Ohio Construction Seminar- "Dealing with One-Sided Public Contracts: Surviving the Death Star"
- 2. The Challenge
• Shortage of Construction Work and Increased
Competition
• Greater Sophistication of Public Owners and Public
Contracts
• No Ability of Bidder to Alter Terms
• Trend by the Courts to Literally Apply Contract Terms
- 3. The Goals of the Seminar
• Provide knowledge on what contract requires
• Better document impacts and recover extra time and
money
• Provide strategies for overcoming difficult or
impossible to satisfy contract terms
• Explain what rights contractors have outside the
contract
- 4. What Tools are Available to Contractors?
1. Document Change Orders
2. Document Requests for Time and Money thru Article 8
3. Argue Waiver
4. Argue Unenforceability under Fairness in Construction
Contracting Act
- 5. How to Get Paid for Change Orders
• Changes are common.
• How to get paid for changes is another matter.
- 6. How to Get Paid for Change Orders
We’ve all heard it:
“We’ll work it out later: let’s just get the job done.”
- 7. “We’ll Work it Out Later”
This leads to unresolved change orders.
You deliver the work.
…
And then talk about payment once you no longer have
leverage.
- 8. How to Get Paid for Change Orders
No leverage equals nasty one-sided negotiations.
Or… “Simply grit your teeth and accept it.”
- 9. How to Get Paid for Change Orders
• To resolve change orders in your favor:
– NEVER leave extras on the table.
– Know what the contract says about changes.
– Follow it.
– Make sure your superintendents and project managers are
trained to document changes.
- 12. “Notice” Provisions
• Ohio Courts have stressed the Importance of
following a Contract’s Notice Requirements
– Fatal To Contractor’s claim
• If the contract says so, failing to timely provide notice
of a change in the time required by contract may
waive a contractor’s right to:
– Any claim for a time extension
– Any claim for mitigation of Liquidated Damages
- 14. So Submit Your Changes Claims Timely
• In the past, State contracts required a claim to be
submitted prior to contract completion.
– OSFC now requires the claim to be submitted within 30
days of giving notice.
- 15. Public Owners Are Successfully Arguing For STRICT
Enforcement of These Notice Provisions
• Cleveland Construction, Inc. v. Kent State University
– Issued June 24, 2010
– Enforced contract requirements regarding:
• Providing notice within 10 days after the occurrence.
• Important to comply with the Article 8 provisions rather than just claiming
such provisions have been exhausted.
• Stanley Miller v. OSFC
– Issued December 28, 2010
– Enforced Article 8 Claim Submission Requirements
• Peterman Plumbing and Heating, Inc. v. Board of Education
Pickerington Local School District
– Issued December 30, 2010
– Enforced contract‟s 21-day requirement to provide notice.
- 16. Key Points from Several Recent Ohio
Cases
• Follow Contract’s Notice provisions and request an
Extension of Time.
• Requests for additional compensation should be
based on owner-caused delays.
- 17. How to Get Paid for Change Orders
• A change order management program starts from
your Notice of Award and Proceeds through Final
Payment.
• Thoroughly review the contract documents before
signing them. Be prepared to address contract
ambiguities and document notice provisions.
• Alert your project team to notice requirements.
- 18. How to Get Paid for Change Orders
• There are four basic methods of giving notice. Some
are better than others.
• The four ways are:
1. RFIs
2. Discussion in meetings.
3. Letters/E-mails.
4. Conversations with the owner’s reps or gc. (generally not
going to suffice as notice unless confirmed in writing to
the party with whom the conversation was had).
- 19. Language to Protect Yourself
• Unless you indicate otherwise, we will proceed
with the additional work as we were directed in
the progress meeting earlier today and this e-
mail shall serve as continued notice of our
intention to receive additional compensation for
this change.
- 20. How to Get Paid for Changes
• The Contract will govern the process of resolving
change orders.
• Check the:
– changes clause (which generally specifies the procedure
for authorizing extra work); and
– notice provisions (which generally specify how soon and in
what form you must provide notice of a change.)
