Highlights: The laws that guide the municipal construction process have been around for many years. The rules for the process of letting municipal construction contracts have been tested in Ohio courts. Those laws are, to some degree, influenced by the evolving construction industry. The following are a few basic tips that may help protect a municipality.
Know Your Authority
Who can do what? It is a simple question with a more complex answer. For example, consider who on behalf of your municipality can reject a bid. Either the municipality’s charter or the Ohio Revised Code —or both in some cases—will determine how a municipality should award a competitively bid project.
Considering the propriety of a municipal contract, the Ohio Court of Appeals in Mahoning County explained, “Where one of the parties to a potential contract is a municipal corporation, the contract formation or execution may only be done in a manner provided for and authorized by law.” And that, “Furthermore, contracts, agreements, and/or obligations of a municipality must be made and entered into in the manner provided for by statute or ordinance and cannot be entered into otherwise.”1
Proper authority plays a role in rejecting bids as well. In one case, a bidder for a project with the City of Fairlawn argued that it should be awarded damages because the law director rejected its bid without proper authority.2 Although the Ohio Supreme Court ultimately overruled the appellate court and decided that rejected bidders cannot recover lost profits, the Summit County Court of Appeals made the following determination in the underlying case:
Although Fairlawn pointed to “some evidence” that the law director had the authority to advise the board of audit and review on this issue, it failed to point to any evidence that the law director had the authority to make the ultimate decision that Cementech’s bid did not comply and to remove it from consideration. At best, Fairlawn’s evidence demonstrated that the law director had the authority to give a legal opinion as to whether Cementech’s bid met the city’s specifications; this evidence did not even suggest that the law director had authority to make the decision to reject Cementech’s bid.
Fairlawn’s ordinances define the role of the law director as a legal advisor, not as a decision-maker. Moreover, as Cementech argued to the trial court, Chapter 282 and other provisions of the Fairlawn ordinances and Ohio case law provide for competitive bidding decisions to be made by a board or legislative body, not one individual.3
When contracting and communicating with bidders, it is imperative to understand who has the authority to make decisions on behalf of the municipality.
Know the Mechanics of Approving and Executing a Contract
You want to enter into a construction contract. Do you need a vote of Council? How many must vote for the contract? What if the ordinance is passed by emergency? What if the vote results in a tie and the Mayor votes? What does your charter require? Who signs the contract with the contractor? The basic questions are sometimes overlooked.
Ostensibly, the easiest challenge is the execution of the contract; or, so it would seem. Ohio Revised Code Section 731.141—for villages with administrators—provides that once the competitive bidding and awarding ordinance is complete: “All contracts shall be executed in the name of the village and signed on its behalf by the village administrator and the clerk.”4
Comparatively, Ohio Revised Code Section 731.14— for villages without administrators—has a different requirement. There, with respect to contract execution, the law requires that: “All contracts made by the legislative authority of a village shall be executed in the name of the village and signed on its behalf by the mayor and clerk.”5 So what is the big deal?
In one case, the execution of the construction contract had dire consequences for the contractor.6 The Village of Chauncey, Ohio—subject to Ohio Revised Code Section 731.141 (with a village administrator)—bid out a waste water pipe project. The Village Mayor signed the contract form attached by Enviro-Flow to its bid document.7 The project had issues and ended with the contractor and the village suing one another.
The trial court decided in favor of the Village on summary judgment and held that the contractor could not recover under the contract. “The alleged contract between Enviro-Flow and the Village was null and void because the Village Administrator and the Village Clerk did not sign it as required by R.C. 731.141.”8
The contractor argued on appeal that the Administrator was required to sign the contract. While the appellate court would not rule on the argument because it was brought up too late in the process, the court did offer the following advice: “If we assume, without deciding, that the Village Administrator had to sign the contract, it is still null and void. R.C. 731.141 requires both the Village Administrator and the Village Clerk to sign the contract.”9
When talking about executing the contract, this case offers another important lesson on the process side of contracting. Ohio Revised Code Section 705.11 commands that the Village solicitor or City Law Director shall approve all contracts as to the “form and the correctness thereof.”10 And, that “no contract with the municipal corporation shall take effect until the approval of the village solicitor or city director of law is indorsed thereon.” This step was omitted also.
The appellate court—in its “assuming without deciding” section of the opinion—pointed out that, “In addition, the contract does not appear to conform to R.C. 705.11 (Village Solicitor is required to approve the contract as to form).”11 The appellate court left contractors with this warning:
We think there is no hardship in requiring [contractors], and all other parties who undertake to deal with a municipal body in respect of public improvements, to investigate the subject, and ascertain at their peril whether the preliminary steps leading up to contract, and prescribed by statute, have been taken.12
In other words, the contractor dealing with a municipality has the burden to ensure that the municipality has properly entered into the contract. This, however, does not relieve the municipality of its obligation to do things correctly if it wants to have its contracts enforced by the courts.
Know Your Bidding Standard
By “know your bidding standard”, we mean know your bidding standard. The fact that a municipality is aware that it is subject to the “Lowest and Best” standard is not enough. We must understand what that means and how it affects the municipality’s practical selection of the correct bidder.
Which is the right standard to use? By statute, municipalities begin with the Lowest and Best standard for evaluating bidders. (See R.C. §§ 735.05; 731.14; 731.141 for examples). This means that they will choose the lowest dollar value bidder who is the best for the particular project. That does not necessarily mean that the lowest bidder is always the best bidder.
The municipality has discretion to determine which bidder is the best for the project. In making that decision, municipalities often consider things like experience on similar projects; financial strength; company size; key employee experience; and a cornucopia of other considerations.
Ultimately, most municipalities want the maximum amount of discretion available to them for deciding to whom a bid should be awarded. That maximum discretion is found in the “Lowest and Best” standard.
Other bid standards may sound attractive—beware. Ohio Revised Code Section 9.312 allows a municipal corporation to opt for using the “lowest responsive and responsible” bidding standard. Still, other entities may employ the “lowest responsible” standard. Due to much confusion, some charter municipalities have adopted standards like “lowest, responsible, best, and responsive.” The moral of the story, use Lowest and Best if you have the option. If you do not have the option, get it.
Know Your Contracts
Construction disputes are governed primarily by the contract documents. What is in a contract? Construction contracts consist of one or more volumes of technical specifications, legal terms, and drawings. The parties typically make the mistake of signing the contracts—often without reading them—and then hope for the best.
You cannot prevent and solve problems unless you understand the tools available to you. Several forms are required by law that are often overlooked in the process. A typical construction contract can have upwards of 35 different forms or parts, not including the plans, exhibits, drawings, and technical specifications. If your advisor cannot identify all of the necessary forms and components of a contract, this may mean that you need to have your documents reviewed by someone who can.
Understanding these forms and modifying them to suit your project and protect your municipality is not an easy task for the uninitiated. Relying on unmodified industry forms is just as dangerous. Consult with a qualified construction attorney to ensure you have the contract protections and provisions that you need for your project.
Architects and engineers are usually not lawyers. They are not typically fully familiar with changes in the law and with contract drafting. Your attorney will work with your design professionals to craft a set of documents that works for you, drawing from the various disciplines of architecture, engineering, and the law.
Municipalities must have a thorough knowledge of their bidding standard, authority, and the contracting process. In addition, municipalities must have at least one person who has thoroughly read and understands every detail of the Contract Documents before the Notice to Bidders is published. Just as the master artisan is precise with particular tools, so should the municipality learn the mechanisms of the municipal construction process.