Highlights: Each year there are several events that have a significant impact on the construction industry. Owners, contractors, design professionals, and their representatives need to know about the key events and how these events will impact their work. This article examines ten of the most significant events over the last year and briefly discusses how these events may influence the construction industry. Several of the events listed in this article are important court decisions, most notably the Ohio Supreme Court’s Dugan & Meyers opinion.
With deference to David Letterman, we present our pick for the top ten legal events of 2007 that impacted the construction industry. While there are a number of events that we have not included on the list that arguably had a significant impact on the industry, the events on the list will certainly have a broad impact across the industry.
10. Jarod’s law
A small child was fatally injured in 2003 by a falling school cafeteria table that had been recalled years before. In response to this unfortunate accident, the General Assembly passed Jarod’s law in 2005 to require the inspection of school facilities for safety issues. The act was implemented in 2007. The safety inspections require review of the physical facility, the fixtures in the facility, the furnishings in the facility, and the operation of the facility. Repairs required as a result of the inspections may result in construction work.
9. Consensus Documents
In an effort spearheaded by the Associated General Contractors, 23 industry organizations came together to draft a new set of standard form construction contracts. The stated goal of the group was to develop a set of balanced documents that focused on the best interest of the project. The final product was released late in the year. Views may vary on whether this goal was met.
8. The Tobacco Settlement Securitization
The major cigarette manufacturers, in order to end the litigation that had been brought Top Ten Construction Legal Events of 2007 against them by a number of states, agreed to make annual payments to the states. Under the Tobacco Settlement Securitization Initiative, Ohio securitized the annual payments in order to receive a lump sum immediately. As a result, the Ohio School Facilities Commission must spend $4.1 billion from the settlement over the next three years. By way of comparison, the OSFC spent $5 billion over the first ten years of the commission. This will substantially increase the pace of school construction in Ohio.
7. State ex rel. Boccuzzi v. Cuyahoga County Board of Commissioners – Bidding
When the City of Parma and Cuyahoga County jointly agreed to improve a road and utilities, the city agreed to pay for costs after the first million used to improve the sanitary sewer. The project was bid allowing contractors to offer combined bids. The contractor that was ultimately awarded the contact was the low bidder for the combined bid, which included the sanitary sewer work, but was not the low bidder for the sanitary sewer work as a separate bid.
Citizens of the city sued to force the county to accept the lower separate bid for the sanitary sewer work. The Ohio Supreme Court said that nothing in the Ohio statutes required a county or a city to bid different portions of a construction project separately, which is different issue than the multiple prime contractor issue. In issuing this opinion, the Ohio Supreme Court specifically affirmed a stand it has taken before: Courts should be reluctant to interfere in decisions about competitive bidding and to substitute their judgment for a public owner’s decision on who is the “lowest and best bidder.”
6. Pay to Play
Amended Substitute House Bill 694 enacted significant changes in Ohio’s laws regulating political contributions by government contractors. The new law prohibits state and local officials from awarding a contract to certain contractors depending upon the amount of political contributions made by the contractor or related parties. Late in the year, the Franklin County Court of Common Pleas Court granted a Motion for Summary Judgment in a series of consolidated cases that raised numerous challenges to H.B. 694, holding that H.B. 694 “cannot be the law of Ohio.” However, while the case was pending, the law was revised and reenacted.
5. AIA Document Revisions
The American Institute of Architects released the long anticipated revisions to their form contract documents. This marks the first revision to the AIA documents in 10 years. With the changes, the AIA hoped to react to industry trends and recent court decisions. Key changes include a complete overhaul of the terms affecting dispute resolution procedures, additional insureds, consequential damages, Architect’s standard of care, Architect’s insurance, sustainable design, and the use of documents upon termination.
4. OSFC Going Green
With a resolution passed at its September meeting, the Ohio School Facilities Commission adopted, as part of the school design standards, the Rating System of Leadership in Energy and Environmental Design for Schools, called “LEED” for short. Developed by the U.S. Green Building Council, LEED uses a points system to evaluate buildings in five areas: (1) sustainable sites, (2) water efficiency, (3) energy and atmosphere, (4) materials and resources, and (5) indoor environmental quality. Buildings can earn Certified, Silver, Gold, or Platinum certification, based on the number of points earned during the review process. All future OSFC-funded buildings will be required to meet LEED for Schools Silver certification standards and encouraged to meet the higher Gold certification standards.
