May 2001

In This Issue

• Beware of Foreign Steel!
• Clarification Post-Bid Impermissible
• Attorney's Fees Awarded in Arbitration
• Successful Bid Challengers May Receive Money Damages
• Set-Asides Remain Shelved
• Firm News

Beware of Foreign Steel!

Donald W. Gregory, Construction Law Chair

As a result of the promises of the leaders of the Ohio House and Senate and the Governor to provide help to the Ohio steel industry, Senate Bill 11 moved on a "fast track basis" through the Ohio General Assembly and was signed into law on an emergency basis on March 29, 2001. The hastily prepared Bill is quite troubling to the construction industry and perhaps poses a significant risk to your company. The Bill imposes a substantial penalty on anyone who knowingly or otherwise uses foreign "load bearing structural steel" on any Ohio public construction project. While this requirement of utilizing only "domestic steel" should be set forth in the State's specifications made available to bidders, the law imposes a penalty even if the provision is not contained in the specifications. The penalty for non-compliance is 1 ½ times the value of the foreign steel — a draconian penalty that would be enough to put many companies out of business.

Contractors and Subcontractors are strongly encouraged to take all efforts necessary to insure that no foreign "load bearing structural steel" finds its way onto your public construction projects, including receiving certifications from your steel subcontractors and suppliers.

As metal studs might arguably be considered "load bearing structural steel," drywall contractors also should be aware of this risk. Although not legally binding, Ohio's Department of Administrative Services says its "focus" will be on building structural steel framing, as opposed to ornamental steel, light gauge steel framing, reinforcing steel and other systems, which include limited "structural" steel, the origin of which is usually difficult or impossible to determine.

Clarification Post-Bid Impermissible

In this case, the low bidder attempted to clarify its bid proposal with a post-bid fax to the county commissioners. The Eleventh District Court of Appeals ruled that allowing one party to amend or change its bid after the bid opening endangers the sanctity of the bid process and therefore no valid contract could be entered into with the low bidder who materially deviated from the bid specifications. Rein Constr. v. Trumbull Cty. Bd. of Commrs., 138 Ohio App.3d 622 (2000).

Attorney's Fees Awarded in Arbitration

Generally attorney's fees cannot be recovered in a contract dispute unless authorized by statute or expressly by the express terms of the contract. A recent case arising from an AAA arbitration found that the arbitrators properly awarded attorney's fees to the prevailing party.

The 1997 AAA rules allow an award of fees if all parties have requested such an award or it is authorized "by law or the arbitration agreement" but the losing party argued that attorney's fees could not be awarded because both parties did not request attorney's fees in the award nor was it authorized by the contract.

The Tenth District Court of Appeals construed the Indemnification clause of the contract (¶4.16) dealing with property damage in such a manner as to permit attorney's fees to be awarded in this contract dispute. Victoria's Secret Stores v. Epstein Contracting, Case No. 00AP-209, March 8, 2001.

This case points out the risk associated with broadly drafted indemnification clauses and the wide discretion arbitrators are given in crafting equitable arbitration awards, including the award of attorney's fees and expenses. 

Successful Bid Challengers May Receive Money Damages

The Mechanical Contractors Association ("MCA") successfully argued in protracted litigation that the University of Cincinnati violated the competitive bidding statutes through building a conference center with a lease-purchase financing option (lease-leaseback) without putting the construction work out to bid. Generally speaking, in order to receive an injunction the bid challenger must show he has "no adequate remedy at law" such as the ability to recover money damages.

Although the Courts granted MCA injunctive relief, the project was largely completed before a final victory was received at tremendous cost. Therefore, the Tenth District Court of Appeals took the extraordinary step of remanding the case to the trial court to determine an appropriate amount of money damages to avoid "an understandable chilling effect" upon future bid challengers. Mechanical Contractors Assn. v. Univ. of Cincinnati, Case No.00AP-665 and 694, February 20, 2001.

This case means that public owners in bidding disputes who do not prevail may for the first time be at serious risk that they will have to pay money damages to the successful bid challenger. It remains to be seen what the measure of damages are in such a circumstance.

Set-Asides Remain Shelved

The U.S. Supreme Court has refused to hear the case arising from AGC's successful constitutional challenge of Ohio's MBE set-aside laws governing construction contracts. This means that Ohio's construction set-aside program will remain unenforceable. Governor Taft has authorized his administration to commission a study into whether there is significant evidence of discrimination against minorities and women in state contracts. 

Firm News

Don Gregory and Kegler, Brown, Hill & Ritter have been selected as General Counsel to the American Subcontractors Association, who represents the interests of over six thousand subcontractor member firms nationwide.

Don Gregory and Chris Weber successfully defended the Public Employees Retirement System in a bidding dispute involving an allegedly proprietary specification on its downtown high-rise office project.