Just two months ago, the Ohio Court of Appeals clarified an issue important to construction contracts: the effects of the prohibition on no-damages-for-delay clauses. Prior to 1998, contracts were allowed to contain damage limiting clauses. These clauses stated that the owner could limit damages requested by contractors for owner-caused delay. One of the more recent cases on that issue, Dugan & Meyers Construction Co. v. Ohio Department of Administrative Services allowed enforcement of these clauses.
The Dugan court decision was based on the premise that no damages-for-delay clauses were valid and enforceable under the law. However, that changed in 1998 when R.C. 4113.62 was enacted and section c(1) prohibited project owners from contracting out of liability for their own delay. Dugan involved a contractor, Dugan & Meyers, which was hired to complete construction of three buildings on The Ohio State University (OSU) campus. The owner in this case was not OSU, but was actually the Ohio Department of Administrative Services (the department). The department already had plans and specifications prepared by the architect and Dugan was given 660 days to complete the work. The contract contained a no-damages-for-delay clause. After the first year the project fell behind, and Dugan did not request written extensions as required by the contract.
OSU fired Dugan, hiring another contractor to finish the work. Dugan sued to recover damages caused by OSU’s incomplete plans that had caused Dugan to delay. The Court held that Dugan could not claim damages since they did not prove several key aspects of their claim. Many might think that the new Ohio opinion in Cleveland Construction, Inc. v. Ohio Public Employees Retirement System conflicts with the holding in Dugan. In a way that is correct, but merely because the Dugan court dealt with a contract made prior to the adoption of R.C. 4113.62.
The Cleveland decision clarified this issue. Ohio Public Employees Retirement (PERS), the owner, entered into a contract with Cleveland Construction, Inc. (CCI) to build portions of an office tower. PERS failed to properly schedule the tasks and caused delays. The contract contained a no-damages-for-delay clause that the Court determined was unenforceable as to owner’s delay. This decision was made since the contract was entered into after the effective date of R.C. 4113.62, which declared no-damages-for-delay clauses to be unenforceable. The Court added that if delay had been caused by someone or events not linked to the owner, then the clause could have been enforceable. This case also determined that delay costs were not the only expenditures included in delay damages; acceleration costs and loss of efficiency were represented in delay damages as well.
The ruling in Dugan is inapplicable to no-damages-for-delay clauses entered after 1998. The Dugan court makes it apparent that the holding was limited since it was dealing with a contract made in 1997. Cleveland reinforces that and clarifies which delay costs are recoverable as well as that no-damages-for-delay clauses are only unenforceable for an owner limiting their own liability. This leaves the door open for barring damages for delay that is not linked to the project owner.
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