Highlights: Each year, several events 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. The intent was to select cases and events that will have a broad and continuing impact on the construction industry.
10. Green movement
A holdover from last year’s list, the green movement in construction continued to pick up momentum in 2008. In November, the Ohio Schools Facility Commission amended its design manual to included standards for solar-ready equipment. The amendment provides guidelines for roof space and shading requirements, electrical system access, and building orientation in order to accommodate the future installation of rooftop solar photovoltaic equipment. As building owners seek ways to cut operating expenses, green buildings will continue to be a prime avenue owners use to obtain that goal.
Building Information Modeling (BIM) encompasses a broad range of technologies used in design and construction. Unlike computer-aided design and drafting (CADD), BIM is an interactive representation of the physical and functional characteristics of a facility. As the entire design team is working from one database, changes in one area of design are automatically reflected in other areas.
BIM has the potential to radically change the nature of construction, but it is still in its infancy. While great strides have been made to promulgate standards and interoperability, BIM is more of a federated set of models than a single point source. Contractors and vendors with older software systems, or no software systems, for fabrication and submittals may not see the value in updating their systems to obtain the necessary compatibility. The key rests with owners seeing the value and requiring its use on new projects.
8. Parties cannot contract for greater review of arbitration decision under FAA
The case of Hall Street Associates, LLC v. Mattel, 2008 LEXIS 2911, involved an agreement that required arbitration, but subjected the arbitration decision to court review “where the arbitrator’s conclusions of law are erroneous.” The United States Supreme Court decided that sections 10 and 11 of the Federal Arbitration Act, §§ 10 and 11, “provide the exclusive regimes for the review provided by the statute” and therefore the parties’ agreement was not enforceable.
Under §10 of the FAA, the following are the only four grounds for vacating an arbitration award: the award was procured by corruption, fraud, or undue means; where there was evident partiality or corruption in the arbitrators, or either of them; where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
Under §11 of the FAA, a court may modify or correct an arbitrator’s award where there is evidence of a material error in calculation or in the description of anything referred to in the award, where the arbitrator makes an award for a matter not submitted to him, or where the award is imperfect in a matter of form not affecting the merits of the case.
Many state arbitration acts are modeled after the FAA. Not all state courts, however, agree with the US Supreme Court. Some state courts that have addressed this issue since the Court rendered its decision in Hall Street found that their state arbitration acts allowed for the parties to agree to higher review by the courts. The Ohio Supreme Court has not yet spoken on the issue.
7. No constitutional property right in public contract
The case of Cleveland Construction v. City of Cincinnati, 2008-Ohio-2337, involved the contract for the drywall for the expansion of the Cincinnati Convention Center. The city required a minimum participation for small business enterprises. When Cleveland’s bid did not contain the required SBE participation, the city awarded the contract to the next low bidder who did meet the requirements. Cleveland sued the city claiming a constitutional property right as the apparent low bidder.
The Ohio Supreme Court found that, “No property interest is created when a city properly exercises is discretion and does not award a contract to a party deemed not to have complied with the requirements of the invitation to bid.”
6. Federal court refuses to extend Spearin to private parties
The Spearin doctrine holds that an owner impliedly warrants the accuracy of the plans and specifications prepared by the owner. The doctrine was recognized by the U.S. Supreme Court in 1918 in the case from which the doctrine takes its name. In United States v. Spearin, 248 U.S. 132, the Supreme Court recognized that when a 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.”
The case has been interpreted in many different courts across the country. This year, it was examined by the United States District Court for the Southern District of Ohio. The case of Thomas & Marker v. Wal-Mart, 2008 U.S. Dist. LEXIS 79072, involved a claim for additional rock excavation. The owner, Wal-Mart, provided boring samples for the project site, but during construction, it became apparent that there was significant amount more rock on the site than indicated by the boring samples. When Thomas & Marker’s claim for additional costs was rejected, it filed suit claiming that the owner breached its warranty under Spearin.
