Appellate court rejects argument that contractor waived claim by failing to comply with Article 8 notice requirements
On December 5, 2019, the Tenth District Court of Appeals issued a decision in Accurate Electric Construction, Inc. v. The Ohio State University, 2019-Ohio-4992 (10th Dist.), concluding that the Ohio Court of Claims erred when it accepted Ohio State’s argument that Accurate Electric allegedly failed to provide timely notice of its claims under Article 8 of the state contract.
Accurate Electric served as the electrical contractor for two bid packages under OSU’s multi-prime South High Rise Dormitory Project. The project at issue, the renovation of Siebert Hall and Smith-Steeb Hall was completed in 2013. Throughout the second of the two bid packages, Accurate raised a number of issues that Accurate believed caused it to incur additional costs that should be subject to change orders. The parties exchanged a number of communications and engaged in a number of meetings and discussions about those issues and costs, all on an informal basis, without the submission of official change order requests or Article 8 claims.
When OSU ultimately decided that it would voluntarily pay for some of the additional costs but rejected others, Accurate submitted an official request for change order. OSU denied that request, and within 10 days of that denial, approximately four months after completion of construction, Accurate submitted an Article 8 claim.
OSU denied Accurate’s claim, alleging that Accurate had failed to timely present its claim under Article 8 – which requires the contractor to submit its claim “within 10 days after occurrence of the event giving rise to the claim." Article 8 further provides that a 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 Court of Claims agreed with OSU and entered judgment against Accurate. Specifically, the Court of Claims held that since Accurate did not submit its claim until four months after construction completed, "all of the matters that 'arose' must have taken place at least four months prior to the filing of the claim." The Court of Claims also rejected Accurate’s argument that OSU, by its own conduct with respect to other claims by Accurate and other prime contractors on several bid packages for the Project, had waived its right to rely upon the Article 8 timing requirements.
The Appellate Court disagreed, reversing the Court of Claims’ decision and remanding the case to allow Accurate’s claims to proceed.
The Appellate Court expressly rejected the notion that any claim must have arisen during the time when construction was ongoing. OSU and its project representatives “admitted that a contractor's initial request for a change order does not amount to the submission of an Article 8 claim.” OSU’s representative also “stated that a request for a change order would only turn into a claim if the contractor pursued Article 8.” As a result, the Appellate Court held as follows:
If the Management Team grants the contractor's change order request, arguably no event has occurred giving rise to a claim. The contractor had an issue, but the Management Team resolved the issue by granting the contractor's change order request. Depending on the nature of the claim and the particular contractual provisions at issue, the Management Team's denial of the contractor's change order request may be considered an event that has occurred giving rise to a claim.
Therefore, the completion of construction does not necessarily serve as the last date upon which a claim may arise. To the extent discussions regarding a potential change order extend past the completion of construction and then the owner denies the change order request, the event giving rise to the claim (the denial of the change order request) would occur after the completion of construction.
The Appellate Court also found evidence that OSU had waived its right to rely on the Article 8 requirement that a contractor must submit a claim within 10 days of the event giving rise to the claims or the claim is waived. OSU and its project representatives acknowledged that while the contract did not authorize them, they frequently engaged in “field level resolution” meetings to have discussions with the contractor to try to resolve potential claims before the contractor had to submit official claims. OSU engaged in such field level resolutions with Accurate and others throughout the Project, frequently resulting in resolutions without the submission of Article 8 claims, even where the deadline to submit such a claim had long since passed.
Accurate also presented evidence that OSU accepted Article 8 claims and compensated both Accurate and other contractors for Article 8 claims that were not submitted until long after the 10 day deadline for the contractor to submit such claims. In fact, on the prior bid package, Accurate and OSU entered into change orders to resolve arguably untimely claims via change orders, and the change orders initially indicated “Justification: Article 8 Resolution." However, a few weeks later, OSU’s project representative altered the change orders to state "Justification: Compensation Resolution." No one was able to explain why OSU and its project representative changed the justification to avoid reference to Article 8.
As a result of those prior experiences, Accurate engaged with OSU in field level discussions and related meetings in an effort to resolve its claim without having to resort to an Article 8 claim. When OSU finally made it clear that it would not voluntarily compensate Accurate for the last of its claims, which did not occur until months after construction was completed, Accurate submitted its Article 8 claim. The Appellate Court held that Accurate had presented evidence that OSU, through its own conduct, may have waived its right to reject Accurate’s claims on the basis that Accurate did not submit them within 10 days of the event giving rise to each claim.
The case has now been remanded to the Court of Claims for further proceedings consistent with the Tenth District’s decision. For more information on this issue, contact one of the attorneys below. McDonald Hopkins’ construction team, including Pete Welin and Jason Harley, represented Accurate throughout the case.