No Payment Bond Protects Subcontractors and Suppliers on OSU’S Project One
Kegler Brown Construction Newsletter July 1, 2011
For more than a century, subcontractors and suppliers providing labor and material to Ohio’s public works have extended credit with the full assurance of payment bond rights guaranteeing payment to those who protect their rights. Those rights do not exist on the much publicized “Project One” at The Ohio State University, a $1 billion hospital project.
Ohio has traditionally done all its public work through multiple prime contractors, such as the MEP trades. However, OSU (as one of three “test” projects) secured permission from the legislature to be exempt from the multiple prime requirements, and is utilizing Turner as the “construction manager at risk” (with design assist responsibilities) on Project One. Many, including the surety industry, thought the legislation left the normal bonding requirement undisturbed. Yet OSU decided that Turner did not have to provide a payment bond and argued that the enabling legislation did not require one. The Ohio Supreme Court has agreed and held that no bond is required on a no-bid contract like the one signed by OSU with Turner. Subcontractors and suppliers considering extending credit to the project are warned that they do not have payment bond protection, unlike other Ohio public works.
Those contemplating providing labor and material to this job, regardless of tier, are cautioned to give extra thought to payment issues in view of the absence of the usual payment bond protection.