment?
If the agreement is silent, interpretations will vary. Clear language avoids downstream disputes.
Backup Documentation and Lien Waivers
The AIA forms allow progress payments, but lenders should ensure the agreement (or a bank addendum) requires:
- Subcontractor and supplier invoices
- Conditional and unconditional lien waivers
- A clear schedule of values
This protects against one of the most serious risks in construction lending: paying the general contractor while subs remain unpaid.
Clear Scope Definition
The contract should clearly enumerate the drawings and specifications that define the scope.
Vague references such as “plans dated March 2025” are not sufficient.
Drawings should be identified by title, date, and revision.
When scope is unclear, disputes follow. When disputes follow, costs increase.
Termination and Default Procedures
Both AIA structures provide:
- Written notice requirements
- Opportunity to cure
- Right to terminate for cause
- Owner’s right to complete the work and recover excess costs
The more formal structure is more detailed. The simplified structure is shorter but still enforceable.
For lenders, the key is not complexity – it is enforceability and clarity.
So Which AIA Contract Should the Bank Require?
If the project includes an architect who is actively administering payment applications and change orders, the more formal AIA structure (A101/A201) is appropriate and provides strong procedural guardrails.
If the architect is not administering the contract and the owner is managing directly, the simplified structure (A105/A205) is often more consistent with how the project will actually function.
Requiring the more complex structure on a project that will not follow it can create administrative gaps that work against the bank’s interests.
Final Thought for Lenders
Saying “we require a standard AIA contract” is a good starting point.
But the real protection comes from ensuring that:
- The contract matches how the project will be administered
- The contract form matches the pricing method (lump sum vs. GMP)
- Change orders are controlled
- Retainage is clearly defined
- Scope is clearly enumerated
- Payment documentation is required
The form number matters less than the discipline inside the agreement.
When the contract structure aligns with reality – and the key controls are in place – the lender’s position is significantly stronger.
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