Each month, Brickerconstructionlaw.com summarizes recent decisions of state and federal courts that may affect construction projects and those involved with them in Ohio, Indiana, Kentucky and Michigan. From time to time, we may even include cases from other states if they seem particularly relevant. We highlight what the courts have said in these cases to keep you informed about decisions that may affect your business and your interests, but the summaries themselves are neither legal advice nor legal opinion. If we overlook a case that you think is significant, e-mail us with your suggestions. We can always use feedback, and we would enjoy hearing from you!

Our first case for the Spring Quarter of Brickerconstructionlaw.com comes from the Fifth District Court of Appeals. The Court was asked to determine whether an owner’s denial of a contractor’s claim was proper where the contractor failed to submit its claim within the time period required by the contract’s claim and notice provisions. The court held that the claim was not submitted in a timely manner and the contractor, by failing to submit its claim according to the terms of the contract, waived its rights to additional compensation. Our second case this quarter comes from the Tenth District Court of Appeals. The trial court hearing the matter decided in favor of a contractor where the contractor sought additional compensation for unexpected costs even though the contractor failed to submit its claim within time period required by the contract’s claim and notice provisions. The Tenth District Court of Appeals held that, because Ohio law requires strict interpretation of contract language, the trial court should have considered whether the contractor waived its rights to the claim under the contract’s strict notice provisions by failing to submit its claim in a timely manner. Our third case this quarter comes from the Twelfth District Court of Appeals. The Court was asked to determine whether a public owner has discretion to reject a contractor’s bid where the contractor had a history of filing lawsuits against public owners, and specifically against the defendant school district. The Court held that a public owner in Ohio does have the discretion to consider a bidder’s history of litigation against public owners as a part of its determination of a bidder’s responsibility and reject a bidder based on its litigiousness nature, particularly where there was a history of claims between the two parties to the action.

Are Claims Valid When Filed Outside the Contract Time Period for Notice?

Contracts often contain specific claims processes that require the contractor to give written notice of and submit its claim to the project’s architect or engineer and to the project owner within a certain period of time or the claim will be deemed waived. In Peterman Plumbing and Heating, Inc. v. Board of Education Pickerington Local School District, 2010 Ohio App. LEXIS 5471, a contractor failed to give notice of and submit its claim within the time period required under the contract and, therefore, the trial court’s denial of its claim was upheld on appeal.  

In Peterman, a school district awarded a plumbing contractor the bid for plumbing work on two school projects. A dispute arose when the plumbing contractor felt that certain work required by the contract was the responsibility of other contractors on the project.

The contract documents required the plumbing contractor to make connections to the sanitary and storm sewer piping, which was terminated five feet outside of the building. The contract documents also required the plumbing contractor to furnish and install storm sewer laterals from the buildings downspout boots to existing storm sewer lines shown on the drawings. The plumbing contractor argued that the contract required that both the site work contractor and the site utilities contractor were responsible for installing the storm sewer laterals to within five feet of the building. The owner provided the plumbing contractor with a notice of default for failing to perform the work. In response, the plumbing contractor agreed, under protest, to perform the work pending resolution of the dispute.

The plumbing contractor later submitted a claim for additional compensation and time for the storm sewer work. The architectural firm representing the owner denied the claim. In response, the plumbing contractor filed suit against the owner seeking $125,000, the cost of installing the storm sewer laterals.

The trial court dismissed the case—holding that the contract allocated the work to the plumbing contractor, the plumbing contractor had a contractual obligation to clarify or correct ambiguities in the contract, and the plumbing contractor failed to comply with the contract’s claims provisions, including its obligation to submit notice of its claim on a specific claim form within the time required by the contract. The plumbing contractor appealed the decision.

The appellate court determined that the contractor’s failure to comply with the contract’s claim and notice provisions was the key issue in this case. The contract required that the contractor submit all claims within 21 days after the occurrence of the event giving rise to the claim. The contract also provided that if the contractor failed to submit the claim as and when required, such failure would be an irrevocable waiver of the claim. Furthermore, if the contractor wanted additional compensation for its claim, the contractor was required to give written notice to the construction manager and the owner before the contractor began the additional work.

