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The following is an overview of Ohio construction law. It is not meant to be a comprehensive
summary of relevant law, nor is it meant to be interpreted as providing legal advice to the reader.
Most construction disputes are governed by contract law, as Ohio follows the economic loss rule.
With a few variations, the law applicable to construction disputes in Ohio is similar to that found
in other states.
I. BREACH OF CONTRACT
A. Statute Of Limitations & Choice of Law
Disputes concerning Ohio construction projects must be litigated in Ohio, subject to Ohio law,
regardless of the choice of law provision or forum selection clause in the contract. O.R.C.
§4113.62(D)(1) &(2). These statutory requirements cannot be waived. It may be possible to
challenge such statutes when federal pre-emption is an issue, such as when the forum selection
clause is part of an arbitration clause subject to the Federal Arbitration Act.
The statute of limitations for a contract claim will vary depending on the form of the contract.
For example, the statute of limitations for a written contract is eight years, pursuant to O.R.C.
§2305.06. A claim based on the breach of an oral contract has a six-year statute of limitations
period. See O.R.C. §2305.07. Most breach of warranty claims have a four-year limitations period.
See O.R.C. §2305.09. Claims that fall under the Ohio Consumer Sales Practices Act, as would a
residential construction or home improvement contract, must be brought within two years of
the time the cause of action accrues. Ohio follows a ten-year statute of repose. O.R.C.
§2305.131.
A cause of action for breach of contract accrues when the breach occurs, regardless of the
aggrieved party's lack of knowledge of the breach. See O.R.C. §1302.98; See also Midwest
Specialties, Inc. v. Firestone Tire & Rubber Co., 42 Ohio App.3d 6 (1988). Parties may contract to
reduce the period of limitation to not less than one year. See Hahn v. Jennings, 10th Dist. App
No. 04AP-24, 2004-Ohio-4789. Similarly tolling agreements are enforceable in Ohio. Tolling
agreements are contractual agreements that extend the statute of limitations for pursuing a
claim. An effective tolling agreement will identify (a) the parties to the dispute; (b) the applicable
claims, damages, and defenses; and (c) a specification of the time period during which a lawsuit
should be filed, or other means of dispute resolution sought.
B. Discovery Rule
Typically, a cause of action accrues at the time the wrongful act was committed. Collins v. Sotka,
81 Ohio St.3d 506, 507 (1998), citing Kunz v. Buckeye Union Ins. Co., 1 Ohio St.3d 79 (1982).
However, Ohio’s discovery rule provides an exception to this general rule, providing that a cause
of action accrues “at the time when the plaintiff discovers or, in the exercise of reasonable care,
should have discovered the complained of injury. Investors REIT One v. Jacobs, 46 Ohio St.3d
176, 179, 546 N.E.2d 206 (1989). This is particularly important in the construction context where
there may be latent defects in a project that are not immediately observable.
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Accordingly, in Ohio, an action against a developer-vendor of real property for damage to the
property accrues when it is first discovered, or through the exercise of reasonable diligence it
should have been discovered, that there is damage to the property. Harris v. Liston, 86 Ohio
St.3d 203, 207 (1999) (where the discovery rule was applied to a negligence action). The question
of what is reasonable is a factual determination to be determined by a judge or jury. Crawford
v. Wolfe, 4th Dist. No. 01CA2811, 2002-Ohio-6163, at ¶ 21-22. The discovery rule typically will
not apply in contract claims, because the statute of limitations for written contract breaches is
so long this is rarely a concern. It will apply in tort claims, which are the preferred claims when
the aggrieved party cannot establish privity of contract with the target defendant. There are
notable exceptions to this rule that do not recognize a discovery rule, particularly in breach of
warranty claims. Please consult local counsel when in doubt on the applicability of the discovery
rule.
C. Substantial Performance
A party must substantially perform its obligations under a contract to recover for breach of
contract. “[M]ere nominal, trifling or technical departures are not sufficient to constitute
breach.” Hansel v. Creative Concrete & Masonry Constr. Co., 148 Ohio App.3d 53, 2002-Ohio-198
(10th Dist.2002). A contractor does not breach a contract when the unperformed or wrongfully
performed work does not destroy the value or purpose of the contract. Id. In order for a
plaintiff’s claim to be actionable, Ohio requires that a material contract breach occur, and courts
will allow proof of substantial performance in most cases. Enterprise Roofing & Sheet Metal Co.
v. Howard Inv. Corp., 105 Ohio App. 502, 504–5 152 N.E.2d 807 (2d Dist.1957).
D. Drug-Free Compliance
Since 2007, Ohio law has required that all contractors and subcontractors enroll in a drug-free
workplace program to be eligible to perform public construction work in Ohio. Failure to comply
with this requirement is considered a breach of contract and may prevent a contractor from
receiving a public contract for up to five years. O.R.C. §153.03(E)(3).
E. Third Party Beneficiaries and Privity of Contract
Generally, there must be privity of contract between parties in order to recover damages under
a contract or negligence theory. Thomas v. The Guarantee Title & Trust Company, 81 Ohio St.
