10 Days Means 10 Days: Ohio Appeals Court Upholds Decision Requiring Strict Compliance with Time and Notice Claim Requirements in State Construction Contract

The plaintiff in IPS Electric Services, LLC v. University of Toledo was an electrical contractor contracted with the University of Toledo to construct a new enclosure at existing buildings and remodel existing space at the UT Health Science Campus.  The contract included provisions for contract modifications and dispute resolution. During the course of the project, problems were encountered that impacted the completion date.  In response to the defendant issuing a new completion schedule, the plaintiff began documenting these impacts beginning on October 24, 2012.  The new schedule would require the plaintiff to add additional manpower, additional shifts, and overtime thereby increasing costs significantly.  On December 24, 2012, the plaintiff sent a letter to the defendant stating it was experiencing compensable costs related to the defendant’s late delivery of air handling units and slow RFI responses resulted in a delay to the metal framing and overhead duct installation. 

On January 22, 2013, the plaintiff sent another letter to the defendant stating that, “we are arguably obligated under the contract documents to provide additional support for our claims as a follow-up to our prior submissions.”  Plaintiff then presented costs associated with schedule acceleration labor, disruption, and additional general conditions. Plaintiffs followed up on February 21, 2013 with detailed costs and formal change order requests.  Finally, on April 25, 2013, the plaintiffs submitted a certified claim for the above costs, adding an additional $100,000 to the disruption total.  In its claim, plaintiff stated “IPS gave notice of delay and potential costs impacts in its October 24, 2012, December 24, 2012, January 22, 2013 and February 21, 2013 letters."  In September of 2013, plaintiff filed a complaint in the Court of Claims alleging breach of contract and unjust enrichment. 

The Court of Claims dismissed the plaintiff’s unjust enrichment claim finding that a written contract governed the relationship between the parties.  The Court of Claims further found that even though the actions of the defendant could constitute a breach of contract, by a preponderance of the evidence the plaintiff failed to comply with the dispute resolution procedures contained within the contract which resulted in the irrevocable waiver of any related claim.  The Court rejected the plaintiff’s argument that it could only know the full amount of damages it suffered at the completion of the project, which in turn would not allow for strict adherence to the notice and time requirements in the contract.  The plaintiffs appealed the Court of Claims decision for the defendants.

The Appeals Court began its analysis by presenting excerpts from Article 8 of the contract that provided the dispute resolution procedures for the project.

8.1.2 Except as provided under paragraph 2.15, the Contractor shall initiate every claim by giving written notice of the claim to the A/E and the Contracting Authority within 10 days after the occurrence of the event giving rise to the claim[.]

…

8.1.4 The Contractor's failure to initiate a claim as and when required under this paragraph 8.1 shall constitute the Contractor's irrevocable waiver of the claim.

The plaintiff argued in its appeal that the contract violates Ohio’s “no damage for delay” statutory prohibition through the inclusion of a ‘no damage for delay’ clause found in Article 4.  The plaintiff further contended that the waiver conditions in Article 8 constituted a no damage for delay cause as well. The Court was not swayed by these arguments pointing to the fact the clause referenced in Article 4 addressed delays caused by other contractors, not by the defendant and therefore is not prohibited by the statute.  The Court further found that the Article 8 claim provisions do not contain “no damages for delay” language.  Article 8 deals with procedural matters for claims, not the substance of the claim and is not the type of contract term that would be barred by the statute either.

The Court next addressed the plaintiff’s claim that the Court of Claims created a “windfall” for the defendant by not finding it liable for the breach of contract claim.  The plaintiff’s argument was that it was unfair for the lower court to require strict compliance with Article 8 because 1) it was waiting for change orders to be executed under Article 7; 2) it had sent repeated notices to the defendant that its actions had caused schedule delays; 3) it was not possible to quantify the extent of the damages until the project was complete. The Court pointed to Ohio case law in order to discount the plaintiff’s argument that adherence to Article 8 would have been a “vain act” by stating, “the Article 8 process remains operative even if the contractor can demonstrate that the Article 8 adjudicators were unlikely to provide the relief sought.” Cleveland Constr., Inc. v. Kent State Univ., 10th Dist. No. 09AP-822, 2010-Ohio-2906.  The Court further stated that the plaintiff was contractually required to inform the defendant with a written notice within ten days of an occurrence that would give rise to a claim.  The Article 8 provision did not require a fully priced change order proposal to accompany that notice.  The Court stated, “initiation of a claim pursuant to the contract's dispute resolution procedures was not contingent on IPS's ability to precisely calculate its damages.”

Accordingly, the Court affirmed the judgment of the Court of Claims for the defendant. 

