3In ttje

*LIprCTTCC Court of ®bIO -

CLEVELAND CONSTRUCTION, INC.,

Plaintiff-Appellee,

V.

OHIO PUBLIC EMPLOYEESRETIREMENT SYSTEM,

Defendant-Appellant.

Case No. ® 8 ® 979

On Appeal from theFranklin CountyCourt of Appeals,Tenth Appellate District

Court of Appeals CaseNo. 07AP-574

MEMORANDUM IN SUPPORT OF JURISDICTION OFDEFENDANT-APPELLANT OHIO PUBLIC EMPLOYEES

RETIREMENT SYSTEM

DANIEL R. WIREMAN (0065218)JAMES D. LUDWIG (0065234)Cleveland Construction, Inc.5390 Courseview DriveMason, Ohio 45040513-398-8900513-398-6838 fax

Counsel for Plaintiff-AppelleeCleveland Construction, Inc.

THOMAS R. WINTERS (0018055)First Assistant Attorney General of Ohio

WILLIAM P. MARSHALL* (0038077)Solicitor General*Counsel of Record

BENJAMIN C. MIZER (0083089)Deputy SolicitorWILLIAM C. BECKER (0013476)KRISTIN S. BOGGS (0081013)Assistant Attorneys General30 East Broad Street, 17th FloorColumbus, Ohio 43215614-466-8980614-466-5087 faxwmarshall@ag.state.oh.us

Counsel for Defendant-AppellantOhio Public Employees Retirement System

MAY 19 200U

CLRRK OF COURTSURREM COUR1`OF OMIq

TABLE OF CONTENTS

Page

TABLE OF CONTENTS ........... ................................................... ...................... .............................

INTRODUCTION ...........................................................................................................................

STATEMENT OF THE CASE AND FACTS ................................................................................3

THIS IS A CASE OF PUBLIC AND GREAT GENERAL INTEREST ........................................5

A. The appeals court's ruling undermines the system of public contracting . ..........................5

B. The decision below deprives public agencies of the opportunity to make budgetaryadjustments resulting from changes to construction projects ..............................................6

C. More generally, the appeals court's opinion undermines the freedom of contract andhampers private owners' ability to mitigate . .......................................................................7

ARGUMENT ................................................................................................................................... 9

Defendant-Appellant's Proposition of Law No. 1 :......................................................................9

The question whether a contract by its terms requires the performing party to

provide notice of a delay is one of law, not offact, reviewed de novo ................................9

Defendant-Appellant's Proposition of Law No. 2 :....................................................................10

The remedy provisions of R.C. 4113.62(C)(1) do not excuse a contractor'scontractual duty to notify the owner of the contractor's need for additional time tocomplete the project ...........................................................................................................10

CONCLUSION .............................................................................................................................13

CERTIFICATE OF SERVICE ...................................................................................... unnumbered

INTRODUCTION

At issue in this case is whether a state statute entitles a construction contractor to damages

under a contract even though the contractor failed to comply with the agreement's plain terms

when it neither notified the owner that its performance would be delayed nor asked for an

extension of time through a proposed change order.

When the Ohio Public Employees Retirement System ("OPERS") embarked on a

multimillion dollar construction project in downtown Columbus, it entered into contracts with a

number of prime contractors, including an interior trades contract with Cleveland Construction,

Inc. ("CCI"). The CCI contract stipulated that, if OPERS caused a delay in CCI's performance,

CCI would notify OPERS of the delay and ask for an extension of time through a proposed

change order. The contract also provided that an extension by OPERS would be the only form of

relief available to CCI for a delay.

Some of the events contemplated by the contract came to pass: OPERS, through its

construction manager, caused a delay in CCI's performance. Other events, however, did not:

Contrary to the contract's plain terms, CCI did not give OPERS notice that its performance

would be delayed, nor did it ask for an extension through a proposed change order. Instead, CCI

accelerated its work, performed substantially on time, and then sued for damages. CCI argued

that it was entitled to damages, despite the contractual provision limiting CCI's relief to an

extension by OPERS, because R.C. 4113.62(C)(1) invalidates so-called "no damages for delay"

provisions-that is, provisions that purport to limit a contractor's remedies when the owner

causes a delay in the contractor's performance. After a Franklin County jury found for CCI, the

Tenth District Court of Appeals affirmed, agreeing with CCI's interpretation of the no-damages-

for-delay statute.

CCI's position would be correct if CCI had fully performed under the contract. But it did

not. CCI flouted the terms of the contract and neglected to notify OPERS or ask for a time

extension through a proposed change order. Having failed to discharge its own duty under the

contract, CCI cannot now seek damages on the ground that R.C. 4113.62(C)(1) invalidates

another part of the contract. The statute speaks only to relief: It says that OPERS could not, by

contract, stipulate that the only form of remedy available to CCI was an extension by OPERS.

The statute does not relieve CCI of any of its duties under the contract, including the duty to

inform OPERS of a delay and to ask for an extension. The statute, in other words, invalidates

provisions that purport to limit the remedies available to parties who have fully performed, but it

does not negate procedural prerequisites, like notice provisions, that would enable the parties to

avoid altogether situations that would give rise to liability claims.

This case perfectly illustrates why CCI's reading of the statute makes no sense. Had CCI

notified OPERS of the delay or sought an extension through a proposed change order, the parties

might well have been able to work things out-by agreeing to a new timetable, by entering a

change order, or by some other changes to their obligations. But CCI did not provide OPERS

with that opportunity, even though the contract required it to do so. The General Assembly did

not intend the no-damages-for-delay statute, R.C. 4113.62(C)(1), to allow a contractor to avoid a

workout by withholding notice. It only intended for the contractor, once it provided the requisite

notice, to be able to claim damages where the owner was responsible for delaying the project.

