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Ohio Appeals Court Determines Contractor’s Failure To Follow Contract’s Procedural Requirements Waived Right To Pursue Payment Claim

Posted on August 09, 2016

This blog has discussed Ohio’s Fairness in Contracting Act (“Act”), in the context of its prohibition on out-of-state forum selection clauses in construction contracts. There are, however, a number of other important provisions of the Act that are frequently implicated when construction disputes result in litigation.  One such provision is the ban on “no damages for delay” contract clauses, which states:

Any provision of a construction contract that waives or precludes liability for delay when the cause of the delay is a proximate result of the owner’s act or failure to act, or that waives any other remedy for a construction contract when the cause of the delay is a proximate result of the owner’s act or failure to act, is void and unenforceable as against public policy.

The Tenth District Court of Appeals was recently called upon to determine the extent to which the Act’s prohibition on “no damages for delay” contract clauses could be applied. In IPS Electric Services, LLC v. University of Toledo, 2016-Ohio-361, the University of Toledo (“University”) hired IPS Electric Services, LLC (“IPS”) to perform electrical work at the University’s Health Science Campus.

During performance of the work, IPS complained to the University about a number of problems that were “beyond the control of [IPS] that [were] adversely impacting [IPS’s] progress.” IPS informed the University that late delivery of materials resulted in delays that forced IPS to accelerate its completion schedule and, in so doing, incur additional costs.  In these communications, IPS did not identify the specific amount of additional costs it was claiming.

Later, IPS sent the University a “Certified Claim” “for the cumulative impact of the University of Toledo and its agents for the work that IPS performed” on the project and filed suit against the University for breach of contract. In response, the University alleged that IPS failed to comply with the contract’s dispute resolution procedure, thereby waiving its claims.  The Court of Claims agreed and entered judgment in favor of the University.

On appeal, IPS argued that the contract’s dispute resolution provisions amount to an illegal “no damages for delay” clause. The Appeals Court rejected this argument, opining that the contract’s dispute resolution provisions did not bar or limit IPS’s delay damages claim on the basis of substance, rather, it barred them procedurally because IPS failed to properly initiate and substantiate its claim in accordance with the contract provisions. The Court concluded that these procedural requirements were not the type of contractual terms prohibited as a matter of public policy by R.C. 4113.62.

For questions regarding Ohio’s Fairness in Contracting Act, or any other aspect of Ohio construction law, please contact the attorneys at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971.

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