November 1992 |
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In This Issue
Statute of Limitations for Prevailing WagesA statute of limitations is simply the time after a claim arises within which a lawsuit must be filed. A recent Ohio Supreme Court case, Harris v. Atlas Single Ply Sys., Inc. (1992), 64 Ohio St. 3d 171, dealt with the statute of limitations for prevailing wage claims asserted by the Director of Industrial Relations. Remarkably, the Supreme Court concluded that there was no applicable statute of limitations for such claims. The Court specifically stated that "this is a problem to be resolved by the legislature." As pointed out by one of the dissenting judges, this loophole could permit a new administration to conduct a political vendetta by investigating projects completed many years ago by contractors who made political contributions to the opposition. This decision, when combined with the recent Ohio Asphalt case permitting payroll records to be inspected even on projects completed for more than one year (reported in the July 1992 issue of the Newsletter), compels prudent contractors to keep payroll records on prevailing wage projects indefinitely and exposes them to uncertain open-ended potential liability. Hopefully, remedial legislation will address this problem. Statute of Limitations for SuppliersThe Court of Appeals for Cuyahoga County in the case of Aglinsky v. Cleveland Builders Supply Co. (1990), 68 Ohio App. 3d 810, has ruled that the statute of limitations for a claim by an owner for defective building supplies against the supplier, with whom the owner had no direct contract, is four years from when the owner knew or should have known of the defective building product. This means that a claim could be filed more than four years after the product was sold if the defect was discovered later, leaving suppliers with almost open-ended potential liability. The Court specifically held that the ten-year statute of limitations (beginning from when the work is performed regardless of when the defect was first discovered) relative to architects, engineers and builders did not apply to suppliers. General Contractor Entitled to Overhead But Not Profit on Subcontractor BackchargeMany general contractors have provisions in their subcontracts that provide that if the subcontractor fails to perform the general contractor is entitled to "backcharge" the subcontractor the costs of repair, including overhead, profit and attorney's fees. The recent case of S&D Mech. Contrs., Inc. v. Enting Water Conditioning Sys., Inc. (1991), 71 Ohio App. 3d 228, has helped interpret what types of damages or "backcharges" are collectible. A general contractor is entitled to be "made whole" after a subcontractor's breach of contract. The Court in the S&D case held that the contractor was entitled to recover interest, attorney's fees and overhead expense; however, denied any recovery for the contractor's lost profits. The Court stated that the contractor was entitled to lost overhead because its own resources were diverted to correct the problem, but could not prove that it would have made additional profit from other work had it not been required to redo the subcontractor's work. Subcontractor Bound by Prime Contract Terms Under Oral ContractIt has become typical in the construction industry for voluminous prime contract terms to be incorporated into written subcontracts by reference. However, a fairly recent Court of Appeals case from Franklin County takes this process one step further by ruling that a subcontractor could be bound by the terms of the prime contract even though the subcontract work commenced under an oral agreement. COSMCO, Inc. v. Head, Inc. (1990), 70 Ohio App. 3d 544. This case arose from work on the federal DCSC project in Columbus. The subcontractor began work after the contractor's oral request andworked for about a month until the parties signed a written subcontract that incorporated the voluminous prime contract by reference. After a claim was asserted by the subcontractor, the general contractor insisted that the subcontractor was bound by the terms of the prime contract; more specifically, that all the general contractor had to do was "sponsor" the subcontractor's claim to the owner and only pay the subcontractor if the claim was paid by the owner. The Court agreed because the subcontractor had a copy of the specs before he submitted his bid and should have read the prime contract; and further should have been familiar with the applicable federal law (i.e., "Sponsorship" under the Contract Disputes Act) in any event. The Court further stated that it was standard procedure in the construction industry to begin work before signing a written contract, which merely confirms and elaborates on the earlier oral understanding. In view of this decision, it is more important than ever for subcontractors or others to be familiar with the terms of the prime contract governing the project. These prime contract terms often contain important alternative dispute procedures, such as arbitration or mediation, that are not specifically set forth in the subcontract or purchase order itself. Referee Throws Out Article 8 Process and Applies Eichleay Formula on Delay Claim Against DASIn an important Ohio Court of Claims Referee's Report filed July 19, 