- 21. How to Get Paid for Change Orders
1. Identify Issue and Establish File;
2. Give Contract-Specified Notice;
3. Define Scope of Change;
4. Notify your lower tiers.
5. Estimate Costs and Schedule for work;
6. Prepare a Change Order Request.
7. Submit and Negotiate a Change Order.
8. Do the Work.
9. A. Get Paid, or B. Enter dispute resolution mode.
- 22. Getting Paid: Don’t Get Burned By Signing a Partial Payment
Release or Change Order with Broad Waiver Language
• Be careful when signing change orders (or partial
payment releases).
– Change Orders should just include costs for that respective
change rather than all possible extra costs through the
date of the change order.
– Partial Payment Releases should be based on the payment
received rather than releasing all claims up to a certain
period of time.
– Same applies to any updated Schedules required to be
signed.
- 24. When There Are Concerns A Change Order Will Not Provide
Sufficient Compensation for Delays and Other Indirect Costs
LETTER
We have only priced the direct costs, so
Change Order Number ___ is returned to
you as executed with one exception and
deletion. We have deleted and initialed the
portion of the change order that would waive
claims for any delays, inefficiencies,
disruption or suspension, extended overhead,
acceleration, and the cumulative impact of
this and other change orders issued to this
date. Please return an executed and initialed
copy to us. No additional time or costs are
sought as of this date based upon what is
reasonably foreseeable now; however, we are
not waiving claims for additional time or
costs should circumstances change.
- 25. Broader and More Aggressive Language
(All Cost and Time Impacts To This Point In Time)
- 27. How Might You Revise Broad Language
(All Costs Up To This Point In Time)
- 30. Language to Insert
• With its signature, Contractor does not verify the
accuracy of the schedule nor does it waive any claim
with respect to additional costs it may incur as a
result of: (a) changes to previous schedules; (b)
additional costs for unresolved issues it has
previously provided notice of; (c) additional costs if
the work does not proceed in accordance with this
schedule because of others; or (d) any other costs
arising out of related to other matters beyond its
control.
- 31. How to Get Paid for Change Orders
• And if you don‟t get paid …
• Follow the Dispute resolution process in the
contracts.
• In State Contracts, those provisions are currently
found in Article 8 of the Contract.
- 32. How to Recover Time and Money on Requests for an
Equitable Adjustment under the Article 8 Process
• Three Key Documents Needed to Stay in the Hunt
1. Written Notice & Request For Extension of Time
2. Certified Claim
3. Appeal Letter
- 33. 10 Day Requirement to Provide Written
Notice
(and Request Extension of Time) 10 days after:
the “occurrence”
rejection/reduction
of a change order
proposal or field
work order
receiving an RFI
response
Differing Site
Condition
determination
- 35. Sample Notice and Request For Extension
of Time Letter
Address It To Everyone
•School District/University
•DAS/OSFC
•CM
•Architect
- 37. In Most Cases, Request an Extension of
Time
Acceleration Will
Occur If Extension Is
Not Granted
Not Responsible for
Liquidated Damages
- 38. Certified Claim Submission
30 Days From
When Notice Was
Submitted
Income
Statement/Ledger
Notarized
Certification
Failure to Comply
= Waiver of Claim
Starts The Two Year Clock To Resolve Or Claim Is Waived
- 40. Basic Components of a Claim
• Direct Costs for Disputed Scope of Work Items
• Extended General Conditions
• Labor Productivity
• Home Office Overhead
- 41. After Submitting The Certified Claim –
What Happens Next?
• Jobsite Resolution Meeting is to be scheduled within
30 days.
• Written Recommendation from either the Architect
or CM issued 14 days after Jobsite Resolution
Meeting.
- 42. Issuance of the Written Recommendation Triggers Prime
Contractor’s Requirement To Appeal
- 43. After Making Appeal
• Another Meeting Scheduled with the Public
Authority (can opt out).
• Final Decision Rendered Regarding Claim.
• Concludes Article 8 Process and next step is to
file suit.