The Tenth District's overly expansive reading of R.C. 4113.62(C)(1) renders notice

provisions, among other procedural requirements in construction contracts, a nullity. The

decision thereby deprives the owners of construction contracts of the benefit of their bargain and

hamstrings their ability to work cooperatively with contractors in the event of a delay. More

2

generally, the appeals court's opinion fiustrates the ability of all owners-both public and

private-to bargain freely and to mitigate costs arising from delays. The General Assembly

never contemplated these results when it enacted the no-damages-for-delay statute. The case

therefore wairants this Court's review.

STATEMENT OF THE CASE AND FACTS

In 2001, OPERS entered prime contracts with thirty contractors to build a $90 million,

thirteen-story office building in downtown Columbus. OPERS hired Gilbane Building Company

("Gilbane") to serve as the project's construction manager and to schedule and coordinate the

prime contractors.

OPERS awarded CCI the interior trades contract for the project, meaning that CCI would

provide the metal-stud framing, gypsum drywall, frames, doors, hardware, ceilings, painting, and

wall coverings, among other things. As a prime contractor, CCI then hired a subcontractor to

perform some of its work.

OPERS's contract with CCI contained several provisions related to timing. The contract

specified that time was of the essence. Section 6.1.1. It also acknowledged that CCI "may be

subject to interference, disruption, hindrance or delay in the progress of the Work," Section

6.1.1.5, and it provided that CCI would "request ... an extension of time ... in writing ... no

more than 10 days after the initial occurrence of any condition which, in [CCI's] opinion,

entitle[d CCI] to an extension of time," Section 6.4.1. See also Section 6.2.1 ("If [CCI] is

interfered with, disrupted, hindered or delayed at any time in the progress of the Work by any of

the following causes, the time for Contract Completion and any applicable milestone dates shall

be extended for such reasonable time which the System Representative determines ...."). Two

provisions stated that an extension by OPERS would be CCI's "sole remedy" for any delay in

CCI's performance, whether OPERS caused the delay or not. See Section 6.1.1.5 ("[T]he sole

3

remedy for such interference, disruption, hindrance or delay shall be an extension of time ....");

Section 6.3.1 ("To the fullest extent permitted by law, any extension of time ... shall be the sole

remedy which may be provided by the System, and the Contractor shall not be entitled to

additional compensation or mitigation of Liquidated Damages for any delay, interference,

hindrance or disruption, including, without limitation, costs of acceleration, consequential

damages, loss of efficiency, loss of productivity, lost opportunity costs, impact damages, lost

profits or other similar remuneration."). In addition, the contract provided that CCI would "not

proceed with any change in the Work without the required written authorization," Section

7.1.2-that is, without a change order under Section 7.3.

The contract also included completion dates for the project's phases. In March 2002,

OPERS extended the project's duration and changed CCI's completion dates. In light of the

changed timetable, CCI and OPERS agreed on a change order that included costs attributable to

the change to the schedule. Although, according to CCI, Gilbane then caused additional delays,

CCI never requested a time extension through a proposed change order. Instead, CCI performed

its work substantially on time, but allegedly at additional cost to CCI.

CCI then sued for damages caused by the delays. In a directed verdict motion in Franklin

County Common Pleas Court, OPERS argued that CCI waived its right to collect damages

because it had not sought an extension as required by the contract. Cleveland Constr., Inc. v.

Ohio Pub. Employees Ret. Sys. ( 10th Dist.), 2008-Ohio-1630, ¶ 4 ("App. Op."). The trial court

denied the motion on the ground that the contractual provision cited by OPERS was

unenforceable under R.C. 4113.62(C)(1). That provision states in relevant part:

Any provision of a construction contract ... that waives or precludes liability fordelay during the course of a construction contract when the cause of the delay is aproximate result of the owner's act or failure to act, or that waives any other remedy

4

for a construction contract when the cause of the delay is a proximate result of theowner's act or failure to act, is void and unenforceable as against public policy.

A jury then found that OPERS materially breached the contract and awarded CCI $640,298 in

damages. App. Op. ¶¶ 3-4.

The Tenth District Court of Appeals affirmed. The court held that the trial court properly

treated the question of whether the contract required CCI to seek an extension as a factual matter

for the jury's determination. Id. at ¶¶ 33-35. The court also held that R.C. 4113.62(C)(1)

invalidated the provisions stating that CCI's only remedy for delay was an extension of time. Id.

at ¶¶ 23-28.

THIS IS A CASE OF PUBLIC AND GREAT GENERAL INTEREST

The appeals court's ruling undermines the competitive bidding process for public contracts

and hampers state and local agencies' ability to budget for changes to public contracts. More

generally, the decision frustrates the ability of all owners-both public and private-to mitigate

costs arising from delays. The case therefore warrants this Court's review.

A. The appeals court's ruling undermines the system of public contracting.

The appeals court's decision significantly affects contracts entered by public agencies.

Those contracts are subject to a competitive bidding process, and for that process to be fair, the

terms of the contract must be transparent. Moreover, once the contract is entered, the parties

must fully comply with its terms. In this case, by exempting CCI from the requirement that it

provido notice or seek an extension, the appeals court undermined the transparency of the

bidding process and the terms of the contract.

The court's opinion also undermines standard provisions in public contracts concerning

extension requests and written work change orders. Ordinarily, when unforeseen circumstances

prevent a contractor from meeting the terms of a contract, the contract requires the contractor to

5

provide notice to the owner through a proposed change order. These provisions allow the public

agency to mitigate its damages by, for example, granting an extension or issuing a change order

that alters the terms of the contract in a mutually agreeable fashion. And notice of the need for

additional time to complete the project allows the agency to make these changes within its

budgetary constraints.

If the appeals court's decision stands, however, those standard provisions are rendered

hollow. As explained more fully under Proposition of Law No. 2 below, the appellate decision

renders owners defenseless-and subject to massive, unanticipated claims at the end of a project

without notice-by allowing contractors to recover damages even if they entirely shirk their

contractual duty to request an extension or change order. That result impedes the efficacy of

public contracts and the operation of state and local agencies. It also runs contrary to the General

Assembly's intent in enacting R.C. 4113.62(C).

