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 five 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.

5. Quality Contracting Standards

In our list from last January we included the following entry at number 5:

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 pre-empted by the state statute on prevailing wage. We will continue to watch the developments.

This case remains on our list because of its potential impact on the construction industry. The parties presented their arguments in briefs to the Ohio Supreme Court and at oral argument before the Court on June 2, 2009. A decision would likely have a far reaching effect on contractors and counties.

4. OSHA – the Summit decision and a look ahead

The Occupational Safety and Health Act of 1970 sets forth an employer’s duties with respect to employee safety:

Each Employer – (1) shall furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees; (2) shall comply with occupational safety and health standards promulgated under this chapter.

29 U.S.C. § 654 (emphasis added).

In Solis v. Summit Contractors, Inc., 558 F. 3d 815 (February 26, 2009), Summit Contractors, Inc. was the general contractor for the construction of a college dormitory. Summit subcontracted exterior brick masonry work to All Phase Construction, Inc. On two or three occasions Summit inspected All Phase and found employees working on scaffolds without personal fall protection devices and without guardrails in violation of OSHA standards. The project superintendent advised All Phase to correct the problem. All Phase, however, eventually moved the scaffolds to another location on the same job and again permitted its employees to work on the scaffolds without fall protection.

OSHA inspected the site and issued a citation to Summit based upon the controlling employer citation policy. Summit’s employees were not exposed to the hazard, and Summit did not create the hazard. In addition, Summit inspected the site and previously advised All Phase to correct the problem.

After dissecting 29 CFR 1910.12(a), the Court determined that 1910.12(a) could be reconstructed grammatically to require “(1) that an employer shall protect the employment of each of his employees and (2) that an employer shall protect the places of employment of each of his employees.” The first part requires an employer to protect only its own employees while the second part, according to the Court, requires the employer to “protect the place of employment, including others who work at the place of employment, so long as the employer also has employees at that place of employment.”

What could we see from OSHA in 2010? Congress is considering measures to reform OSHA and expand its coverage to public employees. The proposed changes also include revisions to civil and criminal penalties for certain employers who violate OSHA standards.

One case, National Association of Home Builders v. OSHA, No. 09-1053, pending before the U.S. Court of Appeals for the District of Columbia Circuit, looks at whether OSHA can cite an employer based on the number of people exposed to a hazard. Where two people are exposed to the same fall hazard should there be one citation and penalty amount because only one standard was violated, or should there be two citations and double the penalty because two employees were exposed?

3. Ohio Supreme Court – Prevailing Wage Decisions

In 2009 we saw the Ohio Supreme Court release two important decisions that gave some guidance on navigating through Ohio’s prevailing wage laws. The following is an excerpt from the June issue of BrickerConstructionLaw.com:

Gene’s Refrigeration

The Ohio Supreme Court’s decision in Sheet Metal Workers’ International Association, Local Union No. 33 v. Gene’s Refrigeration, Heating & Air Conditioning, Inc., 2009 Ohio 2747, on June 17, 2009, reversed the lower appellate court, concluding that: 1) a labor union only has standing to file a prevailing wage complaint on behalf of persons who specifically authorize the action; and 2) prevailing wages only have to be paid to persons whose work is performed directly on the site of a public construction project.

In Sheet Metal, Gene’s Refrigeration (the Contractor) was awarded a contract as part of the construction of a public fire station in Medina, Ohio. The contract at issue involved both on-site construction work and the off-site fabrication of ductwork. During the construction process, the Contractor paid its on-site workers prevailing wage rates and its off-site workers the normal non-prevailing wage rates. Based upon the pay discrepancy between on-site and off-site workers, a local union filed an administrative prevailing wage complaint against the Contractor on behalf of all employees that worked on the public project. The Court looked at the prevailing wage statutes and determined that ORC 4115.05 does not require prevailing wages to be paid to persons working off site, “even if they are working on materials to be used on or in connection with the project.”

To bolster its conclusion, the Court noted that the construction industry has continued to follow the Clymer v. Zane decision for the past 70 years. This has established industry standards and practices that run contrary to the lower appellate court’s ruling. Furthermore, from a policy standpoint, the Court noted that the rule crafted by the appellate court is unworkable in practice, and that the proper forum for addressing the payment of prevailing wages to off-site workers is the legislature.

