Ohio Appeals Court Holds That Contractor Who Seeks Application of HOOP Formula to Calculate Home Office Overhead Need Not Prove The Conditions Precedent For Application of Eichleay Formula

Wood Elec., Inc. v. Ohio Facilities Constr. Comm’n, 10th Dist. Franklin No. 16AP-643, 2017-Ohio-2743, 2017 Ohio App. Lexis 1745 (May 9, 2017)

The Ohio Facilities Construction Commission (“OFCC”), together with a school district, an architect, and a construction manager, issued an invitation for bids to build a school. Three prime contractors were chosen: a general contractor, a mechanical contractor, and an electrical contractor, Wood Electric (“Wood”).

The general contractor failed to meet the contractual milestones for either temporary enclosure or full building enclosure, significantly delaying Wood’s work. Wood notified the OFCC of the likely impact on its work soon after the general contractor failed to meet the first milestone, and requested an extension of its own deadlines. The OFCC denied Wood’s request. Wood then requested an extension of time in which to prepare, substantiate, and certify a formal claim, which the OFCC also denied.  Wood hastened to submit a timely claim, projecting an impact of $207,467.57, and reserving its right to supplement the claim when the full impact on its work became known.

When OFCC denied Wood’s claim, Wood sued OFCC in the Court of Claims.  At trial, OFCC acknowledged that Wood had a proper claim, but disputed the $254,027 amount, which included $35,006 for home office overhead.  Wood’s expert testified that he had calculated the home office overhead using the “HOOP” formula adopted by the Ohio Department of Transportation.  The trial court ultimately entered judgment in favor of Wood for the full amount of its claim. Continue reading

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Fourth Circuit Affirms Dismissal of Contractor’s Complaint, Declining to Create ‘Ultra Vires’ or ‘Bias’ Exceptions to the Requirement That Contractors Exhaust Their Administrative Remedies Under Maryland Law Before Suing a Government Agency

Balfour Beatty Infrastructure, Inc. v. Mayor and City Council of Baltimore, 2017 U.S. App. Lexis 7252 (4th Cir., April 25, 2017)

The United States Court of Appeals for the Fourth Circuit recently addressed whether the City of Baltimore (the “City”) had abandoned a contractually required administrative dispute resolution process and relieved Balfour Beatty Infrastructure, Inc. (the “Contractor”) of any obligation to use the administrative dispute resolution process before seeking judicial review of the Contractor’s claims.

The City and the Contractor entered into two contracts (the “Contracts”) whereby the Contractor agreed to build certain parts of a wastewater treatment plant servicing the Chesapeake Bay. The Contracts stipulated that time was of the essence and permitted the City to assess liquidated damages if the Contractor failed to meet the specified completion date.  The Contracts also incorporated by reference the administrative dispute resolution process set forth in the City’s “Department of Public Works Specifications – Materials, Highways, Bridges, Utilities and Incidental Structures 2006,” known as the “Green Book,” which requires contractors engaged by the City in connection with public works projects to seek administrative review by the City’s Department of Public Works of any dispute related to their contracts before suing in court.  Continue reading

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Federal Court in Nebraska Denies Surety’s Request for Preliminary Injunction Requiring Principal to Post Collateral Security, Finding No Irreparable Harm Absent Proof That Principal Was Insolvent or Secreting Assets

Allied World Specialty Ins. Co. v. Abat Lerew Constr., 2017 U.S. Dist. LEXIS 61794 (D. Neb. Apr. 24, 2017)

 Abat Lerew Construction (“ALC”) entered into multiple construction projects which required it to obtain surety bonds guaranteeing its performance. ALC obtained the bonds from Allied World Specialty Insurance Company (“Allied”) and also entered into an indemnity agreement with Allied.  In that agreement ALC agreed to indemnify and hold Allied harmless from and against all liability and to deposit with Allied collateral in an amount determined by Allied to be sufficient to cover liability for any claims under the bonds.