B. The decision below deprives public agencies of the opportunity to make budgetaryadjustments resulting from changes to construction projects.

The appeals court's decision has an additional adverse effect on public agencies as owners

of public contracts. If a contractor notifies the public agency that the contractor's performance

will be delayed through the agency's fault, the agency can make budgetary adjustments in light

of that knowledge. Those adjustments will enable the agency to compensate the contractor for

additional costs caused by the delay.

But for state agencies subject to the state budgetary process (unlike OPERS), such

adjustments must be made well in advance. Under state law, public owiiers operate on a biennial

budget that is approved every two years. Without waining from the contractor that a change

might occur, a public agency will be severely hamstrung in its ability to accommodate the

change. Under the appeals court's approach, however, the contractor is not required to provide

6

advance warning, regardless of the contractual provisions to the contrary, and the court's

decision therefore makes budgeting for public projects in some cases a practical impossibility.

C. More generally, the appeals court's opinion undermines the freedom of contract andhampers private owners' ability to mitigate.

The negative consequences of the appeals court's decision reach beyond state contractors.

The no-damages-for-delay statute, R.C. 4113.62(C), reaches private as well as public contracts.

The appeals court's expansive reading of the statute undermines the terms of all such contracts.

As a result of its decision, no contractor is required to provide notice or seek an extension when

the owner causes a delay. And, as explained more fully below, other procedural requirements

contained in construction contracts could fall under the appeals court's faulty logic. Thus, the

court has thrown into doubt a whole host of standard contractual provisions. Those provisions

are included in contracts for a reason: because the parties freely bargained over them and

mutually benefited from those bargains. By invalidating a vast swath of contractual terms-far

more than the General Assembly contemplated when it enacted R.C. 4113.62(C)-the appeals

court directly undermined the freedom of contract. And in so doing, the court disregarded this

Court's decisions upholding the freedom of contract in Dugan & Meyers Construction Co. v.

Ohio Department ofAdministrative Services (2007), 113 Ohio St. 3d 226, 2007-Ohio-1687, and

Foster Wheeler Enviresponse, Inc. v. Franklin County Convention Facilities Authoriry (1997),

78 Ohio St. 3d 353, 1997-Ohio-202.

The appeals court's decision does not just deprive contracting parties of the terms of their

bargain. It also frustrates the ability of owners of private contracts to mitigate their damages.

Just as public agencies are entitled to attempt to arrange a workout with a contractor in the event

of a delay, so, too, are private owners entitled to find ways to mitigate costs when they have

caused a delay. They can only do so, however, if the contractors notify them of the need for

7

additional time to complete the project, and the appeals court's ruling relieves contractors of

their contractual obligation to provide notice.

8

ARGUMENT

Defendant-Appellant's Proposition of Law No. 1:

The question whether a contract by its terms requires the performing party to providenotice of a delay is one of law, not offact, reviewed de novo.

The appeals court's first major error was in treating a question of law as though it were a

question of fact. The court noted that "[t]he trial court ... determined that whether CCI was

obligated to request an extension of time was a factual question, and the jury found that CCI had

no such obligation." App. Op. ¶ 33. The court affirmed that determination, holding that "[t]he

evidence was such that the jury could have found that CCI was not required to seek a written

time extension." Id. at ¶ 35.

Whether the contract required CCI to ask for an extension, however, was a pure matter of

contract interpretation. Sections 6.2. to 6.4 of the contract set forth the circumstances in which

CCI was required to request an extension. The only question was whether the obligation existed;

no factual determination was necessary, because CCI admitted that it had not provided notice.

As this Court has repeatedly explained, "the interpretation of a contract is a matter of law that we

review de novo." Ignazio v. Clear Channel Broad., Inc. (2007), 113 Ohio St. 3d 276, 2007-

Ohio-1947, ¶ 19; Saunders v. Mortensen (2004), 101 Ohio St. 3d 86, 2004-Ohio-24, ¶ 9;

Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm (1995), 73 Ohio St. 3d 107, 108. The

appeals court therefore erred in abdicating to the jury the court's duty to interpret the plain terms

of the contract.

The appeals court seemed to suggest that the jury could have found, as a factual matter, that

an extension request was not necessary because the "Critical Path of the Construction Schedule"

was not affected under Section 6.6 of the contract. App. Op. ¶ 33. But Section 6.6, along with

Section 6.5, addressed the circumstances under which a time extension would be granted; it had

9

nothing to do with when a time extension had to be requested. The appeals court therefore

misread the contract and misunderstood the jury's role. Moreover, Section 6.6 says nothing

about CCI's obligation to seek a change order before altering the work, see Section 7.1.2. CCI's

duties under the contract were therefore clear and did not require a jury's fact finding.

Defendant-Appellant's Proposition of Law No. 2:

The remedy provisions of R.C. 4113.62(C) (1) do not excuse a contractor's contractual dutyto notify the owner of the contractor's need for additional time to complete the project.

The appeals court's second major error was in concluding that the no-damages-for-delay

statute, R.C. 4113.62(C)(1), abrogates a party's duty under a construction contract to provide

notice, to ask for an extension, or to seek a change order when the owner has caused a delay in

the contractor's performance. But the court's broad reading expands the no-damages-for-delay

statute's scope beyond what the General Assembly contemplated.

The no-damages-for-delay statute is about remedies. As explained above, R.C.

4113.62(C)(1) provides in relevant part:

Any provision of a construction contract ... that waives or precludes liability fordelay during the course of a construction contract when the cause of the delay is aproximate result of the owner's act or failure to act, or that waives any other remedyfor a construction contract when the cause of the delay is a proximate result of theowner's act or failure to act, is void and unenforceable as against public policy.

This statute addresses contractual terms that purport to foreclose or limit a contractor's recovery

for damages caused by the owner. Here, the statute means that, if CCI had asked for an

extension, the contractual provision that limited CCI's relief to that extension was null and void.

