February 2001

In This Issue

• When Does a Change Order Really Have to Be in Writing?
• Prejudgment Interest Generally Recoverable Under Odd Facts
• General Not Liable for Injuries to Sub's Employee
• Payment Bond Deadline Clarified
• Consumer Protection Risks for Excavation Contractors
• Compelling Arbitration is No Longer a Final Appealable Order
• Disputes Will Stay Where Project Is Located
• Firm News

When Does a Change Order Really Have to Be in Writing?

Donald W. Gregory, Construction Law Chair

A "change order" is any deviation from the contract documents —typically an upgrade with an additional cost. Under most contract language, a change order is to be memorialized in writing and signed before the changed work is performed. This paperwork requirement creates certain practical difficulties as all associated with the project try to perform the work in a timely and efficient fashion. Unfortunately, many disagreements occur concerning the necessity of the change, and more importantly its reasonable cost, after the additional work is performed when a change order is not signed before the work proceeds.

In determining whether a contractor gave adequate notice, the courts will evaluate the totality of the circumstances to include all written and verbal communications between the parties. Julian Speer Co. v. Ohio State Univ., (Ohio Ct. Cl. 1997) 83 Ohio Misc. 2d 88; 680 N.E.2d 254. (The state's non-written instructions to build the project other than as included in the specifications create a "constructive change order" that is a proper basis to allow recovery of additional costs. Valentine Concrete, Inc. v. Ohio Dept. of Adm. Serv, (1991) 62 Ohio Misc. 2d 591, 601, 609 N.E.2d 623.

Without prejudice, any technical deficiencies in the notice generally will not result in a legal basis to deny the claim. The test is to determine whether the Owner had actual knowledge of claim of differing site conditions and an adequate opportunity to investigate the claim. Roger J. Au & Son, Inc. v. Northeast Ohio Regional Sewer Dist., 29 Ohio App.3d 284, 504 N.E.2d 1209 (1986).

Contrast these cases on actual or constructive notice requiring prejudice to the owner before barring recovery for the contractor with the Ohio Supreme Court case of Foster Wheeler Enviresponse v. Franklin County Convention Facilities Authority, (1997), 78 Ohio St. 3d 353. The Supreme Court upheld a literal reading of the written change order requirement and stated that the knowledge of, and even acquiescence in, the extra work by the Owner was not enough to permit a contractor recovery. Yet the Supreme Court acknowledged that such a clause could still be waived by the Owner.

The bottom line for subcontractors and contractors is that if you expect to be compensated for a change order you should get written authorization before the extra work is performed.

Prejudgment Interest Generally Recoverable Under Odd Facts

The object of prejudgment interest is to make the claimant "whole." Contractors recovering on contract claims are entitled to statutory pre-judgment interest at the rate of 10% per annum from the date the money was due, pursuant to O.R.C. §1343.03(A), Royal Elec. Constr. Corp. v. Ohio State Univ. (1995), 73 Ohio St. 3d 110. Courts have held that pre-judgment interest on construction claims should generally run from the date of substantial completion. Complete General Constr. Co. v. ODOT, Case No. 98AP-1619, Franklin County Court of Appeals (unreported, May 25, 2000).

General Not Liable for Injuries to Sub's Employee

Frequently when a job site accident takes place involving an employee, plaintiff's lawyers are interested in suing many different parties associated with the project, particularly parties other than the employer who generally enjoys workers compensation immunity from all but intentional torts. In that circumstance, general contractors are often sued for injuries that occur to a subcontractor's employee.

In a recent case decided by the Belmont County Court of Appeals, the Court ruled that the general contractor on the sewer construction project owed no duty to the subcontractor's employee who had been killed in a trench simply because the general contractor held periodic meetings on safety issues and supervised the subcontractor's general activities - when he had no direct control over the work area or the subcontractor's work. Abbott v. Garrett (1999), 132 Ohio App.3d 729. The Court ruled that the primary responsibility for protecting the employees of a subcontractor lies with the subcontractor-employer. The Court emphasized that the general contractor did not grant or deny permission to subcontractor with respect to any critical act leading to the accident. If that kind of direction had been given by the general contractor, there may have been a different result in the case.

This case will be helpful to contractors who are sued by employees of other contractors or subcontractors on the job site and stands for the proposition that a contractor will not be liable simply because he has general supervisory duties or conducts job site meetings with respect to potentially hazardous work. 

Payment Bond Deadline Clarified 

The Governor has signed H.B. 490 which will become law on February 9, 2001. Subcontractors and suppliers traditionally believed that they had 90 days from final acceptance of the job to assert payment bond claims until the Thomas Steel case suggested that the 90 days should run from the date the subcontractor completed its work.

This bill will straighten out Ohio law on payment bond claims to clarify that subcontractors have 90 days from final acceptance of the entire project (not just their work) to assert a claim against the bond.

This clarification should eliminate premature payment bond claims against contractors' bonds or the inadvertent loss of payment bond rights by unpaid subcontractors and suppliers.

Consumer Protection Risks for Excavation Contractors

Excavating contractors performing work on commercial or public works projects typically give no thought to potentially being subject to the Consumer Sales Practices Act ("CSPA"), however a recent Court of Appeals decision from Hamilton County has ruled that contractors may be subject to the CSPA when they deal with residents of the adjacent property with respect to their dumping and fill activities. Williams v. Edwards (1998), 129 Ohio App.3d 116.

In that case, the excavating contractor entered into agreements with neighboring property owners where he would be allowed to dump fill dirt during the course of his highway construction project in exchange for performing later improvements such as landscaping and replacement of driveways. No money was to change hands as a part of that transaction. Nevertheless, the Court of Appeals ruled that because the excavator's services were for the property owners' "personal use," the CSPA applied, meaning that any violation would expose the excavating contractor to potential liability for treble damages and attorney's fees.

This ruling means that contractors who deal with consumers on an exchange basis out in the field need to be careful to avoid violations of the CSPA. 

Compelling Arbitration is No Longer a Final Appealable Order

H.B. 401 was recently passed by the Ohio General Assembly and will become effective March 15, 2001. It reforms the arbitration statute (O.R.C. §2711.02-.03) to make arbitration easier to obtain without protracted litigation.

It eliminates the right of a party aggrieved by the alleged failure of another to perform under an arbitration agreement in a commercial construction contract to have a jury trial of the issue of whether there is an arbitration agreement or a failure to perform under the agreement for arbitration. It provides that the court must hear and determine that issue.

The bill provides that only an order that denies (not an order that grants) a stay of a trial of any action pending arbitration under an arbitration agreement in a commercial construction contract is a final, appealable order. 

Disputes Will Stay Where Project Is Located

The Ohio General Assembly recently passed H.B. 491 involving jurisdiction. This bill will become effective on March 21, 2001 and makes construction contract provisions requiring jurisdiction in another state unenforceable if the project is located in Ohio. It states that venue is proper where the project is located unless the parties agree otherwise. It also requires Ohio law to be applied to Ohio construction projects. This means a subcontractor or contractor on an Ohio Project will not be forced to litigate against an out-of-state contractor or owner in another state. O.R.C. §4113.62(D). 

Firm News

Don Gregory and Mike Copley tried a delay/impact claim involving a multiple prime contractor school project to a jury in Western Ohio and received a significant verdict in that case which is likely to be appealed. Don Gregory will be speaking to the Ohio Appellate Judges at the Supreme Court of Ohio Judicial College on February 22 on "Issues in Construction Law." Dan Hilson and Don Gregory were actively involved in the negotiation, drafting and passage of H.B. 490, 491, and 401 in the last General Assembly.