432, 442, 91 N.E. 183 (1910). An “action for breach of contract by a third party can be brought
only where the parties to a contract intended to benefit the third party.” Hunter Building &
Renovation v. Miller, 8th Dist. No. 67131, 1996 WL 65811, at *3.
Only a party to a contract or an intended third-party beneficiary of a contract may bring an action
on a contract in Ohio. Brewer v. H & R Concrete, Inc. 2d Dist. No. 17254, 1999 WL 49366, at *2;
Mergenthal v. Star Banc Corp., 122 Ohio App.3d 100, 103-104 (12th Dist.1997). A landowner can
be a third-party beneficiary of a subcontractor's performance, but generally, landowners and
subcontractors are not in privity of contract. Brewer, at *2. There must be evidence, on the part
of the subcontractor, that he intended to directly benefit a third party, and not simply that some
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incidental benefit was conferred on an unrelated party by the promisee's actions under the
contract. Mergenthal, at 103–107.
Ohio does not permit a subcontractor to sue a design professional for errors and omissions in
design drawings that caused the subcontractor delays or disruptions in performance unless the
subcontractor and design professional are in privity on contract. Floor Craft Covering, Inc. v.
Parma Community Hospital Ass’n, 54 Ohio St.3d 1, 560 N.E.2d 206 (1990).
F. Pay-if-Paid and Pay-when-Paid
Ohio recognizes the difference between pay-if-paid and pay-when-paid clauses in construction
contracts. The pay-when-paid clause represents an unconditional promise to pay a
subcontractor within a reasonable time after the general contractor is paid by the owner. A pay-
if-paid provision on the other hand, makes the general contractor’s receipt of payment from the
owner an absolute condition precedent to its obligation to pay the subcontractor. Under a pay-
if-paid provision, the subcontractor assumes the risk of owner non-payment, whereas when a
pay-when-paid provision, the general contractor assumes the risk of owner non-payment.
Chapman Excavating Co., Inc. v. Fortney & Weygandt, Inc., 2004 WL 1631118 (8th Dist.2004).
However, because pay-if-paid clauses could result in a forfeiture by the subcontractor in the
event of owner non-payment, such clauses tend to be strictly construed, narrowly applied, and
require some evidence that it is clear and unambiguous as to its true intent of imposing the risk
of non-payment on the subcontractor.
In the absence of the required clarity in the contract language, Ohio courts typically will convert
the clause to a pay-when-paid clause, and enforce it accordingly. In the event of owner non-
payment under a pay-when-paid clause, the general contractor will still have an unconditional
obligation to pay the subcontractor, and will be given a reasonable time within which to do so
after it becomes clear that the owner will not or cannot make the required payments.
II. NEGLIGENCE
Negligence claims against design professionals are governed by a four-year statute of limitations.
O.R.C. 2305.09(D). Such a claim accrues on the date the damage occurs or on the date when,
through reasonable diligence, it should have been discovered. Point East Condo. Owners’ Ass’n,
Inc. v. Cedar House Assoc., Inc., 104 Ohio App.3d 704, 663 N.E.2d 343 (8th Dist.1995). Contractors
and builders are also subject to tort liability based on the implied duty to construct in a
workmanlike manner, discussed below.
To assert a claim for negligent construction, one must demonstrate that the builder or designer
breached the applicable standard of care. Builders who perform faulty construction projects can
be held liable under Ohio tort law. Ohio law charges contractors with a common-law duty to
perform construction work in a workmanlike manner. Barton v. Ellis, 34 Ohio App.3d 251, 252-
53 (10th Dist.1986). This standard requires a construction professional to act reasonably in
exercising the degree of care which a member of the construction trade in good standing in the
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community would exercise under the same or similar circumstances. Ohio Valley Bank v. Copley,
121 Ohio App.3d 197, 205, 699 N.E.2d 540 (4th Dist.1997).
Ohio law does not require expert testimony to establish a standard of care when the action
involves conduct within the common knowledge and experience of jurors. This general rule also
applies to construction and architectural projects. Floyd v. United Home Imp. Ctr., Inc., 119 Ohio
App.3d 716, 721 (2nd Dist.1997) (applying rule to builder's alleged deviation from common
standards of workmanship or failure to exercise ordinary care); Simon v. Drake Constr. Co., 87
Ohio App.3d 23, 26 (8th Dist.1993), (applying rule to architect's alleged deviation from standard
of care).
A builder has a contractual duty to use proper materials and workmanlike skill and judgment
when performing a project, taking into consideration the hazards of the lot and area and the risk
of harm to the structure from those hazards. Tibbs v. National Homes Const. Corp., 52 Ohio
App.2d 281, 292–3 (1st Dist.1977). However, privity of contract is not a necessary element of
negligence actions by vendees against builder-vendors. Remote vendors can still file construction
defect suits against builders, provided the claim is not barred by the statute of limitations or
other legal defenses. Vendors are not strictly liable for building defects, and vendees are
required to prove “traditional negligence elements.” McMillan v. Brune-Harpenau-Torbeck
Builders, Inc., 8 Ohio St.3d 3, 3–4 (1983).