1992, in the matter of Conti Corporation v. Ohio DAS, Case No. 88-14568, Referee Jack Graf found against the Ohio Department of Administrative Services ("DAS") on a number of crucial issues of interest to contractors pursuing claims against DAS. This case involved delay and other claims by a plumbing contractor against DAS on a Youngstown State project. First, the Referee found that the contractor was not bound by the written contract requirement that all change orders be in writing by the oral representations of the State and its agents. Second, Referee Graf held that the Article 8 dispute process, mandated by DAS contracts, was inherently unfair in that hearings were only brief bargaining sessions, not true fact-finding, by representatives of DAS with possible bias. In view of this, he found that it would be against public policy to require a contractor to submit to this process to recover its additional claims. Third, Referee Graf applied the Eichleay formula in calculating the contractor's delay claim and further stated that no expert testimony was required to apply the formula. Finally, the contractor was awarded interest on late draw payments. The Report held that the relevant statutes require payment of draws within 30 days after approval by the associate architect, rather than approval by the Deputy Director of Public Works at DAS as stated in the contract. This far-reaching Report provides quite a bit of ammunition to contractors pursuing claims against DAS. It is uncertain at this time whether the Report will be upheld by the Court of Claims or appealed by DAS, so further developments in this matter will be watched closely. ADA and the Construction IndustryOn July 26, 1990, President Bush signed into the law the Americans with Disabilities Act ("ADA") which prohibits discrimination against the estimated 43 million Americans with physical or mental disabilities. Most portions of ADA became effective for most construction employers on July 26, 1992. While ADA may create new construction or renovation opportunities for those involved in the construction industry, ADA will require construction employers to take affirmative steps and incur expense, as well as inconvenience, to accommodate the disabled. ADA prohibits discrimination in two principal areas - employment and access to public accommodations. I. EmploymentTitle I of the ADA prohibits discrimination in all employment practices against a "qualified individual with a disability." Title I protects qualified individuals with disabilities whether they are job applicants or employees. Title I became effective on July 26, 1992 for employers with twenty-five (25) or more full or part-time employees during each working day for 20 weeks in the current or preceding calendar year. Employers with fifteen (15) or more employees must comply by July 26, 1994. An employer must not discriminate during the job application process, hiring, promotion and advancement, discharge, job training and all other terms and conditions and privileges of employment relating to qualified disabled individuals. The ADA defines the term "qualified individual with a disability" to mean an individual with a disability who, with or without reasonable accommodations, can perform the essential functions of the employment position that such individual holds or desires. The ADA specifically excludes from protection any employee or applicant who is a current user of illegal drugs, when the employer acts upon the basis of such use. However, the ADA protects the individual with a disability who has previously used illegal drugs and completed a rehabilitation program. A disability includes any physiological disorder or condition, cosmetic disfigurement, or anatomical loss affecting one of the major bodily systems. The definition of physical or mental impairment also includes any mental or physiological disorder, such as mental retardation, emotional or mental illness, special learning disabilities, HIV infection, cancer, heart disease and alcoholism. Impairments do not include a characteristic predisposition to illness or disease, pregnancy or personality traits such as poor judgment or quick temper when they are not symptoms of a mental or a physiological disorder. ADA requires employers to make reasonable accommodations for an otherwise qualified disabled person. "Reasonable accommodation" includes but is not limited to making existing facilities used by employees readily accessible to and usable by employees with disabilities and job restructuring, part-time or modified work schedules, reassignment to a vacant position, acquisition or modification of equipment or devices, appropriate adjustment or modification of examinations, training materials or policies, providing qualified readers or interpreters, and other similar accommodations for individuals with disabilities. Basically, these modifications or adjustments are to enable an employee with a disability to enjoy equal benefits and privileges of the employment as those individuals who are not disabled. It is important to note that a reasonable accommodation need not be the best accommodation possible, but must sufficiently meet the job related needs of the individual being accommodated. Determinations as to what constitutes a reasonable accommodation need be made on a case-by-case