Surajeet Chakravarty

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Most contracts that individuals enter into are not written from scratch but depend upon forms and
terms that have been successful in the past. In this paper we study the structure of the form construction
contracts published by the American Institute of Architects (AIA). We show that these contracts are an
e¢ cient solution to the problem of procuring large, complex projects when unforeseen contingencies are
inevitable. This is achieved by carefully structuring the ex post bargaining game between the Principal
and the Agent. The optimal mechanism corresponding to the AIA construction form is consistent with
decisions of the courts in several prominent, but controversial, cases, and hence provides an economic
foundation for a number of the common-law excuses from performance. Finally, the case of form contracts
for construction is an example of how markets, as opposed to private negotiation, can be used to determine
e¢ cient contract terms.

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Chakravarty, S., & MacLeod, B. (2004). On the Efficiency of Standard Contracts the Case of Construction. Retrieved from (Original work published 09/2004AD)
Working Papers