3. A.H. Sturgill Roofing, Inc. v. Robert W. Settlerlin & Sons Co. – Workers’ Compensation.
When one of subcontractor Sturgill’s employees was injured because of the actions of another subcontractor working for Settlerlin, Sturgill sought reimbursement from Settlerlin for the increase in premiums for workers’ compensation it was forced to pay as a result of the employee’s injuries. Under the Workers’ Compensation Act, an employer may not be reimbursed for any amounts paid to the employee.
In this case, however, the Ohio Supreme Court affirmed an exception to this rule: “Where a third party negligently injures an employer’s employee and such injury is a direct result of a breach of contract which the third party had with the employee’s employer, and as a direct result of such breach the employer suffers damages, such damages are recoverable against the third party.” Since Sturgill’s contract with Settlerlin included provisions that arguably would create a contractual duty for Settlerlin in regards to safety for the project site, the case was returned to the trial court.
2. Terry v. Caputo – Expert Opinions
In seeking to establish liability for exposure to mold, or other toxic substances, a plaintiff must prove that the substance caused their injury. In this case, employees of the Ottawa County Board of MRDD sought to prove that the mold they were subjected to at work caused the various aliments they suffered. At trial, the employees produced evidence showing that exposure to mold can cause the difficulties from which they were suffering, but they did not present any evidence that exposure to the particular mold they were exposed to was the cause of the specific aliments from which they suffered. One of the questions on appeal was whether proving general causation was enough to carry the day for the plaintiffs. The Court did not think it did.
“Federal courts have established a two-step process in examining the admissibility of causation evidence in toxic tort cases. The first step requires a claimant to offer evidence establishing general causation, that is, whether a substance is capable of causing a particular injury or condition in the general population. The second step, which applies only after a court finds competent evidence establishing general causation, requires a claimant to offer specific causation evidence. This evidence relates to whether a substance caused a particular individual’s injury. The Supreme Court of Ohio finds this two-step analysis to be reasonable and therefore adopts it in Ohio. To present a prima facie case involving an injury caused by exposure to mold or other toxic substance, a claimant must establish: (1) that the toxin is capable of causing the medical condition or ailment (general causation), and (2) that the toxic substance in fact caused the claimant’s medical condition (specific causation)”
1. Dugan & Meyers Construction Company v. Ohio DAS – Notice
This dispute over the construction of the Fisher College of Business on the Ohio State University campus finally reached a conclusion in 2007. Dugan & Meyers claimed, in arguments to the Ohio Supreme Court, that it was entitled to additional compensation for the work it performed because of the Spearin doctrine. This doctrine originated in and took its name from an old U.S. Supreme Court case, United States v. Spearin (1918), 248 U.S. 132, that arose when sewers overflowed because they had been constructed according to inadequate plans. The Court ruled that “if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.” So the doctrine of an implied warranty of the adequacy of plans was born.
The Court pointed out that Ohio interpreted the doctrine as providing an owner warranty of “affirmative indications regarding job site conditions.” No such affirmations were involved here. As the Court said, “In contrast, the case before us concerns the allocation of damages flowing from delay in completion of a construction project due to plan changes.” So the Court dismissed the Spearin doctrine with a brief comment:
Despite the interest in the Spearin Doctrine and the arguments of counsel for the various amici, we decline the opportunity to extend the Spearin Doctrine from job-site conditions cases to cases involving delay due to plan changes.
Of more interest to the Court—and to the State—were the specific contract provisions that seemed to apply to Dugan & Meyers’ claims. These provisions, which the Court found Dugan & Meyers did not follow, laid out what a contractor should do when faced with plan changes. “Where a contract is plain and unambiguous,” the Court said, “it does not become ambiguous by reason of the fact that in its operation it will work a hardship upon one of the parties thereto and a corresponding advantage to the other.”
The Court took pains to clarify that it was not making any new law. It was following precedent, including precedent from other states and jurisdictions. It did not abolish the owner’s implied warranty that the plans can be built. The Court merely warned that even plans with errors and omissions can be built; they just may require more detailed, careful adherence to the procedures for raising questions, giving notice, and documenting delays.
As the Court has done on numerous occasions, it warned that it will enforce unambiguous contract terms. Parties had better know and follow the procedures they agreed to follow when they entered into the contracts.
No one can afford to think, “Oh, the contract may say it requires this, but we know that’s not the way things are done in the industry.” The Ohio Supreme Court has spoken, and it has said that contracts must be followed.