In This Issue

• Contractors Have a Vehicle to Remove County "Home Court Advantage"
• Retainage Reform Bill Pending in Ohio
• Avoid Problems Later by Conditioning Your Bid
• Disgruntled Bidder Cannot Recover Lost Profits Against Municipality
• Firm News

Contractors Have a Vehicle to Remove County
"Home Court Advantage"

Donald W. Gregory,
Construction Law
Chair

Occasionally contractors performing construction work for Ohio counties have disputes that result in litigation, often in the home of the county who acted as the owner on the project. Some contractors believe this gives the county a "home court advantage" as jurors in the county also are taxpayers in that county.

An obscure state statute, O.R.C. § 2311.42, provides that in these circumstances a contractor can request that jurors be selected from an adjoining county to hear the dispute and eliminate any perception of a home court advantage. Contractors with claims against counties may need to consider utilizing this statute to request out-of-county jurors, and counties should be aware of its existence.

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Retainage Reform Bill Pending in Ohio

Retainage is an important and controversial issue in the construction industry, particularly for subcontractors. The American Subcontractors Association (ASA) conducted a nationwide survey of almost 600 subcontractors from 39 states and determined that the average subcontractor was carrying $620,025 in retainage receivables an average of 160 days after the subcontractor successfully completed his work. As these retainage rates generally exceed profit margins, subcontractors are acting as "the bank" in financing the project. This hidden financing cost of retainage must be passed through to contractors and owners and ultimately reflected in project cost or subcontractors will go out of business.

Representative Hagan has introduced H.B. 497, a bill designed to reform retainage practices on public and private commercial work in Ohio. H.B. 497 as currently drafted would require that:

• Retainage on private work would mirror retainage provisions of public work (an effective rate of 4% of labor).

• Line item release of retainage.

• General contractors could hold no greater percentage of retainage than held on them.

• Owner would have to pay retainage (less items in dispute) within 60 days of certificate of occupancy.

• Prohibition of mandated and overvalued retainage – type items in schedule of values ("stealth retainage"); and

• Address any unintended problems with The Prompt Pay Act and make consistent with the retainage provisions above.

The federal government and the Ohio Department of Transportation (ODOT) have already eliminated retainage on virtually all projects, and the trend appears to be to reduce or eliminate retainage on a more frequent basis.

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Avoid Problems Later by Conditioning Your Bid

By Rebecca Roderer Price

Do you want to avoid having to live with unfair contract terms? Once a subcontractor submits a bid, if you do not like the terms of the contract that follow, it may be too late. If you try to back out of the bid once you are awarded the contract, the contractor can claim that it relied on your bid in securing the project. You might even be responsible for damages to the contractor, such as the price difference from your bid to the next lowest bid. Subcontractors who fail to condition their bids are left between a rock and a hard place – they must either accept whatever one-sided contract terms are given to them or they risk facing a claim for damages by the contractor.

However, there is a practical solution. A conscientious subcontractor can avoid problematic contract terms down the road by including conditions in its bid proposal. If you are an American Subcontractors Association member, the ASA website at asaonline.com has a bid proposal form available to you to print out and simply attach to your bid. If you are not an ASA member, you should consider drafting bid proposal terms addressing the following:

• Choose a form contract that works best for you (for example, the AIA A401-1997) and state that the parties will execute that contract form if the bid proposal is accepted.

• Disclaim all warranties that are not provided in the form contract that you have chosen.

• Attach your own schedule of values and indicate that progress payments will be paid accordingly.

• Require an equitable adjustment for an increase of the cost of material more than 5% from the time of the bid proposal.

• Include a provision that you shall be entitled to an equitable adjustment of the contract price for delays, acceleration, and other schedule changes.

• Provide that your bid is only available for a certain period of time and is not guaranteed should the schedule slip.

• Indicate that all waivers of lien and bond rights are conditioned upon receipt of funds.

To determine the best bid terms for you and your company, you may want to discuss your trade and its unique issues with an experienced construction law attorney.

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Disgruntled Bidder Cannot Recover Lost Profits
Against Municipality

Traditionally most experienced construction law practitioners in Ohio have believed that injunctive relief was the only remedy available to unhappy bidders who believe the statutory process has not been properly followed.  However, a Court of Appeals in the Cementech case ruled that the rejected bidder could recover lost profits believing that only this extreme remedy would deter government's violation of competitive bidding laws.

On June 28, 2006, the Ohio Supreme Court reversed this decision and found that "a rejected bidder is limited to injunctive relief." Cementech v. Fairlawn, 109 Ohio St.3d 475. The Supreme Court reasoned that to award damages "punishes the very persons competitive bidding is intended to protect – the taxpayers." It stated that injunctive relief and "the resulting delays" were a sufficient deterrent to government's violation of competitive bidding laws.

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Firm News

Don Gregory was recently named by "The International Who's Who of Business Lawyers" as one of the seven Ohio lawyers listed for their outstanding reputation in Construction Law.

Don Gregory and the Construction Law group also received prominent mention recently in Chambers USA 2006 listing of "America's Leading Lawyers for Business."

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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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.

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