In this case, however, CCI was bound by a procedural prerequisite. Article 6 of the

contract provided that time was of the essence, and it required CCI to ask for an extension if CCI

anticipated a delay, including a delay caused by OPERS. Sections 6.2 to 6.4 specified that CCI

would request a time extension in writing when it became apparent to CCI that circumstances

10

required one. A request for an extension, then, was a condition precedent to CCI's seeking a

remedy for OPERS's delay. See Moraine Materials Co. v. Cardinal Operating Co. (2d Dist.),

No. CA 16782, 1998 Ohio App. Lexis 5387, *17 ("Traditionally, notice provisions in a contract

were treated as conditions precedent ...."). Similarly, Sections 7.1.2 and 7.3 impose a condition

precedent by requiring a written authorization before CCI could alter its work.

These contractual provision exist for good reason. Only if CCI notified OPERS that the

delay would affect CCI's performance could OPERS have acted to accommodate the delay.

Without notice, OPERS had no opportunity to grant a time extension or modify the construction

plans. Those changes would have mutually benefited both parties-as the contract

contemplated. In that event, CCI might not have been damaged at all, and certainly not to the

same extent it now claims.

Instead, CCI never asked for an extension or a change order, as CCI itself acknowledges. It

is therefore undisputed that CCI did not comply with the terms of the contract, and specifically

with an express condition precedent. I-Iaving failed itself to comply with the contract's terms,

CCI cannot now argue that it is entitled to a remedy.

The no-damages-for-delay statute does not protect parties who themselves breach the

contract by failing to meet procedural prerequisites. By its plain language, R.C. 4113.62(C)(1)

addresses only "liability" and "remed[ies]"; it does not concern reasonable conditions precedent,

such as notice provisions or extension requests. Instead, the statute is limited, as its language

suggests, to contractual provisions that waive or preclude remedies.

If the appeals court's reading of R.C. 4113.62(C)(1) is followed to its logical conclusion,

the statute inflicts great damage on construction contracts. An owner would not be able to

invoke any provisions of its contract, no matter how reasonable, in defending against a

11

contractor's suit over a delay allegedly caused by the owner-even if the contractor clearly

breached-because any such defense would be characterized as a limitation on or waiver of

liability. In this case, for instance, if CCI had used the wrong materials or failed to construct the

project according to the plans and specifications, CCI could nonetheless claim, on the appeals

court's logic, that its breach could not limit its recovery for damages from delay caused by

OPERS.

The no-damages-for-delay statute neither requires nor permits such an absurd outcome.

The General Assembly enacted the statute to bar parties from contractually limiting the remedies

available to contractors. It did not mean to exempt contractors from antecedent duties, such as

extension requests, that they agreed to undertake. In this case, then, if CCI had met the

contract's procedural prerequisite by providing notice, the statute would nullify the contractual

provision that purports to limit CCI's remedy to an extension by OPERS. But the appeals court

should not have reached the question of the statute's operation, because CCI failed to get that far

in the analysis when it neglected to ask for an extension.

12

CONCLUSION

For the above reasons, this Court should grant review and reverse the judgment of the court

of appeals.

Respectfully submitted,

THOMAS R. WINTERS ( 0018055)First Assistant Attorney General of Ohio

IL IAM P: MARSIVLL* (0038077)$olicitor General

*Counsel ofReeordBENJAMIN C. MIZER (0083089)Deputy SolicitorWILLIAM C. BECKER (0013476)KRISTIN S. BOGGS (0081013)Assistant Attorneys General30 East Broad Street, 17th FloorColumbus, Ohio 43215614-466-8980614-466-5087 faxwmarshall@ag.state.oh.us

Counsel for Defendant-AppellantOhio Public Employees Retirement System

13

CERTIFICATE OF SERVICE

I certify that a copy of the foregoing Memorandum in Support of Jurisdiction of Defendant-

Appellant Ohio Public Employees Retirement System was served by U.S. mail this 19th day of

May, 2008, upon the following counsel:

Daniel R. WiremanJames D. LudwigCleveland Construction, Inc.5390 Courseview DriveMason, Ohio 45040

Counsel for Plaintiff-AppelleeCleveland Construction, Inc.

EXHIBIT 1

IN THE COURT OF APPEALS OF OHIO

TENTH APPELLATE DISTRICT

Cleveland Construction, Inc.,

Plaintiff-Appellee/Cross-Appellant,

No.07AP-574V. (C.P.C. No. 04CV 011144)

Ohio Public Employees Retirement (REGULAR CALENDAR)System,

Defendant-Appellant/Cross-Appellee.

JUDGMENT ENTRY

For the reasons stated in the opinion of this court rendered herein on

April 3, 2008, PERS' assignments of error are overruled and CCI's cross-assignment of

error is overruled. Therefore, it is the judgment and order of this court that the judgment

of the Franklin County Court of Common Pleas is affirmed. Costs are assessed against

appellant.

TYACK, BRYANT & KLATT, JJ.

EXHIBIT 2

IN THE COURT OF APPEALS OF OHIO

TENTH APPELLATE DISTRICT

Cleveland Construction, Inc.,

Plaintiff-Appellee/Cross-Appellant,

No.07AP-574V. (C.P.C. No. 04CV 011144)

Ohio Public Employees Retirement (REGULAR CALENDAR)System,

Defendant-Appellant/Cross-Appellee.

0 P I N I O N

Rendered on April 3, 2008

Daniel R. Wireman and James D. Ludwig, for appellee.

Marc Dann, Attorney General, and Kegler Brown Hill & RitterCo., LPA, Donald W. Gregory and Michael J. Madigan, forappellant.

APPEAL from the Franklin County Court of Common Pleas.

^rm^711,

TYACK, J.

{i1) In this construction case, the appellant, Ohio Public Employees Retirement

System ("PERS"), is the project owner who entered into a $6.3 million interior trades

contract with appellee, Cleveland Construction, Inc. ("CCI"), to build portions of a $90

million office tower on East Town Street in downtown Columbus, Ohio. At trial, a jury

found that PERS materially breached its contract with CCI by failing to properly schedule

and coordinate the project's various tasks.

