The
Fairness in Contracting Act governs the use of the following
contract provisions in construction contracts, for both public
and private contracts.
No damage for delay clause.
The Fairness in Contracting Act prohibits no damages for delay
clauses, when the reason for the delay is the result of the
owner's [or contractor's] act or failure to act. Ohio Revised
Code §4113.62. Defective plans and specifications are the
leading reasons for owner-caused delay damages and time
extensions in Ohio. To recover delay damages, a contractor
must establish that (a) the owner breached the contract, (b)
the breach caused a delay to the contractor's performance, and
(c) the contractor was damaged.
Final lien waiver. Upon completing the
job, the contractor must usually complete a final lien waiver.
The Fairness in Contracting Act provides that the requirement
to sign a final waiver of claims in order to obtain final
payment is void and against public policy, if the contractor
has asserted a claim or request for an adjustment to the
contract price. Ohio Revised Code §4113.62(B). No longer will
contractors be caught between waiving a previously asserted
claim, and getting paid for its work.
Waiver of bond claim on public project.
Similarly, the waiver of a claim on a surety bond on a
public project is void and unenforceable under the Act. Ohio
Revised Code §4113.62. Thus, owners or contractors cannot
leverage a waiver of a claim on a surety bond, by withholding
final payment.
Notice of furnishing on public projects.
In order to preserve rights under a surety bond on a
public project, the Act requires a contractor or supplier to
provide a notice of furnishing consistent with the mechanic’s
lien law.
Pay when paid clauses. Although
initially drafted to address "pay when paid" clauses, the Act
as enacted simply provides that such clauses do not prohibit a
contractor or supplier from protecting its rights against a
surety bond or through a mechanic’s lien.
"Pay when paid" and "pay if paid" provisions
remain popular and enforceable. Most pay when paid
clauses only serve to delay the time for payment to the
subcontractor, whereas a properly worded pay if paid
clause may actually shift the burden of nonpayment to the
subcontractor. How do contractors shift the burden of
nonpayment by the owner? Say it clearly in a contract
provision. What should be said? The contract should state
that: (a) the subcontractor is paid only if the general
contractor is paid, (or the subcontractor will not be paid
unless the general contractor receives payment from the
owner); and (b) the subcontractor assumes the risk of
nonpayment by the owner due to insolvency or other
inability to pay. Such contract language has been held by many
courts to sufficiently shift the burden of nonpayment to the
subcontractor
