In This Issue

• Are Defects in NOC a Valid Excuse for Not Serving a NOF?
• State Loses Another Delay Claim in the Court of Claims
• Judge Refuses to Enjoin Demolition of the Ohio Pen
• Prevailing Wage Repealed for School Work
• Contractor Loses Without Written Change Order
• Senate Reintroduces Fairness in Construction Contracting Bill as S.B. 71

Are Defects in NOC a Valid Excuse for Not Serving a NOF?

Donald W. Gregory
Construction
Law chair

Our firm was recently involved with probably the first case in Ohio to interpret whether, under the Ohio's Modern Mechanic's Lien Law, a defective Notice of Commencement ("NOC") excuses a subcontractor or supplier from the duty to serve or attempt to serve a Notice of Furnishing ("NOF") upon the owner. Prior to this decision, many commentators believed that even technical flaws in a recorded Notice of Commencement did not excuse a subcontractor or supplier from attempting to serve a Notice of Furnishing.

However, in the case of RN Building Materials v. Ahn, Judge Travis of the Franklin County Common Pleas Court ruled that several significant procedural defects in a layman prepared Notice of Commencement (no legal description, wrong owner name) excused a supplier from its obligation to serve a Notice of Furnishing, even when the supplier made no attempt to serve such a Notice.

This means that owners must take special care in seeing that Notices of Commencement are properly prepared, filed with the county recorder and kept posted on the jobsite. This case also gives subcontractors and suppliers an opportunity to salvage lien rights when they have failed to serve a Notice of Furnishing, by later spotting technical "defects" in the Notice of Commencement.

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State Loses Another Delay Claim in the Court of Claims

In the case of Field & Associates, Inc. v. Department of Administrative Services, our firm successfully represented the prime roofing contractor in a differing site condition claim against the State due to greater thickness and hardness of the existing roofing material to be removed. Judge Shoemaker of the Court of Claims granted a judgment that included an amount for the differing condition claim that was approximately half of the original contract amount and withdrew the assessment of all liquidated damages assessed by the State. He also granted the contractor prejudgment interest in the amount of 10% per annum from substantial completion of the project.

In the decision, Judge Shoemaker reinforced the pro-contractor case law established in the Court of Claims following the Valentine case years ago, including the principles that:

1. ambiguities in the contract documents are to be construed against the State;

2. constructive notice of a change or differing condition is adequate to satisfy the notice provisions of the State's contract;

3. a contractor is entitled to an equitable adjustment for any conditions that could not have been discovered in a reasonable site inspection; and

4. a contractor is entitled to any extra costs incurred as a result of any errors or omissions in the plans and specifications.

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Judge Refuses to Enjoin Demolition of the Ohio Pen

Judge Hogan of the Franklin County Common Pleas Court denied an injunction to a disgruntled bidder on the Ohio Penitentiary demolition project and upheld the award of the contract to our client S.G. Loewendick & Sons, Inc., allowing the demolition to proceed. The Court specifically found that there was no evidence that the plaintiff would suffer irreparable harm if the temporary restraining order were not granted.

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Prevailing Wage Repealed for School Work

In a sudden move surprising to many in the construction industry, the Ohio General Assembly recently passed Am. Sub. Senate Bill 102 which will exempt from prevailing wages all construction undertaken by school districts and educational service centers effective August 18, 1997. Ron Mason of our firm was heavily involved with the legislation on behalf of ABC.

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Contractor Loses Without Written Change Order

The Ohio Supreme Court has ruled that a contractor who removed additional hazardous material on a unit price basis without a written change order did so at its own peril and denied recovery for almost a million dollars of extra work. Foster Wheeler Enviresponse v. Franklin County Convention Facilities Auth. (1997), 78 Ohio St. 3d 353. The contractor had agreed to remove a certain quantity of contaminated soil for the public authority. Additional quantities over and above the base bid were to be paid on a unit price basis, but the public authority maintained that increases in the quantity of work were an alteration in the scope of work that required a written change order. The Supreme Court agreed, despite the fact that the public authority knew that additional quantities were being removed and its consultant was allegedly "signing off" on the measurements of soil removed. This case emphasizes the dire consequences to contractors that can occur when the written change order requirements are not strictly complied with before performing the extra work.

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Senate Reintroduces Fairness in Construction Contracting Bill as S.B. 71

Senator Cupp has reintroduced the Fairness in Construction Contracting Bill (S.B. 71). This legislation initially began as an effort to bar "pay-if-paid" contract language which prevents construction subcontractors who perform satisfactory work from being paid when an owner, for whatever reason, fails to pay the general contractor. There was some initial opposition to this bill from general contractors.

This bill was originally introduced in March of 1995 as S.B. 106 (now S.B. 71). At the request of the sponsor, the construction industry representatives held several meetings and negotiated their differences.

After extensive discussion, negotiation and drafting, the general contractors of the State represented by AGC-Ohio and the subcontractors represented by the Ohio Subcontractors Council have reached agreement on a compromise and consensus industry bill - Sub. S.B. 71 (Fairness in Construction Contracting Bill).

This legislation is designed to remedy certain inequities in construction contracting created by adverse court decisions or unfair practices within the industry, and contains the following elements:

1. Requires subcontractors and suppliers to provide a Notice of Furnishing to preserve bond rights (as is the current law for mechanic's lien rights). This will prevent "hidden bond claims" and make bond claims consistent with mechanic's lien claims.

2. Clarifies the existing anti-indemnity statute to provide that one cannot force another to pay the attorney's fees and costs arising from a person's own negligence. This will eliminate the inconsistency of making one pay the negligent party's attorney's fees when the existing statute makes it clear the non-negligent party cannot be required to pay for the personal injury or property damage caused by the negligent party.

3. Prohibits as against public policy:

   a. waiving bond rights by contract without payment;

   b. waiving pending claims by final payment; and

   c. "no damage for delay clauses" (when the owner or contractor causes the delay).

   This will prevent one from inadvertently giving up important legal rights by virtue of one-sided contract language hidden in the fine print of lengthy non-negotiable construction contracts.

4. Allows subcontractors and suppliers to file mechanic's lien and bond claims within the deadlines provided by law, despite the existence of contingent payment clauses. This will prevent "pay-if-paid" clauses from interfering with the filing of lien and bond claims which are necessary to secure payment.

These provisions should cause a more equitable sharing of risk in the construction process by encouraging the party most able to manage or control that risk to remain responsible for it.

While there has been some concern expressed by certain utilities and the State with regard to two features of the bill, it passed the Senate 32-1 during the last session, but ran out of time before a vote could be taken in the House of Representatives. The goal of the construction industry is to move the bill through the legislature before the conclusion of this session. If enacted into law, it will dramatically change construction contracting here in Ohio.

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Credits

Kegler, Brown, Hill & Ritter's Construction Law Newsletter is prepared by Donald W. Gregory for the Construction Law practice group.

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