III. BREACH OF WARRANTY
The duty to perform in a workmanlike manner is imposed by common law upon builders and
contractors, as well as by contract in most projects. A contract to perform work creates an
implied warranty that the contractor will perform the work in a workmanlike manner. Point East
Condominium Owners' Assn., 104 Ohio App.3d at 716. The duty to construct in a workmanlike
manner extends to subsequent vendees not in privity with the builder-vendor. Id., citing
McMillan, 8 Ohio St.3d 3. However, a plaintiff cannot raise a claim of an implied warranty of
workmanship and craftsmanship under a theory based upon breach of an implied warranty of
fitness for a particular purpose. Corporex Dev. & Const. Mgt., Inc. v. Shook, Inc., 10th Dist. No.
03AP-269, 2004-Ohio-1408, 2004 WL 557339, judgment reversed and remanded on other
grounds, 106 Ohio St.3d 412, 2005-Ohio-5409. These are two separate theories of liability which
cannot be joined.
Ohio law sets express requirements for workmanship warranties on specific types of construction
projects. For example, a condominium developer must provide a minimum two-year warranty
covering the cost of labor and materials for any repairs to common service areas of the
condominium property that may occur based on a defect in material or workmanship. Similarly,
a condominium developer must provide a minimum one-year warranty to cover the cost of labor
and materials for repairs individual units of a condominium resulting from defects in materials or
workmanship. O.R.C. § 5311.25(E)(1).
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A. Breach of Implied Warranty
Implied duties often form the basis of contract disputes when problems arise. Implied duties are
those that are not expressly set forth in the contract documents but can be implied or deduced
from what has been expressed in the contracts. The law certainly recognizes the validity of
implied contract promises, but different rules apply as to when they can be argued.
Most contract documents contain integration clauses. These clauses are familiar because they
form the boilerplate and generally state that the written contract is a complete expression of the
parties’ agreement and that no party owes the other any obligation except as to what is set forth
in the written agreement. The goal of such contract provision is to eliminate the risk and
uncertainty that go along with implied promises. Therefore, in all cases of alleged breach of an
implied promise, the first question is whether an implied promise is even enforceable if there is
a valid integration clause as part of the contract documents. See, e.g., Galmish v. Cicchini, 90
Ohio St.3d 22 (2000).
The other limitation in enforcement of implied duties surrounds the fact that most contracts go
to great lengths to express the party’s contract duties. In those situations, if the contract sets
forth an express promise dealing with a given issue, then a court will not enforce a contrary
implied promise on that same issue. For example, in Trucco Construction Co. v. Columbus,
Franklin App. No. 05AP-1134, 2006 -Ohio- 6984, there were numerous delays on the project due
to a variety of causes. The contractor argued that it should receive compensation because the
owner caused delays in awarding the contracts and dewatering the site. The contractor claimed
the owner breached its implied duty not to hinder or interfere with the work and that the delay
constituted a breach of this duty. The city argued that the contract contained an express
condition that allowed the City to suspend work or delay certain phases without it being in
breach, and therefore, the court could not imply a duty of cooperation that conflicted with that
express provision. The Tenth District Court of Appeals held that imposing an implied duty not to
hinder or delay performance conflicted with the express contract right to delay work, and
therefore, the court refused to imply such a duty into the contract. Id.
Understanding the limitations on enforcement of implied duties, Ohio courts remain willing to
recognize such claims in appropriate circumstances. For example, “if a municipal corporation, by
its own act, causes the work to be done by a contractor to be more expensive than it otherwise
would have been according to the terms of the original contract, it is liable to him for the
increased cost or extra work.” Synergy Mechanical Contractors v. Kirk Williams Co., Franklin App.
No. 98AP-431, 1998 WL 938592 at *4. “A contracting party impliedly obligates himself to
cooperate in the performance of his contract and the law will not permit him to take advantage
of an obstacle to performance which he has created or which lies within his power to remove.”
Id. at *5.
There may also be other implied duties in a contract that play into scheduling and delay issues.
These include an owner’s duty to provide reasonable access to the project (Avon Excavating Co.
v. Parma, No. 41557, 1980 WL 140377 (8th Dist. Dec. 31, 1980)), perform reviews and make
decisions on discretionary items in a timely manner so as not to delay the work, provide adequate
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plans and specifications (Cent. Ohio JVS v. Peterson Constr. Co., 129 Ohio App.3d 58, 716 N.E.2d
1210 (12th Dist.1998)), and coordinate separate contractors on multi-prime jobs (Norment Sec.
Group, Inc. v. Ohio Dept. of Rehab. & Correction, Ct. of Cl. No. 2001-11472, 2003-Ohio-6572, 2003
WL 22890088).
Implied duties may also exist between a general contractor to a subcontractor. For example, in
the absence of contract language to the contrary, a general contractor impliedly promises to
provide its subcontractor with reasonable access to the project site, make reasonable efforts to
coordinate the subcontractor’s work, and not interfere or hinder the subcontractor’s
performance.