Because the contractor failed to give the proper notice within the contract’s time period for notice of claims, the Court held that the contractor waived its rights to the claim.

The Court explained that this case “exemplifies the importance of ‘change in contract sum’ clauses in large construction projects, where the likelihood of disagreements over subcontractor duties increases with the project’s complexity.” The Court pointed out that the drafters of the district’s contract “wisely put in a provision to require timely submission of claims” to encourage early resolution of disagreements and to prevent cost overruns that burden taxpayer resources.

The Contract’s Requirement for Notice of Claims—Something More Than Actual Notice is Required

Is a contractor required to provide timely and adequate notice as required by the contract if it intends to make a claim for more money or a time extension? The answer depends on an interpretation of the contract’s claims and notice provisions. In contract disputes, courts use contract construction analysis to determine the intent of the parties to a contract. The intent of the parties to a contract is found in the language of the parties’ contract. Where the language is clear and unambiguous, a court may not create a new contract by finding an intent that the parties did not expressly include in the language of the contract. In Stanley Miller Construction Co. v. Ohio School Facilities Commission, et al., 2010 Ohio App. LEXIS 5347, the Tenth Appellate District used contract construction analysis to find that the true issue was whether a contractor failed to provide timely and adequate notice of its claim under the strict terms of the contract.

In Stanley Miller, the contract required that the contractor provide written notice of a claim for equitable adjustment no more than ten days after the initial occurrence of the facts which are the basis of the claim. In addition, the contract required the contractor to provide specific and detailed information with its claim. The contractor, however, failed to provide adequate written notice of its claim in a timely manner when the initial facts which were the basis of its claim occurred well in advance of the time the contractor submitted its claim.

From the start of the project, the contractor had “serious reservations” about the construction schedule. It expressed concerns that certain predecessor and successor activities were missing and that not enough time was provided for certain activities. Adjustments were made to the schedule, but the contractor still voiced concern over the adequacy of the schedule.

Ultimately, the contractor was late in completing the project. On the date of substantial completion, the contractor submitted a one-page written notice of its claim seeking additional compensation of $1.1 million for unexpected costs. The owner requested additional information and documentation regarding the breakdown of the claim from the contractor, but the contractor did not provide the information.

The trial court found for the contractor, basing its decision on its finding that the construction schedule was fundamentally flawed and incomplete. It also based its decision upon evidence that the owner had actual notice of the contractor’s concerns and failed to remedy those concerns. The trial court, however, did not consider whether the contractor had waived its rights to the claim under the strict terms of the contract.

The owner argued that the trial court ignored the contract’s notice provision, which provided that the contractor waives its rights to a claim for additional compensation when the contractor fails to provide written notice of its claim in a timely manner and in accordance with the contract’s notice provisions. Because the contractor failed to strictly follow the notice provisions, the contractor waived its right to additional compensation.

The contractor argued that whether it failed to submit a claim under the contract’s notice provisions was not the issue, because the owner waived strict compliance with the contract’s notice provisions because of the course of its dealing with contractors on the project, and it would be unfair to hold the notice requirement against the contractor under these circumstances.

The appellate court, however, found that failing to remedy issues that are not properly raised according to the terms of the contract has no bearing on whether the owner waives it rights under those notice provisions. Something more than actual notice of the contractor’s concerns is required. Where the language of the contract is unambiguous, “[a] court must simply apply the language as written.” For the Court, the true issue in this case was whether the contractor waived its rights under the contract’s notice provisions. The matter was remanded to the trial court for a determination of whether, based on the evidence in the record, the contractor waived its right to make a claim.

A School Board did not Abuse its Discretion by Considering a Bidder’s Litigation History in Evaluating Whether a Bidder was Responsible

Both private and public construction projects are fraught with the threat of litigation. Indeed, nearly all construction contracts contain dispute resolution provisions, which ultimately provide the parties a right to pursue litigation. However, when a contractor resorts to litigation too frequently, there may be some concern on the part of an owner about entering into a contract with that contractor.

