September 2007

In This Issue

• Decision to Find Contractor Not Responsible for OSU Project Upheld on Appeal
• When Are "No Damage for Delay" Provisions Enforceable?
• Delays Not Contemplated by Parties at the Time of Contract Are Not Within The Scope of a "No Damage for Delay" Clause.
• Claims for Hindrance or Obstruction Are Not Barred by a "No Damage for Delay" Clause.

Decision to Find Contractor Not Responsible for OSU Project Upheld on Appeal

Donald W. Gregory, Construction Law Chair

Recently the Franklin County Court of Appeals upheld a trial court's landmark ruling that the State had considerable discretion in awarding public contracts to contractors other than the low bidder.

O.R.C. §153.08 provides that the State will award public works projects to the "lowest, responsive and responsible" bidder. O.R.C. §9.312 sets forth the criteria that are to be considered when determining whether a bidder is "responsible" for that project, including the experience, management skills and financial resources of the bidder, but this provision has been infrequently applied by public authorities. In a landmark case last year construing these "responsibility" provisions, Judge Sheward of the Franklin County Common Pleas Court ruled that Cleveland Construction, Inc., while low bidder, was not "responsible" to perform the sizable general trades portion of the Max Fisher Business College project for The Ohio State University, and upheld the award to the second low bidder, Danis Building Construction Company.

The Trial Court rejected the low bidder's contentions that the public officials had abused their discretion in the investigation and evaluation process and further that there were technical defects in the "responsibility" process applied by the State.

The Trial Court went on to uphold the constitutionality of the process and affirmatively ruled that it was fair and reasonable.

The low bidder appealed the case to the Franklin County Court of Appeals, who on June 10, 1997, affirmed the Trial Court's decision in all respects. The three judge appellate panel ruled unanimously that:

1. The State did not apply "unannounced criteria" to the responsibility determination, particularly where, as here, the same criteria was applied to all bidders.

2. The State did not improperly "compare" the bidders simply because all of the information relative to responsibility was obtained from all the bidders at the same time due to the limited time available.

3. The duty to assess the responsibility determination may be delegated by the Deputy Director of the Department of Administrative Services.

4. The State has the discretion to refuse to award a contract to the low bidder if it is not in the best interest of the State.

5. The State need not promulgate rules for the responsibility process nor must the low bidder be given the right to due process —such as cross-examining witnesses at the bid protest meeting.

6. The responsibility process, as applied by the State here, was constitutional.

This decision upholding the "responsibility" evaluation process will likely encourage more frequent use of the statute by public owners in the future, with the result being that the low bidder may not always be the successful bidder.

Don Gregory, Steve Chappelear, Ted McKinniss and Chris Weber successfully represented The Ohio State University in this case.

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When Are "No Damage for Delay" Provisions Enforceable?

As everyone associated with the construction industry knows, on any construction project "time is money." In view of increasing construction claims, more owners and contractors are attempting to draft no damage for delay provisions in their contracts and subcontracts respectively to help insulate themselves from additional expense on projects where completion is delayed.

Generally, no damage for delay ("NDFD") provisions will be strictly construed. In applying the most common exception, a court will look to see if the specific delays encountered were of the type that would be within the contemplation of the parties at the time the contract was entered into. If the specific delay at issue is of the type that would not be within the contemplation of the parties when the contract was made, then the clause will not serve to preclude the award of damages to the contractor for the delay.

Delays Not Contemplated by Parties at the Time of Contract Are Not Within The Scope of a "No Damage for Delay" Clause.

In Nix, Inc. v. City of Columbus, 171 N.E.2d 197 (Ohio App. 10th Dist. 1959), the contractor entered into a contract with the City of Columbus on the assumption (by both parties) that the city had procured the necessary right of way for the project. In fact, the city did not have the necessary right of way and the project was delayed by four months as a result. The "no damage for delay" clause at issue was very broad and included damages for "any hindrance or delay from any cause whatever in the progress of the work." The court held that damages arising out of the city's delay in acquiring the right of way were not precluded by the no damage for delay cause. The court explained that where both parties had signed a contract on the assumption that the city had acquired the right of way, any damages resulting from the city's delay in attaining the right of way were not within the contemplation of the parties at the time the contract was made.