One of the perennial problems are delays associated with securing necessary government
approvals or permits. This is a bigger problem in fast track projects or those where the design
work is proceeding simultaneously with construction. If there is a problem with the drawings, a
code compliance issue, or other concern by the entity performing the plan review, it can delay
progress until the issue is resolved. In Carrabine Construction Co. v. Chrysler Realty Corp., 25 Ohio
St.3d 222 (1986), the court found that the delays associated with the failure to obtain zoning
approvals were the contractor’s responsibility because of how the obligations were allocated in
the contract. The same principle holds true universally – if there is a delay associated with a
design problem, or in obtaining government approvals, the entity who took responsibility for
those tasks under the contract will face liability for any and all costs associated with the failure
to fulfill that obligation.
B. Breach of Express Warranty
Like many states, Ohio has adopted what is known as the Spearin Doctrine, which holds that
“when a contractor follows an owner's plans, the owner impliedly warrants that the plans are
accurate. If the construction is revealed to be defective [because the plans are inaccurate], the
owner is the responsible party.” Cent. Ohio JVS, at 64, citing United States v. Spearin, 248 U.S.
132, 136 (1918).
Under the Spearin doctrine, it is generally accepted that a public owner warrants the accuracy,
completeness, and suitability of the project plans and specifications. See Central Ohio JVS. An
owner is required to furnish sufficient plans, specifications, and building site for the contractor
to evaluate, price and bid the project and perform the work. If the owner provides the contractor
with materials and equipment or specifies proprietary products for use on the project, then the
owner impliedly warrants the suitability of the equipment or materials. See, Jurgens Real Estate
Co. v. Eastgate Development Partnership, 103 Ohio App.3d 292 (12th Dist.1995); Floor Craft Floor
Coverings, Inc. v. Parma Community General Hospital, 8th Dist. Case No. 56145 1989 WL 24948
(Mar. 16, 1989), aff’d, 54 Ohio St.3d 1 (1990); Lathrop v. City of Toledo, 5 Ohio St.2d 165 (1966).
The Ohio Supreme Court, however, has recently limited the scope of the Spearin Doctrine in Ohio.
In Dugan & Meyers Constr. Co., Inc. v. Ohio Dept. of Adm. Servs., 113 Ohio St.3d 226, 2007-Ohio-
1687, 864 N.E.2d 68, the court held that, under Ohio law, the Spearin doctrine only applies in
those cases where damages flow from the owners “affirmative indications of job site conditions”
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and not to “cases involving delay due to plan changes.” Id. at 230–31. Furthermore, the court
held that it will not impose an implied warranty regarding accuracy of plans to address delays if
the contract already has a provision in it to deal with that problem. Id. at 231. In this case, Dugan
& Meyers Construction, the lead contractor on a project for The Ohio State University (“OSU”),
signed a contract agreeing to give OSU notice and request an extension of time within 10 days of
any event taking place on the project that Dugan & Meyers believed would impact the schedule.
Id. When Dugan & Meyers failed to abide by this contract provision, the court would not allow
them to use an implied warranty regarding the accuracy of plans under the Spearin doctrine to
escape those consequences. Id. at 233. The court held that it would not elevate an implied
warranty regarding plan accuracy over an express contract provision that was intended to
address the effect of inaccurate plans. Id.
As a result of this ruling, contractors must strictly adhere to contract notice requirements
regarding delays and other project impacts to avoid a waiver of such claims. Additionally,
contractors can no longer take for granted that there is an implied warranty of accuracy of the
plans and specifications issued by the owner. Although Ohio continues to recognize the Spearin
doctrine, it is important to know that Ohio courts will not imply owner duties regarding plan
requirements, but will look to the parties’ contract language to decide the consequences and
remedies in the event of errors and omissions in the plan document. Therefore, it is very
important that contracts are drafted to address this issue.
IV. STRICT LIABILITY CLAIMS
The Ohio Supreme Court recognizes strict liability claims involving implied warranties as to fitness
for ordinary purposes with respect to materials incorporated into a real-property structure. In
Lonzrick v. Republic Steel Corp., 6 Ohio St.2d 227 (1966), the Supreme Court imposed strict
liability upon the manufacturer of defective joists, finding that an implied warranty existed with
respect to steel roof joists incorporated in a structure. Similarly, in Iacono v. Anderson Concrete
Corp., et al., 42 Ohio St. 2d 88 (1975), the Supreme Court imposed strict liability with respect to
concrete supplied to a contractor for use in an outdoor driveway where the concrete was not fit
for that purpose causing pop-outs and damage to the driveway. In both of these cases, the
Supreme Court imposed strict liability, without requiring privity, with respect to materials
incorporated into a real-property structure.
