The COVID-19 coronavirus is impacting every aspect of the economy, and construction will not be exempt.  Materials and deliveries may be slowed, crews quarantined and unavailable, and projects delayed.  We view COVID-19 as an event beyond the control of a party (an “act of G-d”), falling within the force majeure provision of most contracts.  Some standard form construction agreements already define “force majeure” in such a way as to expressly include “epidemics” (which the COVID-19 coronavirus is).  Contracts published by ConsensusDocs, DBIA, and The Engineers Joint Contract Document Committee all include “epidemics” within the scope of events that support an “excusable delay.”

As a force majeure event, the impact of COVID-19 may be deemed an excusable, but non-compensable, delay.  Contractors will likely be entitled to an extension of time to perform but not additional compensation (although they possibly may be reimbursed for acceleration costs if a schedule cannot be extended – assuming that is even possible).

Contractors will want to send notice promptly after becoming aware that COVID-19 has affected materials deliveries, labor availability, or other aspects of a project, in strict accordance with the contractual notice requirements, advising of the delay.  Likely, the extent of the delay will be unknown, as it may not be clear when restrictions will be lifted, when travel and deliveries will be reinstated, or when crews will be healthy and available.  Contractors would be mistaken to do nothing and presume that the customer will be reasonable.  It is far more prudent to send a simple notice explaining the delay, stating that the duration will be unknown, and stating that the contractor is requesting an extension of the contract performance time.  Contractors should be sure to check the precise contractual provisions relating to providing notice of delay, because some contracts require contractors to waive their rights to an extension of time to perform if they fail to provide notice in strict accordance with the terms of the contract.  Contractors will also want to track and be able to document delivery delays and crew and material availability in order to support the full extent of any requested extension.

Owners, landlords, and lenders affected by these delays will also need to be reasonable in terms of modifying schedules and expectations.  The full extent and impact of COVID-19 will not be known for some time, and all members of the industry will be well-advised to exercise patience as we navigate these uncertain waters.

 

On October 23, 2019, the Ohio House of Representatives introduced a bill (H.B. No. 380) that would amend Ohio’s Prompt Pay Act (ORC Section 4113.61) to provide general contractors with payment protection similar to that currently enjoyed by subcontractors under the Act.

Yesterday, the legislature approved an amendment to the Bill that clarifies that the Bill affects only private projects (payment terms on public projects would be unaffected). The amendment also reduces the originally proposed 35-day payment term to 30 days.

As we reported last autumn, under the proposed Bill, owners would be permitted to withhold amounts only for retention or for disputed liens or claims relating to the work. The bill does not appear to permit the parties contractually to lengthen the payment term, and failure to make timely payment would require an owner to pay interest at 18% per annum. The bill also expressly permits (but does not require) owners to reduce retainage by agreement in the contract.

We will be monitoring the bill’s progress closely and will keep our clients informed of its progress.

On Friday, January 24, 2020, a Lake County Common Pleas Court returned a unanimous jury verdict in favor of Hahn Loeser’s client — TRAX Construction Co. — against the Village of Reminderville, Ohio, its design professional OHM Advisors, Inc., and Village Engineer, Eugene Esser, awarding our client the full $1.1 million it sought for compensatory damages.  The jury also found OHM Advisors and Mr. Esser had committed fraud, and in addition to liability for compensatory damages, awarded TRAX $375,000 in punitive damages and its attorney’s fees. Continue Reading Hahn Loeser Obtains Unanimous Jury Verdict for TRAX Construction Co.

The Tax Cuts and Jobs Act of 2017 created a lucrative new tax incentive for certain business owners: the ability to deduct up to 20% of their qualified business income. Thus, a business owner who qualified for the deduction could earn a taxable income of $500,000 but pay tax on as little as $400,000, resulting in tax savings of nearly $40,000.

Like nearly all provisions of the tax code, however, the deduction is subject to a myriad of exceptions, limitations, and special rules. Among other things, the deduction is reduced or even eliminated depending on the owner’s income, the nature of the business, how the business is organized (the deduction is only available to pass-through businesses such as partnerships, S corporations, and sole proprietorships), how much the business pays in wages, and how much property it uses.

When the deduction was added to the tax code, construction business owners, in particular, faced uncertainty about whether they qualified for the deduction if their income exceeded a specified amount, whether they could combine multiple trades or businesses into a single business (or separate a single business into multiple businesses), and whether income from rental activities qualified for the deduction.  Recent IRS regulations have clarified these and other issues, generally in taxpayer-friendly ways. Continue Reading Construction Business Owners Can Benefit from the Qualified Business Income Deduction

The Seventh District Court of Appeals’ decision in Union Local School District v. Grae-Con Construction is another important victory for the Ohio construction industry in the ongoing debate over the proper application of Ohio’s construction statute of repose, R.C. 2305.131.  The Seventh District Court of Appeals, applying the Supreme Court of Ohio’s July 2019 decision in New Riegel Local School District v. Buehrer Group Architecture & Engineering, Inc., et al., reaffirmed dismissal of stale breach-of-contract claims under Ohio’s construction statute of repose.  The Seventh District rejected three separate arguments advanced by Union Local, which was attempting to overturn the trial court’s rejection of Union Local’s breach of contract claims against contractors and other project participants.  The Union Local opinion is yet another example of Ohio courts interpreting and applying the construction statute of repose to prevent prosecution of stale claims many years after project completion.

