Many of us have heard the old saying that “decisions are made by those who show up.” The Ohio Facilities and Construction Commission (“OFCC”) is currently giving design and construction professionals involved in the construction of public schools the opportunity to show up, or more accurately speak up, to provide comments on contract general conditions and specifications of OFCC, including those in the Ohio School Design Manual (“OSDM”), as well as on the materials and methods of design used in the OSDM. This comment period offers industry professionals an important chance to provide input on the construction documents that control school construction projects throughout Ohio. It is crucial that design and construction professionals take this opportunity to give its opinion on current issues, as well as potential issues that may impact the industry in the coming years. Interested parties have until February 15, 2019 to submit comments on materials and methods of design used in the OSDM, and until March 1, 2019 to provide comments on OFCC’s contract documents.
Strict Application of Claims Waiver Provisions Bars Surety Payment Claims
In Berkley Ins. Co. v. Kent State Univ., Ohio Ct. of Cl. No. 2018-00579JD (Jan. 14, 2019), the Ohio Court of Claims expanded its prior rulings strictly enforcing contract dispute resolution provisions in the public construction contract arena. The Court ruled, despite the circumstances that actually existed between the contracting parties, that a contractor’s surety who takes over and completes a project after the contractor’s default and termination is likewise bound by the contract’s dispute provisions. The ruling reinforces the significant risk of waiver of claims by contractors and their sureties when claims are not promptly submitted in accordance with contract provisions governing disputes, even though all parties are aware of the dispute and claim.
In the case of Waverly City School District Board of Education, et al. v. Triad AR, Inc, et al., the Fourth Appellate District Court found that recovery is not limited to the amount of damages claimed; rather, the owner is entitled to recover damages on each contract, apart from any recovery on the other separate and distinct contracts. This means that an owner may recover damages in excess of the total damages identified for each responsible subtrade. Upstream contractors should take care in their subcontracts to ensure that their total liability for the defective work of their subtrades – irrespective of apportioned responsibility – be covered under the subtrade’s indemnity obligations.
The Ohio Department of Transportation recently announced significant changes to the On the Job Training Program (“OJT Program”) that will take effect on January 1, 2019. Because these changes will impact on-going multi-year projects as well as new ODOT projects that will begin construction in 2019, all Ohio contractors are advised to review and familiarize themselves with the new changes. The complete OJT Program manual is available on the ODOT website here. The following is a brief summary of the major changes and how they will impact Ohio contractors in the years ahead.
Effective October 1, 2018, Federal Occupational Safety and Health Administration (OSHA) has created a new National Emphasis Program (Directive Number CPL-02-00-161) for Trenching and Excavation due to a recent spike in trenching fatalities nationwide.
This new Program provides updated guidance and increased enforcement on the National Emphasis Program OSHA has had in place for trenching/ excavation since 1985. (CPL-02-00-269). The first three months of this new National Emphasis Program will focus on educational outreach, followed by enforcement.
Under these new guidelines, states must implement and adhere to the new Trenching/Excavation National Emphasis Program within six months, or by April 1, 2019.
Ohio High Court’s October 2018 Ruling Denying Coverage for Defective Construction Work Confirms Need to Re-Evaluate and Revise Traditional Risk Transfer Mechanisms
Beware! On October 9, 2018, the Ohio Supreme Court issued a final ruling that, not surprisingly, will effectively eliminate meaningful insurance coverage for contractors, subcontractors, and owners for defective construction work. The most recent ruling reaffirms what experienced construction counsel cautioned for years; project participants cannot rely on comprehensive general liability (“CGL”) insurance coverage to remediate defective or non-conforming work. According to the Ohio Supreme Court, although defective construction work causes “property damage,” that damage is neither “accidental” nor “fortuitous” and, therefore, represents an “ordinary business risk” that members of the construction industry must manage without recourse to insurance proceeds. It does not matter that the cause of loss was defective work of a contractor or its downstream subcontractor. This decision is a significant, if not insurmountable, bar to insureds forcing insurers to defend defective work claims, pay for expert evaluations, or to fund settlements under standard coverage forms that have permeated the Ohio construction industry for decades. The Court held that, under the terms of these form insurance agreements, no downstream insurance coverage exists for damages arising from defective work of a subcontractor. Ohio Northern University v. Charles Construction Company, et al. (Ohio Supreme Court, October 9, 2018)
It is critical that industry participants understand the far-reaching and long-term effects of the Ohio Northern University decision and take prompt action to evaluate and mitigate risk or loss. The decision reaffirms and expands the Supreme Court’s 2012 ruling in Westfield Ins. Co. v. Custom Agri Sys., Inc. to the detriment of Ohio’s construction industry participants since it involved a contractor’s policy, and it denied coverage under standard “products completed operations” (“PCOC”) endorsements. For years, insurance agents and insureds’ assumed PCOC endorsements and related policy provisions covered losses arising after substantial completion to the extent the cause of loss was a subcontractor or other lower tier’s defective work. The October 2018 Supreme Court ruling will also impact available insurance coverage for work performed out of state if a contractor’s or subcontractor’s CGL policies are governed by Ohio law.
On October 9, 2018, the Ohio Supreme Court ruled that general liability insurance purchased by a contractor does not cover the defective work of its subcontractors. As a result, even with additional subcontractor coverage, a commercial general liability (CGL) policy does not cover downstream defective work.