On private projects, if an owner believes the litigation is frivolous, the private owner may choose not to give the contractor who initiated the litigation future contracts (of course on private projects an owner can refuse a contract to any contractor for any reason or no reason at all). This is generally not the case in public construction. On public projects, an owner is bound by competitive bidding statutes in awarding construction contracts. This creates a tension for public owners when evaluating bids of contractors who may be fully capable of completing the project, but who have a litigious history which leads the owner to believe they will end up in court.  

In Triton Services, Inc. v. Talawanda City School District, 2011 Ohio 667 (Ohio App. 12th Dist. Feb. 14, 2011), Ohio’s Twelfth District Court of Appeals provided public owners with some helpful guidance on how past litigation may be considered in evaluating a bid for a public project.

Triton Services was the apparent low bidder for the heating, air conditionings, and ventilating (“HVAC”) portion of the construction of a new high school for Talawanda schools. However, while evaluating Triton’s bid, Talawanda discovered that Triton did not include the cost to provide certain glycol in its bid. Triton indicated that the glycol was omitted because there was some confusion on Triton’s part as to whether the glycol was part of Triton’s phase of the project. This glycol was estimated to add between $50,000 and $75,000 to Triton’s total costs for the project.

Talawanda was particularly concerned about Triton’s glycol omission because Triton sued Talawanda in 2007 after the parties disputed the scope of Triton’s contractually obligated work for the construction of an elementary school. Based upon Triton’s omission of the cost to provide the glycol from its bid price and Triton’s prior history of resorting to litigation against Talawanda on another scope of work dispute, Talawanda rejected Triton’s bid as not responsible.

Triton filed suit and contended that Talawanda abused its discretion in rejecting its bid. Triton asked the Butler County Court of Common Pleas to declare it the lowest responsible bidder and to prevent Talawanda from awarding the contract to any other contractor.

During the trial, in an attempt to establish that Talawanda abused its discretion, Triton stated that it intended to provide the glycol and honor its bid. Further, Triton presented evidence that Talawanda paid about “90 percent” of what Triton sought in the 2007 lawsuit. Finally, Triton explained the reasoning and resolution of all previous lawsuits it filed involving public projects, and argued that litigation is sometimes necessary.

The Court rejected Triton’s arguments and embraced a “fluid, abuse of discretion standard,” which provides public owners wide latitude in determining whether a bidder is responsible. In finding that Talawanda did not abuse it discretion, the Court explained that “the term ‘responsible’ is not limited to a bidder’s financial condition, but pertains to many other characteristics of the bidder, such as its general ability and capacity to carry on the work, its equipment and facilities, its promptness, conduct and performance on previous contracts, it suitability to the particular task, and other qualities that would help determine whether or not it could execute the contract properly.” Further, the Court stated that “determining ‘responsibility’ will necessary differ for any given project, and it is ‘important that it be subject to a fluid, abuse-of-discretion standard’ (citations omitted).”

The trial court refused to interfere with Talawanda’s decision to reject Triton’s bid, and on appeal the appellate court found that Triton failed to demonstrate that the trial court abused its discretion in denying Triton’s request for injunctive relief. The court of appeals noted that the testimony before the trial court favored both parties and that the trial court was in the best position to weigh the evidence before it and its judgment in that regard could not be disturbed in the absence of an abuse of discretion.

This case illustrates the uphill battle a contractor faces when pursuing a bid dispute in court. It must first overcome the presumption that the public owner acted properly—a heavy burden. If the trial court declines to interfere with the public owner’s decision, then on appeal the contractor has to overcome two hurdles: 1) it must demonstrate that the public owner abused its discretion in taking whatever action the contractor is objecting to; and 2) it must demonstrate that the trial court abused its discretion in denying injunctive relief. This can be a formidable task.