Northwestern Ohio

The Court’s decision in Northwestern Ohio affirmed the judgments from both the trial court and lower appellate court that the prevailing wage law only applies when a public authority spends public funds to construct a public improvement (i.e. structures built by, or for the benefit of, the state or a political subdivision.)

In Northwestern Ohio, Fellhauer, a private contractor and retail business, decided to purchase real property, the building on that property, and office equipment in the building. Fellhauer also renovated the existing building on the property and obtained both public and private financing.

Public funding came from two grants/loans to finance the purchase of the real property, building, and office equipment. The remainder of the financing involved Fellhauer’s own money and other private funding. As the Court succinctly explained, “Fellhauer used public and private funds to finance the purchase of the real property, a building, and office equipment but used only private funds to finance the renovation of the building.”

The Court rejected the trade group’s argument that the prevailing wage law is triggered as soon as public funds are spent, “regardless of whether the project involves actual construction of a ‘public improvement.’” To do otherwise would “unjustifiably expand the scope of prevailing wage to include projects that are not public improvements, that are not constructed by a public authority, or that do not benefit a public authority.”

Applying this discussion to the Fellhauer renovation project, the Court concluded that the project was not subject to the prevailing wage law. Not only did the project not qualify as a public improvement, but public funds were not used for any construction activities, only to purchase the real estate, building, and office equipment.

2. Construction Reform in Ohio

In August 2008, Ohio Governor Ted Strickland asked the Department of Administrative Services to bring private and public sector stakeholders together in a construction reform panel to discuss issues with publicly funded or administered construction projects. In April 2009, the Construction Reform Panel provided its recommendations for construction reform in Ohio.

While the Construction Reform Panel provided 25 individual recommendations, construction delivery, and Ohio’s use of multiple prime contracting, in particular, was a key focus of the Panel. Ohio law requires that certain public projects use Multiple Prime Contracting. The Panel recommended that Ohio include three additional delivery methods – Design Build, Construction Manager at Risk, and General Contracting.

The Construction Reform Panel stated that the taxpayer will benefit by increased collaboration and less conflict, improved decision making, enhanced use of technology to manage projects, and a reduction in the construction timeline – saving resources as well as time.

There was, however, opposition to the recommendations. Eventually, a compromise was reached. As a result, the Chancellor of the Board of Regents will establish criteria to select three capital projects at state universities in Ohio to use alternative construction management methods on large, medium, and small construction projects. These projects will serve as demonstration projects to evaluate the effectiveness of alternative project delivery methods under the Construction Reform Panel’s recommendations.

1. The Economy

The economy topped our list last year, and it remains in the top spot again this year. The construction industry was not immune from the economic troubles over the last year. As banks made it more difficult for owners and developers to obtain financing for construction projects, the stream of available construction work started to dry up.

The American Recovery and Reinvestment Act of 2009 was passed on February 13, 2009, and it included funds to be used for infrastructure projects.

In February 2009, we wrote about the Clean Water portion of the stimulus bill. That section provided for loans to assist communities in upgrading wastewater treatment systems, drinking water infrastructure, and grants and loans to help rural communities fund their wastewater and drinking water infrastructure. The total funding was $6.0 billion - $4.0 billion for wastewater infrastructure and $2.0 billion for water infrastructure. There also was an additional $1.38 billion for rural water projects.

In June 2009, Bricker & Eckler’s Public Finance Group wrote about one of several new financing options for Ohio schools that became available as a result of the American Recovery and Reinvestment Act of 2009. This new option is the Qualified School Construction Bond (QSCB). The article discusses the amount of funding allocated to the State of Ohio, how Ohio will distribute the funding to schools, the types of projects that qualify, market and political considerations, and important dates of which school districts should be aware.

Schools that finance all or a portion of a construction project using the QSCB program must pay federal prevailing wages as required by the Davis-Bacon Act. The Davis-Bacon Act also requires certain contract provisions be included in the construction contract for the work; these provisions define the payment process and documentation, among other things. The article is available at: http://www.bricker.com/publications/articles/1471.pdf.