No. 07AP-574 2

(12) PERS does not challenge the jury's finding that PERS (and its construction

manager, the Gilbane Building Company) failed to properly schedule and coordinate the

project. The jury heard evidence concerning the lack of up-to-date project schedules,

coordination issues, activity delay, out of sequence work, and the failure of the project

manager to address issues impacting the schedule. Despite these problems, the project

was substantially complete by the time set forth in a revised schedule.

{13} The jury found that PERS materially breached the contract, and PERS does

not challenge that fact. Implicit in the jury's finding of a material breach was that the

failure to properly schedule the project led to labor inefficiencies that hindered the

progress of the work and ultimately caused CCI to incur higher costs.

(1[4} The jury awarded CCI $640,298 in damages for the loss of efficiency

caused by PERS' breach. Prior to the case going to the jury, PERS unsuccessfully

moved the court for a directed verdict, insisting that under the contract's terms, CCI had

waived its right to collect damages. In ruling on the motion, the trial court determined that

the contract did not unambiguously bar CCI's claim, and that the waiver provision at issue

was unenforceable because of R.C. 4113.62(C)(1), which prohibits project owners from

contracting out of liability for their own delay.

(15) On appeal, PERS raises the following assignments of error:

[I.] The Contract language in General Conditions § 6.1.1.5and § 6.3.1 is enforceable when it provides that the soleremedy for interference, disruption or hindrance is anextension of time and there will be no additionalcompensation for acceleration or other loss of efficiencydamages.

[II.] The Trial Court erred in failing to direct a verdict when theevidence was undisputed that the contractor failed to seek a

No. 07AP-574 3

time extension in writing as required by General Condition §6.4.1, and therefore waived any claim for damages.

[III.] The Jury nullified a proper instruction on the Total CostMethod of computing damages (which required no portion ofthe loss be caused by the Contractor) when the Jury's verdictimplicitly acknowledged the Contractor's shortcomings, whichwere well supported by the record.

{16} In its first assignment of error, PERS contends that the trial court

misconstrued both the language of the contract and R.C. 4113.62(C)(1), which invalidates

no-damages-for-delay provisions. In connection with this assignment of error, PERS has

urged us to review the entire case de novo, on the basis that the only issue for

consideration is the interpretation of the contract, and the interpretation of R.C.

4113.62(C)(1).

{1[7} Issues of contract construction and interpretation are questions of law

subject to de novo review on appeal. Sherman R. Smoot Co. v. Ohio Dept. of Adm.

Serv., 136 Ohio App.3d 166, 172. To the extent necessary to understand the nature and

effect of the statute's relationship to the contract at issue, we will review those items

without deference to the trial court's determination. We will not, however, review the

entire case de novo, as the case presents questions of law, questions of fact, and mixed

questions of fact and law. It is the function of the jury to weigh the evidence and find the

facts. The jury's findings will not be overtumed on appeal if there is competent, credible

evidence to support them. Seasons Coal Co. v. Cleveland (1984), 10 Ohio St.3d 77, 80;

C.E. Morris Co. v. Foley Constr. Co. (1978), 54 Ohio St.2d 279, 280.

{y[S} Section 6.1.1.5 of the contract provides, in pertinent part, as follows:

[CCI] agrees that the possibility that [it] may be subject tointerference, disruption, hindrance or delay in the progress of

No. 07AP-574 4

the Work from any and all causes is within the contemplationof the parties and that the sole remedy for such interference,disruption, hindrance or delay shall be an extension of time* R k

(19) In addition, Section 6.3.1 of the contract provides as follows:

To the fullest extent permitted by law, any extension of timegranted pursuant to paragraph GC 6.2 shall be the soleremedy which may be provided by [PERS], and [CCI] shallnot be entitled to additional compensation or mitigation ofLiquidated Damages for any delay, interference, hindrance ordisruption, including, without limitation, costs of acceleration,consequential damages, loss of efficiency, loss of productivity,lost opportunity costs, impact damages, lost profits or othersimilar remuneration. [CCII agrees that the possibility that[CCI] may accelerate its performance to meet theConstruction Schedule is within the contemplation of theparties and that any such acceleration is solely within thediscretion of [CCI]. This provision is intended to be, and shallbe construed as consistent with, and not in conflict with,Section 4113.62, ORC, to the fullest extent permitted.

{q10} This "boilerplate" contractual language, known as a"no-damages-for-delay"

clause, has been standard in state construction contracts and, until fairly recently, has

been valid and enforceable. In 1998, however, the General Assembly declared no-

damages-for-delay clauses void and unenforceable as against public policy "when the

cause of the delay is a proximate result of the owner's act or failure to act." R.C.

4113.62(C)(1) (effective September 30, 1998), which invalidated these types of clauses in

construction contracts, provides, in pertinent part, as follows:

Any provision of a construction contract * * * that waives orprecludes liability for delay * * * when the cause of the delay isa proximate result of the owner's act or failure to act, or thatwaives any other remedy for a construction contract when thecause of the delay is a proximate result of the owners act orfailure to act, is void and unenforceable as against publicpolicy.

No. 07AP-574 5

Thus, if CCI's claim for damages is not due to delay caused by PERS, the statute has no

application, and the contract provisions quoted above would bar CCI's claim for damages.

{111) PERS of course, contends that the statute does not apply to the claim in

this case. PERS contends that CCI's claim is barred because, in reality, CCI has

asserted a claim for acceleration costs, not delay damages.

(112] PERS argues that in enacting R.C. 4113.62, the General Assembly did not

expressly include the terms "acceleration costs," "loss of productivity costs," or other

types of "inefficiency costs," and therefore the legislature intended to exclude them from

the purview of the statute. In support of this argument, PERS cites to Minnesota's version

of R.C. 4113.62, which specffically states that contractual provisions waiving liability for

acceleration costs are also void as against public policy. Minn.Stat.Ann. 15.411.2 (2007).