V. MISREPRESENTATION AND FRAUD
Fraud is defined as: (1) a representation or, where there is a duty to disclose, concealment of a
fact; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its
falsity, or with such utter disregard and recklessness as to whether it is true or false that
knowledge may be inferred; (4) with the intent of misleading another into relying upon it; (5)
justifiable reliance upon the representation or concealment; and (6) a resulting injury
proximately caused by the reliance. Williams v. Aetna Fin. Co., 83 Ohio St. 3d 464, 475, 700 N.E.2d
859 (1998). In order to establish a claim of fraud, it is necessary for the party to prove all of these
elements.
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A vendor has a duty to disclose material facts which are latent, not readily observable or
discoverable through a purchaser's reasonable inspection. Miles v. Perpetual Savings & Loan Co.,
58 Ohio St.2d 97 (1979). In cases where a vendor does not disclose these facts, O.R.C. § 2305.09
requires that a cause of action for fraud be brought within four years after the fraud was or
should have been discovered. Ohio’s discovery rule applies to cases of fraud, however “once
sufficient indicia of fraud are shown, a party cannot rely on its unawareness or the efforts of the
opposition to lull it into a false security to toll the statute.” Aluminum Line Products Co. v. Brad
Smith Roofing Co., Inc., 109 Ohio App.3d 246, 260 (8th Dist.1996).
Caveat emptor is a defense to fraud claims in failure to disclose cases. The doctrine of caveat
emptor prevents a buyer from recovering for defects in the real property when (1) the defect [is]
open to observation or discoverable on reasonable inspection, (2) the purchaser [had] an
unimpeded opportunity to examine the property and (3) the vendor [has] not engage[d] in
fraud.” Lapos Constr. Co. v. Leslie, 9th Dist. App. No. 06CA008872, 2006-Ohio-5812, at ¶13, citing
Layman v. Binns, 35 Ohio St.3d 176, 177 (1988). The doctrine of caveat emptor is nullified by a
fraudulent misrepresentation or fraudulent failure to disclose. Dito v. Wozniak, 9th Dist. No.
04CA008499, 2005-Ohio-7, at ¶13. However, a real estate purchaser cannot claim fraud if a
seller’s misstatements or misrepresentations are not significantly reprehensible in nature. Id.
citing Traverse v. Long, 165 Ohio St. 249, 252 (1956).
A complaint in which a plaintiff is alleging fraudulent misrepresentation in a construction law
context must state the circumstances constituting the fraud or mistake with particularity. See
Ohio Civil Rule 9(B).
VI. INDEMNITY CLAIMS
Under Ohio law, indemnity arises from contract, either express or implied, and is the right of a
person who has been compelled to pay what another should have paid to require complete
reimbursement. Wagner-Meinert, Inc. v. EDA Controls Corp., 444 F. Supp. 2d 800 (N.D. Ohio
2006). The right of indemnity may result from an express agreement or contractual provision
when one party, who has been compelled to pay what the other party should have paid, reserves
the right to require complete reimbursement. Indiana Ins. Co. v. Barnes, 165 Ohio App.3d 262,
2005-Ohio-6474, ¶ 14 (10th Dist.). An implied contract for indemnity exists only within the
context of a relationship wherein one party is found to be vicariously liable for the acts of a
tortfeasor. Id.
Ohio’s anti-indemnity statute, ORC §2305.31, renders any construction contract provision that
requires one to indemnify another for the other person's own negligence void and unenforceable
as a violation of public policy. This rule applies regardless of whether the other person’s
negligence is sole or concurrent. Kendall v. U.S. Dismantling Co., 20 Ohio St.3d 61, 485 NE 2d
1047 (1985). The goal of the policy is to ensure that the risk of liability remains with the negligent
party.
Ohio’s anti-indemnity statute has faced recent challenges. Many indemnity provisions include
language different from that prohibited by the statute. Modern indemnity clauses proscribe a
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"duty to defend," while the statute only mentions "indemnity." Ohio courts have not ruled
consistently on this issue. In Moore, the Second District Court of Appeals ruled that a "duty to
defend" can require one to pay attorney's fees and expenses to defend a claim, even if the anti-
indemnity statute precludes liability for personal injury or property damage. Moore v. Dayton
Power and Light, 99 Ohio App.3d 138 (2nd Dist. 1994). Alternatively, in Best, the Ninth District
ruled that any duty to defend is unenforceable if the underlying claim for loss is unenforceable.
Best v. Energized Substation, 88 Ohio App.3d 109, 623 N.E.2d 158 (9th Dist.1993).
VII. ECONOMIC LOSS DOCTRINE
A. Economic Loss Rule
The economic-loss rule prevents recovery in tort for damages based purely on economic loss,
where there is no privity of contract between the parties. Floor Craft Floor Covering, Inc. v. Parma
Community General Hosp. Ass'n , 54 Ohio St.3d 1, 3, 560 N.E.2d 206 (1990) (as applied in a suit
for negligent construction..
In Ohio, “[t]he economic-loss rule generally prevents recovery in tort of damages for purely
economic loss,” because “a plaintiff who has suffered only economic loss due to another’s
negligence has not been injured in a manner which is cognizable or compensable.” Corporex Dev.