basis. The employer should consult with the disabled individual to ascertain the precise accommodations which the individual may require, but only after a disabled person informs the employer that some special accommodation is needed. A reasonable accommodation is not required for a disabled individual unless he satisfies the legitimate qualifications for the position imposed by the employer. An employer must remember that it is a violation of the ADA to inquire into an applicant's medical or physical condition or whether the applicant is suffering from a disability. An employer also should not ask about the applicant's prior worker's compensation claim history. However, an employer can require an applicant to submit to a medical examination after making an offer of employment. The employer cannot rescind the job offer if during the course of this medical examination the employer discovers the employee suffers from a defined disability under the ADA. ADA does not prohibit drug or alcohol testing of any employee and permits the dismissal of any employee for the presence of illegal drugs. If the cost of the accommodation creates an undue hardship on the employer, then the employer is not required to comply with ADA. However, when the costs of an accommodation impose an undue hardship on the employer, the employer must give the employee the option to pay that portion of the accommodation costs which the employer deems to be an undue hardship. In essence, the employer must provide the employee the right to pay for the costs attributable to the accommodation for that employee. Aggrieved employees or applicants can potentially receive awards of money damages including attorney's fees, so the risks of non-compliance by employers with the employment section of ADA are great. II. Public AccommodationsTitle III of the ADA requires owners of "public accommodations" to make these facilities accessible to disabled individuals. If the public accommodation employs 16 or more employees and has gross receipts of more than $500,000, the Act became effective on July 26, 1992. If the public accommodation employs 10 or fewer employees and has gross receipts of $500,000.00 or less, then the Act becomes effective on January 26, 1993. If a company satisfies the definition of "public accommodation," then the owner, lessor, lessee and operator of the public accommodation must comply with the Act. This compliance consists of satisfying the Act's requirements for:
A "public accommodation" generally invites the broadest range of the public into its facilities to buy, sell, enjoy or participate. Generally speaking, most sales or rental establishments, like a plumbing supply house with a display or retail area, would be considered "public accommodations." In contrast, most "home offices" in the construction industry would be considered a "commercial facility" in that they are intended for non-residential use by employees, whose operations will affect commerce, but the general public is not typically invited. Job trailers on construction sites would also be considered "commercial facilities" rather than "public accommodations." If the facility is a "commercial facility," then there is no requirement to remove barriers or provide auxiliary aids and services, but only to make the facilities accessible to the disabled (except where structurally impracticable) where there is new construction or the alteration of an existing structure. ADA requires compliance if the improvements are "readily achievable." Factors to be considered in determining whether the improvement is "readily achievable" include cost, size of the business, and the financial resources of the company. For example, it might be "readily achievable" for a Fortune 500 company to install an elevator in a two-story building to accommodate the disabled in wheelchairs while it would not be for a "mom and pop" operation. Small businesses that make structural changes to their facilities to comply with the ADA may receive a tax credit. Unlike Title I concerning employment, Title III concerning public accommodations precludes a disabled individual from recovering money damages in a civil lawsuit. However, the United States Attorney General is authorized to investigate complaints by private citizens and seek civil penalties against offenders. In conclusion, those involved in the construction industry would be wise to immediately take steps to understand and implement the ADA as it relates to their particular business, so that litigation over these issues can be avoided in the future. CreditsKegler, Brown, Hill & Ritter's Construction Law Newsletter is prepared by Donald W. Gregory for the Construction Law practice group. To subscribe to any Kegler Brown publication, please use our Subscribe Form. To unsubscribe from any Kegler Brown publication, please use our Opt-Out Form. This publication, as well as an archive of previous publications, is also available from our Publications Archive. The Construction Law Newsletter is designed to provide general information about the subjects discussed. It is not meant to be all-inclusive or comprehensive. Kegler Brown is not rendering any legal or professional advice by way of this publication. © 1989-2008, Kegler, Brown, Hill & Ritter Co., L.P.A.
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