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The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is an attorney and a Senior Consultant with Navigant’s Global Construction Practice based in Boston, MA.  He may be contacted at 617.748.8311 or brendan.carter@navigant.com

Contractors Exposed to Copyright Liability Where Owner Breaches Agreement with Architect

A federal court in the case Eberhard Architects, LLC v. Bogart Architecture, Inc. et al., 314 F.R.D. 567 (N.D.Ohio 2016) recently held that contractors and subcontractors cannot, as a matter of law, avoid liability if an owner uses an architect's plans and drawings without a license.

In Eberhard, the Architect entered into an AIA contract with the Owner to provide architectural services in connection with the design of a 12-bed hospital facility.  Per the contract the Architect granted the Owner a "nonexclusive license" to use its plans and drawings, the "instruments of service," for the hospital project unless Owner failed to make payments.  In such instance, the contract stated that the license in favor of the Owner would be cancelled.

When the Owner failed to make payment to the Architect, the Architect issued cease and desist letters to all project participants - Owner, Contractor, Subcontractor - to stop using its instruments of service as they were protected by copyright law.  The Contractor and Subcontractors, who did not have a contractual relationship with the Architect and who did not have a basis in their contract with the Owner to stop work, continued to use the drawings and plans.  The Architect then filed a lawsuit against all project participants.  The Contractor and Subcontractors moved to dismiss. The federal court denied the motion.

The Contractor and Subcontractors first argued that case did not “arise” under the Copyright Act and was really a contract dispute concerning nonpayment of fees. The court disagreed holding that the complaint sounded in infringement by Contractor and Subcontractors and therefore arises under the Act. The court commented that it did not matter that the Defendants would raise an affirmative defense that they were not infringers in light of the nonexclusive license.

Then the court likewise discarded the arguments from the Contractor and Subcontractors that they did not exceed the scope of the license because the instruments of service were used on the exact project that the architect had intended.  According to the Contractor and Subcontractors, the Owner did not breach its agreement with the Architect (entitling the Architect to withdraw the license in full) because complete payment was not a condition precedent to the Owner-Architect Agreement.  The court pointed out that the Architect-Owner contract granted the license “upon execution” and "therefore, by granting the license before full payment was due, the parties clearly did not intend the full payment to be a condition precedent to the license itself." And furthermore, by agreement of the parties, the license indeed "ceased to exist" upon the architect's rightful termination of which non-payment was rightful reason. In sum, the Owner and Architect had agreed that the license  would be extinguished.Accordingly, by proceeding to use the instruments of service without a license all project participants, including the Contractor and Subcontractors, were potentially liable under the Copyright Act.

Beyond this case--where, in light of the cease and desist letters, the Contractors and Subcontractors arguably were aware that the license was potentially expired--it is important to note that civil violations of the Copyright Act need not be willful or knowing. See generally R. Anthony Reese, Innocent Infringement in US Copyright Law: A History, 30 Colum. J.L. & Arts 133 (2007).  As such, contractors and subcontractors who use plans and drawings that are unlicensed, whether they know so or not, may expose themselves to liability.
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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts. She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.

Division 1 Sponsored Advocacy in Arbitration Practicum Kicks Off Forum’s 2016 Fall Meeting in Chicago

The Forum on Construction Law’s Beatles themed 2016 Fall Meeting - I Should Have Known Better - Construction & Design Defects & Project Delays is underway this week in Chicago.  The programming portion of the meeting commenced on Wednesday afternoon with the Advocacy in Arbitration Practicum sponsored by Division 1, The Young Lawyers Division, and the Forum Leadership Circle.  The Practicum was a great success with almost sixty attendees participating in the three hour session. 

The practicum was moderated by Division 1’s Tom Dunn of Pierce Atwood  with a panel comprised of Former Division 1 Chair Buzz Tarlow of Tarlow and Stonecipher, the Leadership Circle’s John R. Heisse of Pillsbury Winthrop Shaw Pittman LLP, and the YLD’s Haim Benjamin of Becker & Poliakoff. The practicum centered on a fact pattern of an EPCM power plant project that went off the rails with a change order dispute between the owner and general contractor.  Topics covered include the arbitration agreement, arbitrator selection, information exchange, and vacatur and appeals.  Attendees were divided into Claimant and Respondent teams and mock cross examinations held with the assistance of Erin Krejci of Laurie & Brennan and Brendan Carter of Navigant Consulting, Inc. playing the roles of the owner's and general contractor’s project managers.

Tom Dunn moderates the conversation.

John R. Heisse leads the discussion on preliminary hearings.

Haim Benjamin discusses information exchange between the parties.

Buzz Tarlow strategizing with his team for cross examination.