Ohio Appellate Court Holds Statute Barring Enforcement Of No Damage For Delay Clauses In Cases of Owner Fault Also Precludes Limiting Recovery of Inefficiency And Acceleration Damages Flowing From Owner Delay

Cleveland Construction, Inc. v. Ohio Pubic Employees Retirement System No. 07AP-574, 2008 Ohio 1630

Appellant, Ohio Public Employees Retirement System (“PERS”) is the owner of an office tower project (the “Project”) in Columbus, Ohio. PERS entered into a $6.3 million interior trades contract with Appellee, Cleveland Construction, Inc. (“CCI”) to build portions of the $90 million office tower. The jury in the lower court case found that PERS materially breached its contract with CCI by failing to properly schedule and coordinate the project work.

On appeal, PERS did not did not challenge the jury’s finding that PERS and its construction manager failed to properly schedule and coordinate the Project, instead PERS asserted the trial court misinterpreted the language of the contract and the applicable statute, which invalidates no damage for delay clauses. The appellate court reviewed the contract language in conjunction with the statute. The “no damage for delay” clause contained in the contract was similar to those “no damage for delay” clauses that were enforceable in Ohio until 1988, when the legislature declared invalid these types of clauses when “the cause of the delay is a proximate result of the owner’s act or failure to act.”

PERS argued that the statute did not apply to the claim because CCI asserted a claim for acceleration costs, not delay damages and that the statute did not expressly include the terms “acceleration costs,” “loss of productivity,” or other types of “inefficiency costs,” and therefore the legislature intended to exclude them from the statute. The trial court interpreted the concept of delay broadly and found that acceleration and loss of efficiency are embodied in the concept of delay, consistent with case law in Ohio and other jurisdictions. The appellate court affirmed the trial court’s finding that in construction litigation, a project owner’s delay can give rise to a number of different types of damages, including inefficiency costs, acceleration costs, loss of productivity costs, and unabsorbed home office overhead costs. The appellate court went on to note that acceleration costs are closely associated with project delay, and that statute’s apparent purpose is to prevent owners from escaping liability when they have caused a project delay. “The statute does not simply preclude recovery of delay damages, rather it precludes the waiver of liability for delay. Liability, in this context, means consequences — an owner cannot cause a delay, and then avoid the natural consequences for causing the delay by using boilerplate contract language.” The court held that contract language was unenforceable and did not preclude CCI’s damages award.

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