Union Local’s first argument was that the construction statute of repose did not apply to breach of contract claims.  The Union Local appeal had been stayed pending the outcome of New Riegel, so the Seventh District was able to swiftly dispose of Union Local’s argument based on the Supreme Court of Ohio’s July 2019 holding that Ohio’s construction statute of repose bars breach of contract claims as well as tort claims filed more than 10 years after project substantial completion.  (Hahn Loeser previously summarized the impact of New Riegel here.)  Continue Reading Ohio Court of Appeals Applies Supreme Court’s New Riegel Decision; Rejects School District’s “Accrual” Argument to Resurrect Claims

Hahn Loeser & Parks LLP has been named among the “Best Law Firms” nationally by U.S. News & World Report and Best Lawyers® in 2020 in 11 practice areas, including Construction Litigation. In addition, four Hahn Loeser offices have been named “Best Law Firms” in their respective markets in 40 regional rankings, including Construction Law (Cleveland) and Construction Litigation (Cleveland and Columbus).

The 2020 “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process. Receiving a tier designation reflects the high level of respect a firm has earned among other leading lawyers and clients in the same communities and the same practice areas for its abilities, its professionalism and its integrity.

To view our firm’s complete list of 11 nationally ranked practice areas and 40 regional rankings, click here.

On October 23, 2019, the Ohio House of Representatives introduced a bill (H.B. No. 380) that would amend Ohio’s Prompt Pay Act (ORC Section 4113.61) to provide general contractors with payment protection similar to that currently enjoyed by subcontractors under the Act. Specifically, the proposal would require project owners to pay contractors within 35 days of receiving the contractor’s invoice. Owners would be permitted to withhold amounts only for retention or for disputed liens or claims relating to the work. The bill does not appear to permit the parties contractually to lengthen the 35-day payment term, and failure to make payment by day 35 would require an owner to pay interest at 18% per annum. The bill also expressly permits (but does not require) owners to reduce retainage by agreement in the contract.

The proposed modifications would be beneficial for contractors and provide greater certainty of payment. For owners, it will require prompt analysis and approval of pay applications.  If lenders are involved, then those requirements will need to be satisfied and funded within the 35-day timeframe.

We will be monitoring the bill’s progress closely.

At the CEA’s 98th Annual Clambake on October 24, Hahn Loeser’s Andy Natale was honored by the Construction Employers’ Association (CEA) with its Distinguished Service Award, elevating him to the ranks of the CEA’s Hall of Fame. Andy has devoted his entire career to working in the construction industry, representing general contractors, design/builders, surety companies, subcontractors, specialty trades, suppliers, manufacturers, developers, lenders, owners and design professionals in all aspects of construction law.  You can read more about Andy and this well-deserved honor on the CEA’s website, and you can listen in to Andy talking with Tim Linville, CEO of the CEA, in his most recent Construction Employers Podcast here.

Hahn Loeser partners Rob Remington, Sherry Rollo, Andy Natale and Aaron Evenchik, along with Senior Project Manager Chad Van Arnam, presented back-to-back training sessions for sold out crowds at the Construction Employers Association on Thursday, October 24 and Friday, October 25.  They covered Trade Secrets – Effective Project Documentation and Safe Document Retention Strategies and Management of Project Schedule Impacts and Delay Claims – Critical Documentation and Proactive Practices to Protect Project Profitability.

If you missed these sessions and would like a copy of the slides, or would like to discuss your training needs, please reach out to Erin Hawk at Hahn Loeser. 

On September 24, 2019, the Ohio Supreme Court announced the General Assembly has broad authority to regulate public-works contracts that subject Ohio’s workers to residency preferences or restrictions. In The City of Cleveland v. The State of Ohio, the Court concluded the General Assembly properly enacted R.C. 9.75, which prohibits municipalities and other political subdivisions from requiring a contractor on a public-improvement project to employ a certain number or percentage of local residents. The statute also prohibits municipalities and other political subdivisions from providing a bid award bonus or preference to contractors as an incentive to employ a certain number or percentage of its own residents.

The decision stemmed from the City of Cleveland’s local ordinance requiring “public-construction contracts in an amount of $100,000.00 or more to include a provision mandating that city residents perform 20 percent of the total construction work hours under the contract.” The purpose of the ordinance was to help alleviate unemployment and poverty in Cleveland and included penalties for a contractor’s failure to comply with the contractual provision. In 2016, the General Assembly enacted R.C. 9.75, which was in direct conflict with the city’s ordinance. The city of Cleveland sought an injunctive relief and a judgment declaring R.C. 9.75 to be unconstitutional because it conflicted with the Home Rule Amendment, Article XVIII, Section 3 of the Ohio Constitution, which reserves all powers of local self-government to municipalities that are not in conflict with general laws. The Eighth District Court of Appeals affirmed the ruling of the trial court permanently enjoining enforcement of R.C. 9.75, finding the statute was not within the General Assembly’s authority under Article II, Section 34 of the Ohio Constitution, and violated the Home Rule Amendment.

Continue Reading Ohio Supreme Court Strikes Down Local Ordinance Imposing Residency Requirements of Ohio’s Workers on Public-Construction Contracts