& Const. Mgt., Inc. v. Shook, Inc., 106 Ohio St.3d 412, 414, 835 N.E.2d 701, 704 (2005). Therefore,
in the absence of a contract between two disputing parties, “[t]here is no duty to exercise
reasonable care to avoid intangible economic loss or losses to others that do not arise from
tangible physical harm to persons and tangible things.” Floor Craft, at 3. This well-established
general rule applies also in the negligence context, establishing that a plaintiff who has suffered
only economic loss has not been injured in a manner which is legally cognizable or compensable.
Chemtrol Adhesives, Inc. v. Am. Mfrs. Mut. Ins. Co., 42 Ohio St.3d 40, 44 (1989), quoting Nebraska
Innkeepers, Inc. v. Pittsburgh-Des Moines Corp., 345 N.W.2d 124, 126 (Iowa 1984). A plaintiff
must prove that the indirect economic damages arose from tangible physical injury to persons or
from tangible property damage. Indirect economic damages that do not arise from tangible
physical injury to persons or from tangible property damage may only be recovered in contract.”
Queen City Terminals, Inc. v. Gen. Am. Transp. Corp., 73 Ohio St.3d 609, 653 N.E.2d 661 (1995).
B. Exceptions to Economic Loss Rule
Ohio courts have created an exception to the economic loss rule where the plaintiff can prove it
was an intended third party beneficiary of the contract from which the alleged duty arose, or if
the defendant exercised a sufficient amount of control over the construction project that the
control will be deemed a substitute for privity. See, Clevecon, Inc. v. Northeast Ohio Regional
Sewer Dist., 90 Ohio App.3d 215, 218, 628 N.E.2d 143, 145 (8th Dist. 1993).
A similar exception is recognized where a sufficient nexus exists to create a substitute for privity.
In E. Ohio Gas Co. v. Kenmore Constr. Co., an Ohio court found the Queen City rule inapplicable
and stated that “where privity of contract or its substitute exist, purely economic losses may be
recovered in a tort action.” E. Ohio Gas Co. v. Kenmore Constr. Co. (March 28, 2001), 9th Dist.
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Nos. 19567 and 19790, 2001 WL 302818., citing Floor Craft, and United Tel. Co. of Ohio v. Williams
Excavating, Inc., 125 Ohio App.3d 135, 707 N.E.2d 1188 (3rd Dist.1997).
The Economic Loss Doctrine is important in construction cases because it helps keep tort claims
out of what really should be a contract dispute, and limits parties to suits against those with
whom they are in privity. There are, however, exceptions that allow tort claims to proceed
absent privity.
VIII. RECOVERABLE DAMAGES
A. Direct Damages
In Ohio, the proper measure of damages for a construction defect claim is the reasonable cost of
placing the building in the condition contemplated by the parties at the time they entered into
the contract. Jones v. Honchell, 14 Ohio App.3d 120, 470 N.E.2d 219, syllabus ¶ 3 (12th
Dist.1984). This is the proper measure of damages unless the court finds that placing the building
in the condition contemplated would create economic waste. In this situation, the court will use
the fair market value test, which measures damages by taking the fair market value of the
structure as it should have been constructed minus the value of the imperfect structure.
Stackhouse v. Logangate Property Mgt., 172 Ohio App.3d 65, 2007-Ohio-3171, 872 N.E.2d 1294
(7th Dist.).
Compensatory damages for construction tort claims, such as negligent workmanship and
construction defects, can also be measured using the fair market value test if the injury done to
the property is irreparable. Id. If the injury is susceptible to repair, the landowner may recover
the reasonable cost of restoration plus the reasonable value of the loss of the use of the property.
Id. (citing Ohio Collieries Co. v. Cocke, 107 Ohio St. 238, 240 (1923)). Finally, where restoration of
the damaged building is practicable, damages should be the reasonable cost of restoration. Id.
(citing Northwestern Ohio Natural Gas v. First Congressional Church of Toledo, 126 Ohio St. 140,
150 (1933)).
B. Delay Damages
There are two basic types of delay damages: direct and indirect. Direct damages are those costs
that flow directly from the delay event, while indirect damages flow from other events as a result
of the delay and not from the actual delay itself. Examples of direct damages are: labor and
equipment costs, governmental fees to extend permits, additional supervision, material price
increases, and increased fringe benefits, to name a few. Examples of indirect damages include
extended field office overhead, lost/diminished bonding capacity, interest on money borrowed
to finish work, and similar expenses. A landowner’s direct damages might include lost revenue
due to delayed operation of facility, additional project management expenses, or liquidated
damages. Indirect expenses could include interest charges and fees to extend financing.
Ohio has adopted the rule that “‘a building or construction contractor has a right to recover
damages resulting from a delay caused by the default of the contractee.” Backus Associates, Inc.
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v. State of Ohio, 47 Ohio Misc. 11, 13, 352 N.E.2d 663 (Ct. Cl.1976). Owners also have the right
to recover delay damages from a contractor’s failure to meet the contractual completion date.
If a court finds that a delay was caused by an owner’s actions, it can award damages that cover
the contractor and subcontractors’ costs associated with that delay. These costs include pay
increases for workers and extended general condition costs such as: job supervision costs,
insurance costs, lodging for employees, telephone bills and other office administration costs.
