Budget Bill Changes Prevailing Wage Law & Project Delivery

Kegler Brown Construction Alert

Governor Kasich’s budget has been adopted by the Ohio General Assembly. Prevailing wage law has been pared back, but not near as far as the Governor wanted:

  • The prevailing wage threshold (other than road work) will be increased from the current $78,000 to $125,000 next year, $200,000 the following year, and $250,000 the year after that.
  • Prevents primary education institutions (K-12) from requiring prevailing wages (they can no longer “opt in”).
  • Restricts the definition of an “interested party” who may file prevailing wage complaints and gives the Director of Commerce additional time to investigate alleged violations.
  • Provides that no contractor or subcontractor is liable for prevailing wage penalties if the contractor or subcontractor made a good faith effort to ensure subcontractor compliance.

These changes reduce the impact of prevailing wage law on Ohio public construction projects.

The newly enacted budget also radically changed contract delivery systems in Ohio as follows:

  • State institutions and agencies (as well as counties, municipalities and townships) will no longer be required to bid to multiple-prime (i.e. MEP) contractors and could utilize construction manager (CM) at-risk, design-build and single prime contracting. Both CM at-risk and design-build could be used without a full competitive bid process, but instead featuring a new proposal selection process.
  • The threshold for the competitive bid process (excluding CM at-risk and design-build) will be raised from $50,000.00 to $200,000.00 on all public construction projects.
  • CM at-risk and design-build firms will need to establish subcontractor prequalification criteria and the Ohio Department of Administrative Services will adopt rules concerning subcontractor prequalification.

Those favoring the long-standing multiple-prime system say that it reduces unnecessary mark-up, bid-shopping and delays in payment (due to payment directly from the State), while critics complain that it creates coordination problems and increases claims.

Specialty trade contractors who are used to bidding public work as prime contractors lose control over their own destiny with these changes, as they will no longer be bidding to, or receiving payment directly from, the State. At a minimum, this will delay payment for ten (10) days as the State will need to pay the general contractor or construction manager (30 days) first, who then must pay his subs (10 days) thereafter. Going to a competitive proposal process, rather than a low-bid process, may have significant ramifications for mid-sized Ohio general contractors as well, who will be competing with the large international contractors for the first time in this “no-bid” format.

It appears that, under these alternative contract delivery systems, performance bond protections are preserved for owners and payment bond protections will likely be preserved for subcontractors and suppliers. Ohio’s Department of Administrative Services is to enact surety bond protections by rule.