During ALC’s performance of the bonded contracts, Allied received claims on the bonds in excess of $300,000. Invoking the terms of its indemnity agreement with ALC, Allied demanded that ALC post collateral security in the amount of $400,000 to cover liability for the claims.  ALC refused and Allied commenced an action seeking equitable relief requiring ALC to deposit the demanded collateral security.  Upon commencement of the litigation, Allied asked the court to issue a preliminary injunction requiring ALC to post the $400,000 security and restraining ALC from transferring assets.  Continue reading

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Ninth Circuit Holds That Despite ‘Known Damage’ Exclusion Insurer Had Duty Under Oregon Law to Indemnify and Defend Contractor When Property Damage Resulted From Contractor’s Negligent Repair of a Prior Negligent Act

Alkemade v. Quanta Indem. Co., 2017 U.S. App. LEXIS 6896 (9th Cir. Apr. 20, 2017)

 In 1994, Adrianus and Rachelle Alkemade (the “Alkemades”) bought a house from Meltebeke Built Paradise Homes (“Meltebeke”). The home was built on expanding soils, causing significant structural damage.  Meltebeke repaired the existing damage and hired an engineering firm to install a helical pier foundation, which would have prevented any further damage to the home.  However, the helical pier foundation was also installed negligently, afflicting the home with the same type of structural damage as before.

Alkemades sued Meltebeke for negligent supervision of the helical piers installation. Meltebeke entered a settlement agreement with Alkemades in which Meltebeke assigned to Alkemades the right to sue its insurers, Quanta and GFIC, who refused to defend Meltebeke on grounds that its knowledge of the damage caused by the original, defective construction prevented coverage under a known damages provision in Meltebeke’s policies (the “Policies”).  Alkemades subsequently sued the issuers for breach of contract in the U.S. District Court for the District of Oregon for their failure to defend and indemnify Meltebeke.  The insurers moved for summary judgment.

The Policies excluded coverage for damage known by the insured, in whole or in part, that occurred before the policy period began. If such damage was known to the insured, then any “any continuation, change or resumption” of that damage was also deemed known, and excluded.   Continue reading

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Owners Beware: Washington Appellate Court Holds Playing ‘Gotcha’ With Project Submittal Review Could Breach the Duty of Good Faith and Fair Dealing

Nova Contr., Inc. v. City of Olympia, No. 48644-0-II, 2017 Wash. App. LEXIS 913 (Ct. App. Apr. 18, 2017)

This case arose out of a public project in which the City of Olympia (“City”) hired Nova Contracting, Inc. (“Nova”) to replace a culvert. A prior City project on which Nova completed work ended with Nova receiving extra compensation due to the City’s design errors and, as a result, a grudge held by some City staff against Nova.  The present contract required Nova to send submittals describing its plans for bypass pumping and excavation to the City’s engineer for approval before it could begin work.  The City’s decision regarding submittals was final and Nova bore the risk and cost of delay due to any non-approval.

The City issued its Notice to Proceed on August 11, 2014, but Nova could not begin construction due to the City’s rejection of its submittals. Nearly one month later, the City declared Nova to be in default because it failed to provide satisfactory submittals and failed to mobilize to the site.  Coincidentally, that same day, Nova had mobilized to the site; the City, however, later ordered Nova to cease work because it had commenced operations before obtaining the requisite approval.  Nova protested the City’s declaration of default, but the City terminated the contract on September 24.

Nova filed suit against the City for breach of contract, claiming that its handling of the submittals imposed requirements that were not part of the project’s specifications, thereby delaying Nova’s performance to a point where the project could not be timely completed. In support thereof, Nova’s witnesses declared that the City had appeared to be reviewing the submittals with the goal of rejecting them as a sort of “gotcha” review employed to prevent Nova’s performance.  The City moved for summary judgment, and the trial court granted its motion.  Nova appealed, arguing that there existed genuine issues of fact as to why the project was not completed and that the City had breached its duty of good faith by preventing Nova from attaining its justified contractual expectations.  The City argued that the duty of good faith did not apply because it had unconditional authority to accept or reject Nova’s submittals. Continue reading

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