However, if delay is caused by a prime contractor or subcontractor, a court may award damages
to an owner including loss of use and revenues, liquidated damages, costs for additional project
management and engineering, or other costs associated with an extension of the project.
Valentine Concrete, Inc. v. Ohio Depart. of Admin. Svcs., 62 Ohio Misc.2d 591, 617, 609 N.E.2d
623 (Ct. Cl.1991). See also Dugan & Meyers Construction Co. Inc. v. Ohio Dept. of Adm. Servs.,
supra.
At one time owners could avoid liability for their delays under “no damage for delay” clauses, but
in 1998 the Ohio legislature passed Ohio Revised Code § 4113.62, which provides that contract
provisions that waive or preclude damages or other remedies for delays that are the proximate
result of the owner’s act or failure to act are “void and unenforceable as against public policy.”
O.R.C. § 4113.62(C)(1). This also applies to no damage for delay clauses in subcontract agreement
where the delay was cause by the higher tier contractor’s act or failure to act.
It is also important to note that in a recent case, Dugan & Meyers Construction Co. Inc. v. Ohio
Dept. of Adm. Servs., 113 Ohio St.3d 226 (2007), the Ohio Supreme Court found that a contractor
had completely waived its entire delay damage claim because of a failure to follow the contract’s
notice requirement. Id. at 234. Therefore, even though “no damage for delay” clauses no longer
protect owners from liability for delay caused by their actions, a contractor’s failure to perform
other contractual provisions can bar it from collecting delay damages. In addition, “no damage
for delay” clauses are still enforceable for non-owner/contractor caused delays, such as: Acts of
God, materials shortages, and other factors.
Under Ohio law, no damages for delay clauses in construction contracts have traditionally been
valid and enforceable, except “where the delay for which recovery is sought was not reasonably
contemplated by the parties at the time of contracting.” JWP/HYRE Electric Co. v. Mentor Village
School District, 968 F.Supp. 356, 360 (N.D. Ohio 1996) (citing Carabine Construction Co. v. Chrysler
Realty Corp., 25 Ohio St.3d 222, 495 N.E.2d 952 (1986)).
Recently, however, Ohio has recognized several exceptions to this general rule. In Daniel Terreri
& Sons, Inc. v. Mahoning Cty. Bd. of Commrs., 152 Ohio App.3d 95, 2003-Ohio-1227 (7th Dist.
2003), the court listed four notable exceptions to enforcement of no damage for delay clauses:
(1) the delay was not contemplated by the parties at the time of contracting; (2) the delay
resulted from fraud, misrepresentations or bad faith by the party seeking to enforce the clause;
(3) the delay has extended the completion date so much that the party suffering the delay would
have been justified in abandoning the contract, i.e., performance was made impossible; and (4)
the delay is not within the scope of the damage of delay clause. Id. at 105.
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If there is a “no damage for delay” clause and it is not nullified under O.R.C. 4113.62, to avoid the
damage waiver, you must invoke one of the common law exceptions noted above. You must also
be able to demonstrate that you have followed all of the contract’s notice requirements as well—
such as timely requesting time extensions and/or change order for cost/schedule impacts. Most
construction contracts have language instructing the contractors what to do in the event of a
delay producing event. As a result of Dugan & Meyers, if a contract fails to follow these
requirements, there is a good chance the delay damage claim has been waived, or the “time
extension as sole remedy” has been waived, thereby opening the door to liquidated damages if
the project misses the completion date.
C. Loss of Use
In Ohio, if a court determines that the appropriate measure of damages is the cost of repairing
defects in real property, the damages can include “the reasonable value of the loss of the use of
the property between the time of the injury and the restoration.” Ohio Collieries Co. v. Cocke,
107 Ohio St. 238, 240 140 N.E. 356 (1923). Damages can also include business interruption loses
and lost profits under appropriate circumstances.
D. Punitive Damages
Ohio will not award punitive damages for a breach of contract, but can award them for tortious
actions that involve actual malice. Tibbs v. National Homes Construction, 52 Ohio App.2d 281,
290 369 N.E.2d 1218, 1224 (1st Dist.1997). Actual malice, with regard to punitive damages, “can
be placed in two general categories: first behavior characterized by hatred, ill, will, and a spirit of
revenge, and second, extremely reckless behavior revealing a conscious disregard for a great and
obvious harm.” Preston v. Murty, 32 Ohio St.3d 334, 335, 512 N.E.2d 1174, 1175 (1987). A finding
of fraud may also sustain, under appropriate circumstances, an award of punitive damages.
Tibbs, at 286. Punitive damages in construction cases can only be applied if the plaintiff can
establish that the defendant committee an “independent tort.” This means a tort with the
requisite degree of malice that is separate and distinct from conduct that would simply be a
breach of the parties’ contract.
