Key Notes:

  • Memorandum of understanding between general contractor and school district deemed unenforceable contract
  • Among other issues, alleged agreement did not comply with competitive bidding requirements for public school construction projects under Ohio Revised Code
  • Decision emphasizes importance of understanding statutory requirements when drafting and entering into contracts for public projects

 

In Grand Valley Local School Dist. Bd. of Edn. v. Buehrer Group Architecture & Eng., Inc., 2016-Ohio-716, Ohio’s 10th District Court of Appeals held that a general contractor could not collect on $136,000 of unpaid work on a school district construction project due to the lack of an enforceable agreement. Among other defects in the contractor’s claim, the Court noted that the alleged agreement for the services at issue did not comply with the competitive bidding requirements for public school construction projects under O.R.C. § 3313.46. This case highlights the need for awareness of statutory requirements when entering into public contracts for construction services.

In 2003, the Grand Valley Local School District Board of Education (Grand Valley), partnering with the Ohio School Facilities Commission (OSFC), entered into a general trades contract with Jack Gibson Construction Company (Jack Gibson). Jack Gibson served as the general contractor in the construction of a new school building in Orwell, Ohio. After the completion of final construction, Grand Valley and the OSFC were dissatisfied with various construction defects and filed suit against Jack Gibson in the Ashtabula Court of Common Pleas. Jack Gibson responded with a counterclaim for breach of contract, alleging that the OSFC and Grand Valley had agreed to pay Jack Gibson nearly $156,000 for repair work but had only provided partial payment of $17,000.

The case was removed to the Ohio Court of Claims, which found in favor of Grand Valley and the OSFC. On appeal, the 10th District Court of Appeals affirmed the decision of the Court of Claims. The Court found that the alleged contract for repair services, a memorandum of understanding (MOU) between Jack Gibson, Grand Valley and the OSFC, was an unenforceable contract. Specifically, the Court agreed with the ruling of the Court of Claims, which found that the MOU lacked a defined payment term and expressly reserved the right of approval before payment to Grand Valley and the OSFC. The Court further agreed that the school board’s $17,000 payment to Jack Gibson was based on a separate purchase order for specific services, not the MOU.

Because the MOU was found unenforceable, the Court did not specifically rule on whether it complied with the competitive bidding requirements for public school construction projects under O.R.C. § 3313.46. However, the Court did note that non-compliance with § 3313.46 was part of the Court of Claims ruling. Under § 3313.46, school district construction or repair projects in excess of $25,000 must comply with a public bidding process unless there is “urgent necessity.” In the underlying ruling, the Court of Claims held that even if the MOU were found to be an enforceable contract, Jack Gibson could not recover because there was no evidence in the record to suggest that the MOU complied with the public bidding process or that its services were provided for urgent need.

This case demonstrates the need for experienced counsel when drafting contracts for construction projects, particularly for projects involving public entities. The lack of a properly drafted and executed contract resulted in the arguable loss of more than $130,000 for the general contractor and the Court’s observation that “If the result is harsh, hopefully the tale is cautionary.” Parties should expect that Ohio’s courts will enforce the requirements for public construction projects found in the Ohio Revised Code.