Monday, October 24, 2016

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. 

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

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