December 2008

In This Issue

• Has the Spearin Doctrine in Ohio Eroded on Private Work?
• Top Ten Survival Tips for Lean Times
• What Happens When ODOT Tries to Collect On a Bid Bond?
• Sub Bid Protest Rejected

Has the Spearin Doctrine in Ohio Eroded on Private Work?

Donald W. Gregory, Construction Law Chair

Since at least 1997 when our firm prevailed on behalf of a contractor on a school project and the Spearin doctrine (owner impliedly warrants the sufficiency of the plans) was first officially recognized in an Ohio appellate decision, courts have made no effort to distinguish between public and private work.  However, a recent federal court decision has threatened the Spearin doctrine on private work.

In that case, Wal-mart modified the AIA contract with Supplementary Conditions attempting to disclaim responsibility for the soils borings or report and shifting responsibility for site conditions to the contractor.  The contractor requested a change order for unforeseen rock encountered and removed by its excavating subcontractor.  Wal-mart denied the request.

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Top Ten Survival Tips for Lean Times

The recent credit crisis has accelerated the deepening economic concerns that face the construction industry, particularly in hard-hit areas of the country, including the Upper Midwest, where the economy has been weak for some time.  Residential construction has been on the ropes for a while and commercial construction has been anything but strong in most areas of the country.  Therefore, contractors, subcontractors, and suppliers faced with these lean economic times need to make smart business decisions that will allow them to survive, and ultimately prosper, during better times.  This is my personal list of the "Top Ten" survival tips for lean times.

1. Give Notice: During difficult economic times, you cannot presume that your customer will necessarily be able to pay the bill in a timely fashion.  Therefore, it is more important than ever that suppliers give preliminary notices as required by their state lien law.  Similarly, it is important that subcontractors and contractors give notice of change order work before the work is performed.  When work slows down and credit becomes tighter, it is important that your company implement notice practices designed to maximize your chances of being paid timely.
2. Review Contracts: Risk-shifting provisions in contracts can cause losses even when you perform your work in a satisfactory and timely fashion.  For example, pay-if-paid provisions in subcontracts may shift the credit risk of non-payment of the owner from the contractor to the subcontractors.  In difficult economic times it is more important than ever that you review and understand your contracts and make necessary changes. 
3. Train: Challenging economic times are the wrong time to ignore training.  When work slows down, you should invest in your future by taking advantage of training opportunities for your workforce of the future.  Consider learning a new and developing field (i.e. green building) so you might maximize opportunities to secure additional work in new markets. 
4. Market: Difficult times require a greater amount of marketing simply to hold your share of the work.  When work is not easily found, there is great value in creating the type of relationships and marketing approaches that maximize your opportunity to retain market share.  Remember that most of your business opportunities come from existing clients or those that are referred by them; so good, responsive service to those valued customers is crucial.  The good news is that difficult times often "weed out" the bad competition.
5. Cut Costs: Use this opportunity to increase efficiency with technology or other means to reduce labor costs.  While this often leads to difficult personal decisions, the company can emerge from such cost-cutting more profitable than ever when additional work arrives. 
6. Double-check Bids: Despite the care that goes into preparing important bids, many public bids are rejected because contractors do not take the time to ensure that their bid is responsive to the bid solicitation in all material respects.  It is also important that subcontractors adequately condition their bids and double-check inclusions and exclusions to ensure that their scope of work and price are accurate.  The worst time to live with the consequences of a mistaken bid is when work is tight. 
7. Lien: Our founding fathers created mechanic's lien rights in this country for a reason - to ensure that contractors, subcontractors and suppliers would be paid for their labor and material improving the value of property.  While lien rights are not a substitute for good credit decisions, lien rights must always be protected on any project where a contractor, subcontractor or supplier cannot afford to go unpaid. 
8. Mediate: Litigation always is expensive and can erode the bottom line.  Settlements on the courthouse steps do little to avoid legal costs.  Parties are encouraged to try to mediate a dispute at their earliest opportunity in the hope that the matter might be compromised and significant legal fees saved for both sides to the dispute.  In the event the mediation fails to bear fruit, the parties at least know that they tried their best to avoid those costs and can go forward in the litigation knowing that they had no other viable options.
9. Join: Difficult economic times are the wrong time to cut costs by ceasing membership in valuable trade associations.  The education and advocacy provided by these groups can often help your organization through difficult times and become much stronger in the long run.
10. Keep Perspective: The construction industry has weathered downturns before, and will again.  While nobody enjoys lean times, a sense of humor and a sense of perspective will serve you well in allowing your company to weather any choppy seas.  Hopefully, by implementing some of these simple strategies, your company can continue to succeed despite a challenging market, and be even stronger in the long run.

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What Happens When ODOT Tries to Collect on a Bid Bond?

ODOT recently tried to collect on a contractor's bid bond when the contractor rescinded the acceptance of the contract because it allegedly contained terms deviating from the bid solicitation.  ODOT issued, without a hearing, a decision purporting to forfeit the bid bond and the contractor challenged this determination in court.

ODOT argued that the contractor's appeal was not properly perfected under Chapter 119, governing certain agency administrative appeals.  This argument was rejected by the Court who found that R.C. §5525.01 applied instead.  ODOT next argued that the contractor had not properly perfected the R.C. §5525.01 appeal because the contractor had not provided an appeal bond, to secure the already-existing bid bond.  The Court recognized the lack of logic with this approach and refused to require a second appeal bond for the right to contest the forfeiture of the bid bond.  R.B. Jergens, Inc. v. Ohio Dep't. of Transp. (Aug. 25, 2008), Franklin Cty. C.P. Ct. No. 08CVF-05-7145.

The case will now proceed further on the merits.

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Sub Bid Protest Rejected

On another ODOT project, a concrete subcontractor and its concrete trade association challenged the acceptance of the asphalt (not concrete) alternative.  ODOT argued that the subcontractor and the association of which he was a member did not have standing to challenge the bid award.

While the Court recognized that trade associations generally have standing to bring legal action on behalf of members, it said that right was limited to whether the member (here a subcontractor not bidding directly to ODOT) had a right to sue.

The Court went on to find that a disappointed subcontractor has no right to sue the public owner as a disappointed bidder.  As a result, the Court threw out the bid challenge filed by the concrete subcontractor and his trade association.  Ohio Concrete Construction Assn. v. ODOT, Case No. 08 CV 09-13867 (October 6, 2008).

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