The Ohio Supreme Court recently ruled in favor of a public entity in a construction contract dispute where OSBA’s Legal Assistance Fund (LAF) provided amicus support. The decision is a good one for school districts and other public entities, especially those interested in putting in place penalties for a construction company’s failure to complete work in a timely manner.
In 2007, the Village of Piketon solicited bids to install a traffic signal. The contract with the winning bidder, Boone Coleman Construction Company, expressed “time was of the essence” and contained a liquidated damages clause where Boone Coleman agreed to pay Piketon $700/day for each day after the deadline that the project was not finished. Boone Coleman did not complete the work until 397 days after the required deadline.
Boone Coleman filed a lawsuit to recover the amount due under the contract, plus additional compensation for extra work performed. In its answer, Piketon denied that any additional compensation was owed, and filed a counterclaim asking the judge to invoke the damages clause and assess Boone Coleman $277,900.
The trial court sided with Piketon, finding that the damages clause was valid and enforceable, that Boone Coleman was responsible for the delays in completion of the project, and that Boone Coleman did not provide the required written notice for extensions of time or additional compensation as required under the contract.
On appeal, the court of appeals reversed on the claim for liquidated damages, finding it to be an unenforceable penalty. In doing so, the court looked at the contract as a whole, finding that the liquidated damages equaled nearly one third of the initial contract price. The court of appeals found the total amount of liquidated damages to be “so manifestly unreasonable and disproportionate that [the contract] is plainly unrealistic and inequitable.” Piketon appealed.
OSBA’s LAF joined the County Commissioners Association of Ohio, the Ohio Municipal League, and the Ohio Township Association and filed an amicus brief in support of Piketon. The brief argued that when evaluating the enforceability of a liquidated damages clause in a construction contract, the court should conduct its analysis based on the initial per-day amount provided for in the contract, and not on the total liquidated damages that ultimately accrued.
The Ohio Supreme Court agreed with the argument set forth in the amicus brief and overturned the ruling of the court of appeals. In its opinion, the Ohio Supreme Court explained that the appropriate analysis in reviewing the reasonableness of any liquidated damages clause is whether the per-day amount is fair, rather than reviewing the total amount ultimately accessed. Chief Justice O’Connor, writing for the majority, also stated: “In a public-roadway-construction contract, each delay in completing the project adds to inconvenience, increased costs, and loss of use of the roadway. We recognize the liquidated damages provisions in public-construction projects play an important civic purpose in that they help foster timely completion of the project, thereby avoiding the loss of billions of taxpayers’ dollars caused by contractors’ delays.”
Piketon v. Boone Coleman Constr., Inc. Slip Opinion No. 2016-Ohio-628.
If you have questions about the case or you’d like to discuss potential assistance that LAF could provide to your district, please contact OSBA’s division of legal services.