The Court found that the Spearin doctrine requires a government contract and does not apply to cases involving private entities only. It is important to remember that this is a federal case. As the District Court pointed out in its decision, no Ohio court has ever ruled on whether the Spearin doctrine applies to contracts between private entities. We will have to wait and see if any Ohio court finds to the contrary.
5. Quality Contracting Standards
A number of the top construction events this past year involved prevailing wage. Many public bodies use compliance with prevailing wage laws to form part of a standard that contractors must meet before being awarded a construction contract. Several suits involving this issue were filed as a result of Franklin County’s application of its Quality Contracting Standards for construction contracts for the construction of the new baseball stadium in downtown Columbus.
The judges at the trial court and appeal level have upheld the county’s discretion to award based on the criteria. The ultimate answer, however, has not yet been reached, as one of the cases, State ex rel. Associated Builders & Contractors of Cent. Ohio v. Franklin Cty. Bd. of Commrs., has been accepted by the Ohio Supreme Court to determine if the prevailing wage criteria in the Quality Contracting Standards are preempted by the state statute on prevailing wage. We will continue to watch the developments.
4. Bad faith against a construction surety
Does a surety have a duty of good faith dealing? Two separate cases have addressed this issue in Ohio and have come to the conclusion that a surety does have a duty of good faith dealing to the obligee, which in most cases, is the owner. Kokosing Construction Co., Inc. v. RLI Insurance Co., 2008 U. S. Dist., LEXIS10327, and Int’l Fid. Ins. Co. v. Vimas Painting Co., 2008 U.S. Dist. LEXIS 27018, both involved the question of the surety’s duty. While the surety has a duty of fair dealing to the obligee, it appears to owe no such duty to the principal, usually the contractor.
3. Application of prevailing wage off-site
Does a contractor have to pay prevailing wage to the worker back in the shop preparing materials for a project that is subject to prevailing wage? According to the Ohio Court of Appeals, Ninth District, in Sheet Metal Workers’ International Association,Local Union No. 33 v. Gene’s Refrigeration,Heating & Air Conditioning, Inc., 2008-Ohio-1005, the answer is yes, a contractor must pay off-site workers prevailing wage if those workers are fabricating materials to be used in the completion of a public project.
Like the prevailing wage issue discussed in the Quality Contracting Standards above, the final answer is yet to be written. The Ohio Supreme Court has also accepted review of this case.
2. Clarification of prevailing wage law by Governor Strickland
The Strickland administration released what it termed to be clarifications to the prevailing wage law. The clarifications involved the determination of when a project that receives both public and private funding is subject to prevailing wage.
Proponents of the clarification argue that the administration is merely applying existing law as it should be applied. Opponents of the clarification argue that it is not a clarification, but rather an expansion of the application of the prevailing wage laws. As of this writing, the clarifications are in effect, but are being reviewed by the Joint Committee on Agency Rule Review.
1. The Economy
The impact of the declining economy has had far reaching effects across the construction industry towards the end of 2008. Financing has disappeared for some projects. Contractors and vendors have had difficulties keeping open much needed lines of credit to level cash flow. While the full impact has not yet been felt, it is much anticipated that as fewer projects are released for construction, competition will increase greatly.
For owners positioned to move forward on a project, this could be good news as the competition holds steady or even drives down the cost of construction.
For contractors and vendors, it means being more creative and vigilant in maintaining the profit on jobs you do receive.
In his December 6, 2008 Democratic Radio Address, President-elect Obama presented key pieces of his economic recovery plan. The highlights of the address include:
- “a massive effort to make public buildings more energy efficient”;
- “the single largest new investment in our national infrastructure since the federal highway system in the 1950’s”; and
- “the most sweeping effort to modernize and upgrade school buildings that the country has ever seen.”
This plan seems to provide owners with an opportunity to fund projects currently on the drawing board. It also would provide much needed work for contractors who have seen a sharp decrease in new projects.