- 44. Graphic Timeline for Notice and Claim
Submissions
120 Days-
Obtain Final
10 Days - 30 Days- Administrative Decision Free To
submit Submit or Exhaust Jobsite File Suit
Written Certified Dispute Resolution
Notice Claim Process
Jobsite Resolution 14 Days – Appeal
and Recommendation Appeal Meeting
Issued and Final Decision
Occurrence of event for 2 Years –
possible claim (for example File Suit or Waive It
revised schedule)
- 45. Summary of Ways to Deal with a Delay
Claim
• Provide notice early and often.
• Be sure to request an extension of time.
• Keep track of your costs preferably on a T&M ticket.
• Don't sign a "No Cost Time Extension Change Order.“
• Read your change orders and lien waivers carefully.
• Be careful about signing schedules when you have a delay claim
pending.
• Organize and submit your claim as soon as possible.
• Better to give a "range of costs" and submit it early than it is to
wait.
• Consider bringing in a schedule consultant early.
- 46. What About Bricker’s
Modified General Conditions?
• Settlement Offers:
– If the Contractor initiates a Claim, the Owner may make one or more
“Section 4.7.10 Settlement Offer” to settle the Claim at any time up to
the date of the trial. Such settlement offer shall be subject to Rule 408
(Compromise and Offers of Compromise) of the Ohio Rules of
Evidence. If at any stage of the litigation, including any appeals, the
Contractor’s Claim is dismissed or found to be without merit, or if the
damages awarded to the Contractor on its Claim do not exceed the
Owner’s last 4.7.10 Settlement Offer, the Contractor shall be liable to
the Owner and shall reimburse the Owner for all the Owner’s
attorneys’ fees and expenses, including expenses and fees paid to
consultants related to the Owner’s pursuit of the Claim, arising out of
or related to such Claim.
- 47. What About Bricker’s
Modified AIA General Conditions?
• Indemnity:
– To the fullest extent permitted by law, the Contractor shall
indemnify and hold harmless the Owner, Construction
Manager, Architect, and Architect’s consultants, and agents
and employees of any of them from and against claims,
damages, losses and expenses, including but not limited to
attorneys’ and consultants’ fees and defense costs, arising of
or resulting from performance of the Work and caused in
whole or in part by the Contractor’s acts or omissions. The
Contractor’s obligations under Section 3.18.1 are joint and
several.
- 48. Escape from the Death Star
• How do you survive if you don‟t document
perfectly?
- 49. The Problem:
• One-sided contract with extensive notice/claim
provisions.
• Owners successfully arguing for strict
construction of these provisions.
- 50. Public Owners Are Successfully Arguing For STRICT
Enforcement of These Provisions
• Cleveland Construction, Inc. v. Kent State University
– Issued June 24, 2010
– Enforced contract requirements regarding:
• Providing notice within 10 days after the occurrence.
• Important to comply with the Article 8 provisions rather than just claiming
such provisions have been exhausted.
• Stanley Miller v. OSFC
– Issued December 28, 2010
– Enforced Article 8 Claim Submission Requirements
• Peterman Plumbing and Heating, Inc. v. Board of Education
Pickerington Local School District
– Issued December 30, 2010
– Enforced contract‟s 21-day requirement to provide notice.
- 52. Dugan & Meyers v. ODAS
• At trial:
– Spearin doctrine: public owner warrants sufficiency of
plans.
– Change Order satisfies? Discussion didn‟t include
cumulative impact.
– Owner had actual notice.
– Asking for an extension would have been a “vain act.”
• On appeal to the Ohio Supreme Court:
– Spearin does not apply to delay claims for insufficient
plans.
– Actual notice does not constitute waiver of contract.
- 53. If you don’t comply perfectly…
…should you give up?
• NO!
• Dugan & Meyers
− did not consider the effect of the Fairness in Construction
Contracting Act.
− did not invalidate the Spearin doctrine.
− did not say that a contractor can never prove the owner
waived strict compliance with the contract.
- 54. What is Waiver?
• In legalese:
“When the acts and conduct of a party are
inconsistent with an intent to claim a right, and
have therefore misled the other party to his
prejudice and thereby estop the party having the
right from insisting upon it.”
- 55. What is Waiver
• In English:
The owner isn‟t following the contract, so you
shouldn‟t have to either.