{113) The trial court, however, cited several sources that interpreted the concept

of delay broadly and found that acceleration and loss of efficiency are embodied in the

concept of delay. See, e.g., Bates & Rogers Constr. Corp. v. North Shore Sanitary Dist.

(1980), 92 III. App.3d 90, 95 (citing [1976], 74 A.L.R.3d 187-264); JWP/Hyre Elec. Co. of

Indiana v. Mentor Village SchoolDist. (N.D.Ohio, 1996), 968 F.Supp. 356, 361.

(114] In Bates & Rogers, a sanitary district failed to provide electrical power to the

job within the time specified by the contract. The contractor sought to recover for cost

overrun, excessive labor costs, labor "add-ons," excessive supervision, winter protection

of the work, increased overhead, bond and insurance costs, interest or money borrowed

and expended, and the loss of anticipated profits. The contractor attempted to avoid a

no-damages-for-delay clause by arguing that such claims were for disruption and

interference but not delays. The court disagreed with this interpretation, finding that the

No. 07AP-574 6

contractor's claims were premised on the pleading that the plaintiffs were required by the

fault of the defendant to perform their work out of sequence, thus ineffectively and less

productively. The court found that this claim was for damages sustained for delay, and

therefore the claim was precluded by the clause in the contract. See, also, Dugan &

Meyers Const. Co., Inc. v. Ohio Dept of Adm. Servs., 162 Ohio App.3d 491, 2005-Ohio-

3810, affirmed 113 Ohio St.3d 226, 233, 2007-Ohio-1687 (citing Bates & Rogers with

approval).

{115) In JWPMyre Elec. Co., the court determined that failure to supervise and

coordinate work led to delay, and orders to perform work in ways that did not efficiently

utilize workers caused delay. We find these cases to be more persuasive in

understanding the scope of delay damages within the meaning of the statute.

(1161 CCI has noted that the term "delay" is not defined in R.C. 4113.62 even

though other terms such as "contractor" or "construction contract" are. See R.C.

4113.62(G)(1) and (5). Thus "in the absence of any definition of the intended meaning of

words or terms used in a legislative enactment, they will, in the interpretation of the act,

be given their common, ordinary and accepted meaning in which they are used." Weaver

v. Edwin Shaw Hosp., 104 Ohio St.3d 390, 393, 2004-Ohio-6549, at ¶12.

{117) When used as a noun, as in R.C. 4113.62(C)(1), "delay" means

"[h]indrance to progress; (a period of) time lost by inaction or inability to proceed." Oxford

English Dictionary (6 Ed.2007) 635. Delay is the result caused when something is

postponed, hindered, or slowed. See Black's Law Dictionary (8 Ed.2004) 458, In the

context of bond reduction in public improvements, a "delay claim" is a claim that arises

due to default on provisions in a contract in regard to the time when the whole or any

No. 07AP-574 7

specified portion of work contemplated in the contract must be completed. R.C.

153.80(C)(2).

{q18) 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. See Robert F. Cushman

& James J. Myers, Construction Law Handbook (1999) Section 24.04 Common

Compensable Delay Expenses. The authors collectively refer to these types of damages

as "impact costs." These different types of damages for delay have been accepted by

this court, and by other jurisdictions as well. See, e.g., Sherman R. Smoot Co.; Samuel

Grossi & Sons, Inc. v. U.S. Fidelity & Guar. Co., (Nov. 10, 2006), Pa.Com.Pl.,

Philadelphia Cty. 2004 No. 3590, (rejecting the argument that acceleration costs and

delay damages are mutually exclusive). "At first glance, [accelerate and delay] appear to

be antonyms. However, in this case, it is more proper to view them as two sides of the

same coin *'*. The time compression that caused the acceleration *** was itself

caused by delay." Id.

{119) PERS' argument that acceleration costs are unrelated to delay is

unsustainable. Although the General Assembly could have included the term

"acceleration," in R.C. 4113.62, the legislature did not specifically exclude acceleration

costs from the statute either. As we have discussed, acceleration costs are closely

associated with project delay, and the 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,

No. 07AP-574 8

and then avoid the natural consequences for causing the delay by using boilerplate

contract language. See Black's Law Dictionary (6 Ed.2004) 932 ("The quality or state of

being legally obligated or accountable; legal responsibility to another, * * * enforceable by

a civil remedy.") This, the legislature has said, is void as against public policy. We

therefore hold that Section 6.1.1.5 of the construction contract before us is unenforceable,

and does not preclude CCI's damages award.

{120} In the same vein, PERS attempts to characterize CCI's claim for damages

as acceleration damages. As discussed above, in the construction context, the term

delay encompasses loss of efficiency, disruption, and hindrance. Therefore, Section

6.3.1 of the contract is also unenforceable-because it purports to limit the remedies

available to CCI in the event that PERS causes a delay. The statute clearly invalidates

any contractual provision that not only waives liability for delay, but also limits or waives

any remedy for delay. Section 6.3.1 purports to limit CCI's sole remedy to an extension of

time, which violates R.C. 4113.62(C)(1). Section 6.3.1 is therefore invalid as well.

{121} PERS asserts that 'rf the word "delay' is removed from Sections 6.3.1 and

6.1.1.5 the remaining provisions are enforceable. We disagree. As discussed above, in

certain situations, the term delay can encompass different types of damages, including

inefficiency costs, acceleration costs, loss of productivity costs, and unabsorbed home

office overhead costs. Here, there was evidence presented through CCI's expert,

Theodore Needham, as to "several delays" on the project, "lots of delays on the project,

and that "Cleveland was put in a position to where almost on a daily basis they were

forced to look at the job and move work crews to areas where they could work. Really

they were never able to work in an environment that was sequential, that was consistent

^ ^

No. 07AP-574 9

with the bid schedule." (Tr. 896, 898 & 899.) The facts here were such that a jury could

reasonably find acceleration costs and inefficiency damages were caused by delay. That

is not to say that every construction claim for acceleration costs is a delay claim. But in

this case, delay encompassed damages for delay and inefficiency. Accordingly, R.C.

