In This Issue

• Are Eichleay Damages Recoverable in Ohio Without an Idle Equipment Claim?
• Can Subs Recover Prompt Pay Interest on Liens and Payment Bond Claims?
• Kegler Brown Attorneys Honored in the Verdict
• AIA A401 Subcontract Is Not "Pay When Paid"

Are Eichleay Damages Recoverable in Ohio Without an Idle Equipment Claim?

By Donald W. Gregory

Extended home office overhead damages are typically sought by a contractor whose work is delayed or suspended through no fault of his own, in an effort to compensate him for the lost revenue that would have otherwise sustained a share of the fixed home office expenses. These damages are often calculated under the Eichleay formula which is recognized in Ohio.

In view of the Ohio Supreme Court's decision in Complete General v. ODOT, a contractor must satisfy two elements for an extended home office overhead recovery under the Eichleay formula:

1. The owner delayed or suspended work for an indefinite duration; and

2. The delay or suspension made it impractical or impossible to find replacement work during the impacted period.

The second element will be challenged by an owner when the contractor moves his forces and equipment offsite during the period of the suspension in an effort to mitigate damages. An owner will then argue that the fact the contractor moved his forces elsewhere demonstrates he had replacement work to substitute for the delayed or suspended project.

A contractor will typically reply that just because he continues to do additional work does not mean that he in fact has replacement work for the suspended job.

This debate means it will be easier to prove entitlement to extended home office overhead when the contractor lays off personnel and leaves his equipment idle on the suspended project. Further clarification of this issue by Ohio courts may prove necessary.

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Can Subs Recover Prompt Pay Interest on Liens and Payment Bond Claims?

Subcontractors and suppliers are enthusiastic about recovering 18 percent interest and attorneys' fees from customers who fail to pay them within ten days after receipt of money under Ohio's Prompt Payment Act. The question arises as to whether the interest and attorney's fees are recoverable against third parties, like owners on mechanic's liens, and bonding companies on payment bond claims.

At least one trial court has declined to award interest and fees on a public lien against a public owner and on a payment bond claim against a bonding company. Intercargo Ins. Co. v. Mun. Pipe Contrs., Inc., 127 Ohio Misc. 2d 48, 2003-Ohio-7363.

In this case, arising from an ODOT project, the unpaid subcontractor filed a lien against public funds as well as a payment bond claim against the general contractor's bonding company.

The Court ruled because the Prompt Payment Act did not specifically reference bonding companies and because bonding companies have 60 days to pay bond claims (rather than the ten day period for a contractor to pay under the Prompt Payment Act), the above-market 18 percent interest "penalty" should not apply to the bonding company. The Court further found such interest was not recoverable from ODOT on the sub's lien against public funds because statutory interest was not "labor and materials" and further, because there were no prompt pay requirements imposed on ODOT with respect to the general contractor.

This case, if adopted by other courts, may make it harder to recover prompt pay interest and attorney's fees from bonding companies and other third parties. However, pre-judgment interest at a lower rate may still be recovered by any payment bond claimant when the bonding company fails to pay the claim within 60 days of submission.

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AIA A401 Subcontract Is Not "Pay When Paid"

Subcontractors typically favor use of the AIA A401 subcontract form.

This form provides that "if the Architect does not issue a Certificate of Payment or the Contractor does not receive payment for any cause which is not the fault of the Subcontractor, the Contractor shall pay the subcontractor, on demand . . .".

A general contractor on a Massachusetts school project argued that another provision of the subcontract which required the general to pay the sub "within three working days after the Contractor receives payment from the Owner" made the subcontract "pay when paid" so that the general did not have to pay until he received payment from the owner.

The Court disagreed and found that the subcontract is not "pay when paid," as it does not create a clear precondition to payment. Therefore, the general contractor had to pay the subcontractor even though he had not yet been paid by the owner.

This case confirms what many of us have believed for years, that if a subcontractor utilizing this subcontract form is unpaid for any reason other than his "fault," the subcontractor is entitled to payment upon demand.

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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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