- 56. The Point of Dugan & Meyers
• Actual notice alone will not equal waiver:
“something more than actual notice on the part of the
state is required to excuse a contractor from
complying with its obligations regarding change-
order procedures in public works contracts.” Stanley
Miller.
• But, notice may still be evidence of waiver.
- 57. Notice as waiver
Craft v. City of Urbana
• Failure to submit claim within contractually allotted time
“did not defeat the contractor‟s claim since the city had
independent knowledge of the condition complained of
and had oral notice of the contractor‟s complaint and the
city was not prejudiced by lack of earlier notice.”
• Never overruled.
- 58. If notice alone is not enough, what
constitutes waiver?
• J&H v. OSFC, Ct. Cl. 2012.
• Extensive notice…12-14 letters over 4 months.
• No action: “Bovis ignored many of the letters,
and in those instances where a response was
made, J&H was informed that is requests were
not in compliance with Article 6 of the contract.”
• But, “72–hour notices.”
- 59. If notice alone is not enough, what
constitutes waiver?
• OSFC argued that J&H failed to strictly comply
with the contract, and thus its claim was barred.
• The Referee disagreed:
– “the correspondence between and among Bovis
employees, demonstrate a lack of good faith and fair
dealing by Bovis and OSFC with respect to J&H. For
example the statements „paint J&H as instigator‟ and
„watch fireworks‟ were made in reference to the
strategy of pitting other contractors against J&H.”
- 60. If notice alone is not enough, what
constitutes waiver?
• Not only did the owner have notice, its conduct
demonstrated a lack of good faith and unwillingness
to resolve any claim, regardless of whether J&H
strictly complied with the contract.
• “OSFC‟s insistence upon strict compliance with
Contract notice requirements was nothing more than
a strategy employed by OSFC and Bovis to prevent
J&H from filing a claim…such conduct on the part of
OSFC constitutes a waiver of strict compliance with
notice requirements.”
- 61. What’s the Point? Don’t Give Up.
• Keep sending notice to the owner, even if:
– The owner ignores you.
– Then demands compliance with Article 6.
• Communicate your understanding that the
owner is waiving strict compliance with the
contract when it ignores your notices, requests
for extensions, or claims.
• Make it clear that you are not waiving your
Article 8 rights by participating in any “informal”
change order procedures.
- 62. Any Other Ways Out?
• Superior knowledge: how can you claim what
you don‟t know?
– Romanoff v. ODAS; J&H v. OSFC
• Fairness in Construction Contracting Act.
– Cleveland Constr. v. OPERS
• At the end of the day, the owner must prove
YOU waived your claim.
– Cleveland Constr. v. Kent State
- 63. Contractors Have a Friend in:
Fairness in Construction Contracting Act –
R.C. § 4113.62
- 64. Fairness in Construction Contracting Act
provides:
Nothing in a contract or change order can waive
responsibility for the –
“Owner‟s acts or failure to act”
(and Contractor‟s acts or failure to act if you are a
sub)
- 65. What Type of Contract Provisions are
Unenforceable?
• No Damage for Delay Clauses
• Waiver of Bond Rights
• Subject to Foreign State Law
• Forced to Arbitrate or Litigate Out of State
• Final Payment as Waiver If Prior Notice
- 66. How to Use the Fairness in Construction
Contracting Act to Trump Unfair Clauses
• Couch impacts in context and language of
“delays”
• Focus on owner‟s actions and inactions
(including owner agents like A/E and CM)
- 67. What Does CCI v. OPERS Provide?
• No need to ask for time extension when owner
(action or inaction) causes delay
• Article 6 (“boilerplate notice”) of State‟s general
conditions unenforceable to some degree
• “Delay” also means acceleration
- 68. Examples of Unenforceable State General
Conditions
6.2.1.5 Sole remedy for delay is a time
extension
8.6 Owners not responsible for
failures of Other Prime Contractors
- 69. Owner’s Failure to Properly Schedule, etc.
May constitute a breach of contract and excuse
the contractor‟s performance.
- 70. Owner’s Failure to Disclose Superior
Knowledge
May render an exculpatory clause (like Article 8)
ineffective.
- 71. What Do You Want to Talk About?
QUESTIONS ……
and ANSWERS?