The Ten Commandments of Construction Law
Kegler Brown Construction Law Newsletter March 1, 2018
A construction project can be "a problem in progress." What separates successful owners, contractors and subcontractors from the others is their ability to effectively manage those problems.
Practitioners advising the construction industry frequently consult the relevant contract documents when dealing with these problems, but there are several key statutes that trump the contract that counselors should be familiar with.
Here are the top 10 "commandments" of Ohio construction law, which may assist you in avoiding problems of biblical proportion.
1. Thou shall pay promptly. ORC §4113.61
Ohio requires contractors to pay their subs within 10 calendar days after receipt of the payment from the owner for that work, or face 18-percent interest per annum and attorney’s fees. The effectiveness of this statute was underscored by the Ohio Supreme Court in Construction One v. Masiongale (2004), 102 Ohio St.3d 1. The Ohio Supreme Court’s decision supported the purpose of the statute, which is to promote prompt payment to subcontractors and material suppliers when the general contractor receives payment from the owner.
2. Thou shall not hide behind “no damage for delay.” ORC §4113.62(C)(1) and (2)
Ohio finds "no damage for delay" clauses unenforceable when the cause of the delay is the owner’s "actions or inactions." This provision is a part of the Fairness in Construction Contracting Act. It recognizes that a time extension without additional compensation is often inadequate to make a contractor or subcontractor whole.
3. Thou shall not hide behind final payment. ORC §4113.62(B)
Construction contracts in Ohio cannot provide that receipt of final payment waives outstanding issues like unresolved change orders and claims. Provided that the contractor has given notice in writing of an unresolved issue prior to receipt of final payment, that claim is not waived when the contractor accepts final payment of the undisputed contract balance.
4. Thou shall be responsible for one’s own negligence, in whole or in part. ORC §2305.31
Ohio’s anti-indemnity law makes unenforceable any indemnity provision in a construction contract that attempts to shift responsibility to another contractor or subcontractor for one’s own negligence for personal injury or property damage.
5. Thou shall be permitted to “pay if paid” (but liens still may be filed). ORC §4113.62(E)
Unambiguous "pay if paid" clauses are enforceable, but do not bar the timely filing of mechanic’s liens.
6. Thou shall go forth to arbitration … and an order that denies this stay is a final appealable order. ORC §2711.01 and ORC §2711.02
Ohio’s public policy favors arbitration, and compels arbitration when there is a written agreement to arbitrate. Because Ohio wants to encourage arbitration, only an order that denies a stay pending arbitration is appealable. An order compelling arbitration is not appealable.
7. Thou shall sue in Ohio (on Ohio projects). O.R.C. §4113.62(D)(2)
Disputes concerning Ohio construction projects are only supposed to be litigated in Ohio courts. Many construction contracts contain forum selection clauses requiring litigation to be commenced in a state far from the construction project. Like Ohio, many states have recently enacted similar statutes that require construction-related litigation to be conducted in the state where the project is located.
8. Thou shall apply Ohio law. O.R.C. §4113.62(D)(1)
Contracts often state that a certain state law applies. This statute requires that Ohio law applies when the project is located in Ohio.
9. Thou shall not waive bond rights. O.R.C. §4113.62(A)
In Ohio, a subcontractor cannot waive bond rights upfront in a contract. Any contrary provision is against public policy.
10. Thou shall record a notice of commencement (owner) ORC §1311.04 or serve a notice of furnishing (subcontractor). ORC §1311.05
In Ohio, an owner should record a notice of commencement with the County Recorder prior to the start of construction in order to minimize its risk of mechanic’s liens on the project. Anyone not in direct contract with the owner should file a notice of furnishing within 21 days of his first date of work based on the notice of commencement to preserve lien rights. Finally, the mechanic’s lien must be filed within 60 days from the last date of work for residential work; within 75 days from the last date of work for commercial work; and 120 days from the last date of work on public projects.
These statutes demonstrate that Ohio has adopted much law-restricting “freedom of contract” in the construction industry in an effort to avoid inequitable contracting practices.