This rule also applies to the State on public projects. In Royal Elec. Constr. Corp. v. The Ohio State Univ., 1993 WL 532013, at *1, the contractor was delayed in starting on the project as a result of the unexpected discovery of asbestos and other problems. First, the provision in issue provided that "there is no liability for damages resulting from delay caused by third persons." The court, by strictly construing the provisions found that the provision did not apply to delays caused by the State because the State was not a "third person."

Next, the court found that even if the provision applied to the parties it would not have applied to the specific delays experienced by the contractor. The court found that the delays encountered by the contractor "were well beyond what could have reasonably been anticipated by the contract" and further noted that the "discovery of asbestos in flooring and pipes was unanticipated, and that the delays by the general contractor and others led to an accumulation of delays that resulted in the loss of an unreasonable amount of time." The court went on to state that "a certain amount of delay in a construction project may be foreseeable, the accumulation of delays can be of such a magnitude that, taken together, the extent of delay becomes unforeseeable." The court concluded by finding that because the delays experienced by the contractor "were unforeseeable, the delays necessarily were 'not within the contemplation of the parties at the time the contract was made'", and thus, it would have been proper for the lower court to refuse to enforce an otherwise valid no damage for delay clause.

In Avon Excavating Co. v. City of Parma, supra, LEXIS 41557, at *1, the contractor alleged that the bid plans were prepared incorrectly and that the city interfered with the construction of the project, that it ordered unauthorized work stoppages and that it failed to timely acquire and deliver easements so that the contractor could proceed in a timely manner. The trial court put the issue to the jury to determine whether or not the delays were in the reasonable contemplation of the parties at the time the contract was entered into. The jury found that the delays were not within the contemplation of the parties and thus awarded damages. The court of appeals upheld the decision.

In the most recent case on the subject, the Franklin County Court of Appeals reversed the summary judgment in favor of the public owner and held that for a NDFD provision to be enforceable, the extent and magnitude of the delay must have been foreseeable. Cleveland Construction v. Reynoldsburg City Schools, Case No. 96APE02-242 (June 28, 1996, unreported). A prime contractor defaulted and it took the School District a significant amount of time to replace the defaulting contractor, causing delay to the project and damage to the other prime contractors. The Court of Appeals ruled that the trial court had erred by ignoring the case law and granting summary judgment for the School District with a literal reading of the NDFD clause. The Court of Appeals reversed because a NDFD clause is not enforceable when the magnitude of the delays was unforeseeable.

Another recent case from the Northern District of Ohio held a NDFD clause unenforceable when the owner failed to keep its promise to effectively supervise and coordinate the work of the other prime contractors. JWP/Hyre Electric Co. v. Mentor Village School District, 1996 U.S. Dist. LEXIS 2117 (February 9, 1996). 

Claims for Hindrance or Obstruction Are Not Barred by a "No Damage for Delay" Clause.

The Sixth Circuit in John E. Green Plumbing v. Turner Construction Co., 742 F.2d 965 (6th Cir. 1984), in determining whether or not the clause applied to the facts of that case, made an important distinction between the terms hindrance and delay. In the Green case, the clause at issue forbade damages resulting from the contractor being "delayed in the commencement, prosecution, or completion of the project." The clause made no mention of "hindrance" and thus Green argued that the clause, "strictly construed, only bars delay damages and not other kinds of damages, such as damages for hindering work on the project." The court agreed with Green and went on to define delay as meaning "time lost where work cannot be performed because essential supplies have not been delivered or necessary preliminary work has not been performed." Thus, the court concluded that delay damages "refers simply to the cost of an idle workforce."

Applied to the facts of that case, the NDFD clause did not apply where the contractor suffered damages from obstacles created by the construction manager. Examples include, the construction manager allowing another contractor to brick up an area that Green needed access to and failure of the manager to ensure that temporary heat was provided. Thus, an action for damages arising out of hindrances and obstructions created by the construction manager (as opposed to delays) was not precluded by the NDFD provision that only addressed "delay."

NDFD provisions place contractors at risk that they will be unable to recover damages for delay, even if caused through no fault of their own, but whether a NDFD provision is legally effective will likely hinge on the particular facts of that case.