In This Issue

• Court Restricts Payment Rights of Subs
• Miller Act May Be Reformed
• Federal Appeals Court Denies Stay of MBE Decision: No MBE's for Now
• Dealing With Job Delays and Disruptions

Court Restricts Payment Rights of Subs

Donald W. Gregory
Construction
Law chair

Subcontractors and suppliers on public works projects in Ohio have traditionally been able to collect from the prime contractor's payment bond so long as they properly asserted a claim within 90 days of the date of final acceptance of the project. However, a new Court of Appeals decision from Cuyahoga County has now ruled otherwise and held that the final acceptance date is tied to when the subcontractor claimant finishes his work, not the entire project. Thomas Steel, Inc. v. Wilson Bennett, Inc. (1998), 127 Ohio App. 3d 96. This means that subcontractors and suppliers now have a much shorter period for asserting payment bond claims. It also means that there will be a "sliding scale" of payment bond claim deadlines on every project depending on the particular trade.

Lower tier subcontractors have also traditionally asserted unjust enrichment claims against contractors who they believe have not paid in full for the unpaid work. The Court of Appeals ruled that these types of claims could not be asserted on public projects where a payment bond was provided.

This decision means that unpaid subcontractors and suppliers on public projects will be limited to pursuing recovery on lien and bond claims (when their customers fail to pay) and must pay particular attention to the relevant filing deadlines.

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Miller Act May Be Reformed

The Miller Act requires payment bonds on sizable Federal Government projects to ensure that subcontractors and suppliers are paid even in the event there is a financial default by the prime contractor. This important Act has not been revised for decades. However, House Resolution 1219, The Construction Industry Payment Protection Act of 1999, is currently moving through the U.S. House of Representatives. This legislation introduced by Representative Carolyn Maloney of New York would amend the Miller Act to help subcontractors and suppliers by: 1) requiringthe payment bond to equal the contract price; 2) prohibiting the waiver of rights under a payment bond; and 3) allowing notice to a prime contractor by any method that provides sufficient proof of receipt.

This legislation is a result of negotiations between key groups in the construction industry and appears to have the consensus support of the industry, including ASA, AGC, ASC, and the surety industry.

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Federal Appeals Court Denies Stay of MBE Decision: No MBE's for Now

As previously reported, the State of Ohio's Minority Business Enterprise ("MBE") set aside programs has been declared unconstitutional and unenforceable in a lawsuit filed by AGC of Ohio. The State has appealed this decision to the Sixth Circuit Court of Appeals in Cincinnati which is currently deliberating on this significant issue.

The State's lawyers had asked the Court of Appeals to stay the decision during the course of the appeal to, in essence, keep the MBE program intact in the interim.

However, the Court of Appeals recently denied the request for a stay.

This means that, at the moment, there are no enforceable MBE requirements on State public constructions projects in Ohio.

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Dealing With Job Delays and Disruptions

Many construction disputes in the current industry climate are time driven as overworked contractors, subcontractors and suppliers struggle to meet demanding, and sometimes unrealistic, schedules.

Any person associated with the construction industry understands that "time is money!"

Yet many in the industry are inserting increasingly one-sided "No Damage For Delay" and liquidated damages clauses into construction contracts which transfer the risk of delay down the construction "food chain."

Most of these contract clauses are enforceable in Ohio, therefore construction companies must work hard to identify unacceptable contractual risk and properly document project progress.

We offer the following general suggestions for dealing with time driven completion and delay issues:

1. Do not sign a contract with a "No Damage For Delay" clause unless you have factored this risk into your price.

2. Do not sign a schedule you are not in agreement with.

3. Do not commit to unrealistic and certain dates for completion, in your proposal or otherwise.

4. Do not sign "no cost" time extensions if you intend to pursue a delay claim.

5. Do place time limitations on your bid proposals.

6. Do keep good daily job records which set forth any delay or disruption to your work "as planned."

7. Do promptly notify in writing when you are delayed or disrupted and request a written time extension for your work.

8. Do a thorough job of tracking your job costs associated with any delay or disruption.

If you follow these suggestions, you will not eliminate time hassles, but you will be better equipped to defend against the assessment of liquidated or delay damages, or to pursue an affirmative delay claim recovery, if necessary.

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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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