4113.62 was put into play, and the contract temis were unenforceable.

(122) The first assignment of error is not well-taken, and overruled.

{123} In its second assignment of error, PERS argues that the trial court should

have granted a directed verdict because CCI failed to request an extension of time in

writing, as required by Section 6.4.1 of the contract.

(1241 We will uphold a trial courts denial of a motion for directed verdict so long

as "reasonable persons might reasonably reach different conclusions" as to what the

evidence has shown. See Hamden Lodge No. 517, I.O.O.F. v. Ohio Fuel Gas

Co. (1934), 127 Ohio St. 469, 482.

($25) The precise issue of the validity of a no-damages-for-delay clause and a

provision that requests for extension of time had to be in writing was reviewed recently by

the Supreme Court of Ohio in Dugan & Meyers Constr. Co., Inc., 113 Ohio St.3d 226,

2007-Ohio-1687. That case involved nearly identical contractual provisions as the instant

case.

(1261 Dugan & Meyers argued that they were excused from their obligation to

request extensions of time in writing because the project owner had actual notice of the

delay. Indeed, Dugan & Meyers issued more than 700 requests for information to the

project owner, each of which impliedly put the owner on notice that the project would not

be able to be completed on time. However, Dugan ,: Meyers failed to convince the

No. 07AP-574 10

Supreme Court of Ohio that there was any evidence the project owner waived the

requirement of written requests for extension of time or that the failure to request

extensions was harmless. Dugan & Meyers, at ¶18, 40,41.

{127} Despite similar contract provisions and facts, the result in Dugan & Meyers

is inapposite to the current controversy. The parties entered into the contract at issue in

Dugan & Meyers before R.C. 4113.62 took effect. The Supreme Court of Ohio strongly

intimated that if the contract had been entered into post R.C. 4113.62, the contracts no-

damages-for-delay provisions would have been unenforceable. Id. at 131-33. Ultimately,

however, the Supreme Court of Ohio's opinion in Dugan & Meyers simply enforced

contractual language and found no evidence of waiver.

{1[28) Here, because R.C. 4113.62(C)(1) prohibits a limitation of remedies for

delay caused by the owner, CCI was not required to request an extension of time as its

sole remedy for delay. Without a project schedule that addressed the many inefficiencies

caused by earlier delay, an extension of time might well have added to CCI's damages,

not mitigated them. Therefore, any failure of CCI to request an extension of time in

writing is not per se barred by Dugan & Meyers.

1129) There is one area in which Dugan & Meyers is instructive to our present

case. The no-damages-for-delay clause defined damages for delay broadly and included

acceleration costs, and loss of efficiency as part and parcel of the term "delay." The

contract included the following pertinent language:

"6.3 Any extension of time granted pursuant to paragraph GC6.2 shall be the sole remedy which may be provided by theDepartment. In no event shall the Contractor be entitled toadditional compensation or mitigation of Liquidated Damagesfor any delay listed in paragraph GC 6.2, including, without

No. 07AP-574 11

limitation, costs of acceleration, consequential damages, lossof efficiency, loss of productivity, lost opportunity costs, impactdamages, lost profits or other similar remuneration."

Dugan & Meyers, at 112.

{130} It is apparent that when an owner wants to bar damages for delay, the

owner argues for broad characterization of the term "delay" as was the case in Dugan &

Meyers, Bates & Rogers Constr. Corp., and JWP/Hyre Elec. Co., supra. Here, however,

when seeking to avoid the elimination of a no-damages-for-delay clause, PERS seeks to

interpret the term "delay" so narrowly as to preclude all of CCI's claims for damages.

(131} When a party moves the court for a directed verdict, they are essentially

telling the court that there are no fact questions for the jury, and that they should be

entitled to judgment as a matter of law. See Civ.R. 50; see, also, Hamden Lodge, supra,

at 482.

{132} In this case, PERS is arguing that the trial court should have granted a

directed verdict and found as a matter of law that the contract barred any claims because

CCI failed to request an extension of time in writing.

{133} The trial court, however, determined that whether CCI was obligated to

request an extension of time was a factual question, and the jury found that CCI had no

such obligation. Section 6.6 of the contract provided that any time extensions depended

on the extent to which "Critical Path of the Construction Schedule" was affected. There

was a factual dispute at trial as to whether the labor inefficiencies experienced by CCI

arose from an unforeseeable cause beyond the control and without fault or negligence of

CCI. This was a fact determination for the jury and therefore not appropriate for a

directed verdict.

No. 07AP-574 12

{134} With respect to time extensions and no damages for delay, the jury was

instructed as follows:

1. If you find that CCI is seeking additional compensation for acause due to an unforeseeable cause beyond the control andwithout fault or negligence of CCI, as referenced in generalcondition 6.2.1.3, then CCI needed to seek a time extensionin writing or its claim was waived pursuant to generalcondition 6.4.1.

2. If you find that CCI is not seeking additional compensationfor a cause due to an unforeseeable cause beyond the controland without fault or negligence of CCI, as referenced ingeneral condition 6.2.1.3, then CCI did not need to seek atime extension in writing to assert its claim.

3. If a time extension was sought in writing or was notneeded, then OPERS cannot assert the no damage for delayor acceleration provisions or any other limitation on a remedyfor delay or acceteration in the contract.

Jury Instruction No. 20, Record, at 284; see, also, Tr. 2015. (Emphasis added.)

{135} The evidence was such that the jury could have found that CCI was not

required to seek a written time extension, and therefore, under the instructions given by

the trial court, PERS could not assert the no-damages-for-delay provision in the contract.

Thus, not only was the jury instructed to determine whether CCI had to request a time

extension in writing, they were also instructed to disregard the no-damages-for-delay

provisions if such a time delay was not needed. PERS has not assigned as error

anything with regard to the above referenced instruction, and therefore has waived its

argument that CCI's failure to request a written time extension waived any claim for

damages.

{136} We therefore overrule the second assignment of error.

No. 07AP-574 13

t ^

{137} In the third assignment of error, PERS argues that the jury improperly

nullified the fifth interrogatory, which concerned CCI's proof of damages. PERS argues

that the jury's verdict implicitly acknowledged the contractor's shortcomings. We

disagree.

{138} Jury nullification is a trial jury's inherent right to disregard its instructions

(i.e., the letter of the law), and to reach a verdict based upon its own collective

conscience. See Alan W. Scheflin, Jury Nutlifcation: The Right to Say No. (1972), 45

S.Cal.L.Rev. 168, 212; see, also, Black's Law Dictionary (8 Ed.2004) 875.

{139} The fifth jury interrogatory asked whether CCI proved, by a preponderance

of the evidence, that they satisfied the elements that would entitle them to recover under

the "total cost" or "modified total cost" method of computing damages. (Record, at 265.)

Under the "total cost" method, a contractor+s damages are the difference between actual

costs and the original bid. Net Constr., Inc. v. C & C Rehab. and Constr., Inc. (E.D.Pa.

2003), 256 F.Supp.2d 350, 355 (citing Phitlips Constr. Co. v. United States [1968], 184 Ct.

Cl. 249, 394 F.2d 834). In order for CCI to be able to use the total cost method, the jury

had to determine: (1) that it was impossible or highly impracticable for them to prove their

actual losses directly; (2) that their bid was reasonable; (3) that the actual costs they

sought from PERS were reasonable; and (4) that PERS' breach(es) were the sole cause

of CCI's damages. After hearing all of the evidence in the case, the jury answered "yes"

to all of these questions. PERS failed to object to the interrogatory when it was given,

and waived error as to the interrogatory that was used.

{140} PERS' argument is more properly characterized as a manifest weight

argument and seeks to have this court reweigh the evidence as to each element of the

No. 07AP-574 14

total cost method. For example, there was evidence presented on both sides of the issue

as to whether CCI met each element. Both sides called experts who testified as to this

matter. The jury had the right to believe or reject any or all of this testimony. This was

not a case of jury nullification but rather a case where the jury credited the testimony of

CCI's witnesses over those of PERS.

{141} We, therefore, overrule the third assignment of error.

{142} CCI has also filed a cross-appeal, raising one assignment of error:

The trial court erred in refusing to allow David Asman to testifyregarding the application of the Eichleay formula in support ofTPC's claim for unabsorbed home oft-ice overhead.

{143) CCI argues that it is apparent from the record that the trial court improperly

excluded evidence conceming CCI's Eichleay damages. Eichleay damages (a.k.a.

unabsorbed home office overhead) are incidental damages, which flow naturally from a

project owner's breach of a construction contract, and comprise the contractors

unabsorbed overhead costs attributed to the govemment-caused delay. See, e.g., Sauer

Inc. v. Danzig (2000), 224 F.3d 1340, 1347. "Home office overhead costs" are the costs

incurred by the contractor for maintaining its whole business, thus, they cannot be

attributed to any single contract or job. The method used to calculate these damages is

known as the "Eichleay formula," which seeks to equitably allocate the portion of home

office overhead costs incurred as a result of the government delay in a litigated contract.

See, e.g., Complete Gen. Constr. Co. v. Oh. Depf. of Transp. (2002), 94 Ohio St.3d 54,

58. Thus, "Eichleay damages," and the "Eichleay formula" are used interchangeably

throughout construction law. See id.; see, also, Appeal of Eichleay Corp. (A.S.B.C.A.

No. 07AP-574 15

^. ^

July 29, 1960), No. 5183, 1960 WL 538 (citing Fred R. Comb Co. v. U.S. [1945], 103 Ct.

Cl. 174).

{144} In order to present a valid claim for EichJeay damages, the contractor must

first demonstrate two important elements, which establish the prima facie case for a

damages award. See Complete Gen. Constr., at 58. First, the contractor must

demonstrate that it was on "standby." Id. (citing Interstate Gen. Govt. Contractors, Inc. v.

West [1993], 12 F.3d 1053, 1056.) To be on "standby" also has two requirements: (1)

work must be suspended for a period of uncertain duration; and (2) the contractor must

be able to return to work immediately. See Complete Gen. Constr. (citing West v. All

State Boiter, tnc. [1998], 146 F.3d 1368, 1373). The second prerequisite to presenting a

claim for Eichleay damages is that the contractor must show that it would have been

impracticable to take on any other work during the time on standby-f.e., that the

uncertainty of the duration of the delay made it impracticable to commit to working on a

different project at the same time. Id.

'{q45} Here, the trial court prevented CCI from introducing testimony about its

Eichleay damages because they were attempting to do so using a lay witness. CCI

attempted to introduce evidence of its Eichleay damages through the testimony of David

Asman, who is vice president of The Painting Company, one of CCI's subcontractors on

the job. PERS objected to Mr. Asman's testimony on the grounds that he was not

qualified to testify regarding The Painting Company's unabsorbed home office overhead

costs. PERS ultimately convinced the trial court that expert testimony was required.

{146} We fail to see why a lay witness would not be able to testify about this

subject matter. The two prerequisites to presenting an Eichleay claim are both fact-

No. 07AP-574 16

related questions: First, was the contractor on standby?; and second, was the contractor

prevented from taking other work during the period of delay? These questions can be

answered by a witness with personal knowledge of the relevant facts, not necessarily an

expert witness. See, e.g., Conti Corp. v. Ohio Dept. of Adm. Seros. (1993), 90 Ohio

App.3d 462, 468; Complete Gen. Constr., at 58-59.

(147) We cannot know with certainty what the testimony of David Asman would

have been because CCI failed to proffer the testimony for our review. Accordingly, CCI's

cross-assignment of error must be overruled.

{1[48} In sum, PERS' three assignments of error are overruled, and CCI's cross-

assignment of error is overruled. The judgment of the Franklin County Court of Common

Pleas is af8rmed.

Judgment atTirmed.

BRYANT and KLATT, JJ., concur.