E. Emotional Distress
In 2001, Ohio courts joined the minority of courts that allow emotional distress damages in
contract disputes between homeowners and builders. A plaintiff may now recover against a
builder for non-economic, emotional damages, where the breach of contract has caused bodily
harm or is "of such a kind that serious emotional distress was a particularly likely result."
Kishmarton v. William Bailey Constr., Inc., 93 Ohio St.3d 226, 230 (2001). However, in
Kishmarton, the Ohio Supreme Court did allow emotional damages for negligent construction of
a home where the breach did not cause bodily injury and was not of a kind that would likely cause
emotional disturbance. Id. The Kishmarton rule has been expressly limited to actions involving
vendees and builder-vendors. Brainard v. American Skandia Life Assurance Corp., 432 F.3d 655,
665 (6th Cir.2005); E.E.O.C. v. Honda of America, Mfg., Inc. 2007 WL 1541364, at *7 (S.D.Ohio,
2007), unreported.
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F. Liquidated Damages
Liquidated damage clauses in Ohio are valid and enforceable in both public and private contracts.
Samson Sales, Inc. v. Honeywell, Inc., 12 Ohio St. 3d 27, 465 N.E.2d 392 (1984). However,
liquidated damages can only be applied in those situations where the true damages to the non-
breaching party are difficult, unknown, or incapable of being calculated. See Lakewood Creative
Costumers v. Sharp, 31 Ohio App.3d 116, 117, 509 N.E.2d 77, 79 (8th Dist.1986). Therefore,
liquidated damages are usually tied to a contractor’s failure to complete the project by the
substantial completion deadline, with other types of contract breaches excluded from the
liquidated damage clause. For example, it is common for a contract to impose liquidated
damages of a specified amount per day for all days beyond the contract completion date, but
rare to see liquidated damages imposed for failure to perform in a good and workmanlike
manner. In the case of delayed completion, the owner will be delayed in its use of the facility and
suffer a consequent loss of use or revenue, the true dollar value of which will probably never be
known. In the case of poor workmanship, the owner’s damages will be ascertainable by virtue
of the simple cost to repair or replace the defective work, or by the diminution in value of the
owner’s property.
Ohio courts will refuse to enforce liquidated damage clauses when the clause operates as a
penalty rather than as a good faith estimate of the non-breaching party’s damages. Schwartz v.
Baker, 59 Ohio Law Abs. 274, 99 N.E.2d 498, 499 (2nd Dist.1950). Courts judge the
reasonableness of the liquidated damage clause at the time the contract was signed and not at
the time the breach took place. In some cases, a party’s damages can be ascertained or proven,
and in those cases, it may very well appear that the non-breaching party’s actual damages are
far less than the liquidated damages. However, if the court is satisfied that at the time the parties
signed their contract, the non-breaching party’s damages were: (1) probably going to be difficult
to ascertain in the future should a breach occur, and (2) the liquidated amount is not grossly out
of step with reality, then the clause will be enforced.
It is only when the liquidated damages are grossly out of proportion with reality that they can be
considered punitive will enforcement be denied. In Anderson v. U.S. Cable, Inc., 1995 WL 638567
(Ross Co. 1995), the court found a liquidated damage clause unenforceable as a penalty when it
required forfeiture of the contractor’s retainage when the actual damages were slight. However,
in Security Fence Group, Inc. v. Cincinnati, 1st Dist. No. C-020827, 2003-Ohio-5263, 2003 WL
22270179, the court of appeals upheld the assessment of liquidated damages of $600 per day
for the failure to complete guardrail installation on time even though the street arguably could
have been opened without the guardrails, and it appeared the city had not suffered any actual
monetary losses as a result of not opening the street on time.
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G. Lost Profits
Contractors may also look to recover profits lost due to delays. These can be profits lost on the
project at issue and profits lost on other projects the contractor would have received but was
prevented from bidding due to being tied up completing the subject project. In Ohio, lost profits
are a recoverable element of damage provided they can be proven within a reasonable degree
of certainty. This means the profit on a particular project or group of anticipated projects is not
speculative or uncertain.
Proving profit lost on an impacted project can be made if the contractor’s documentation is there
and shows with convincing accuracy what the contractor’s anticipated profit would have been
on that job, and that the contractor would have earned that profit but for the delay. Be aware
that if other elements of a contractor’s claim already include compensation for overhead and
profit on extra work or changed work, or are included in extended general conditions, then a
court will not permit the contractor to double dip and recover lost profits twice on the same job.
Proving lost profits on work one was not able to bid is more problematic and very difficult
to recover because he must show that he would have received the work but for his inability to
bid it. It can be very hard to prove that a contractor would have been the lowest and best bidder
on a public job for which he never submitted a bid. Similarly, proving that one would have been
hired to perform a private project is challenging when a proposal is not submitted. In these cases,
contractors typically look to a long history of annual performance and compare that to the year
in which the impacted project occurred to show a decrease in profits. These types of claims are
subject to the same attacks as all lost profit claims because they do not precisely account for
other market factors unrelated to the project at issue that may have also accounted for lower
profits during that year.
IX. COSTS
A. Attorney Fees
Ohio follows the American Rule, which holds that a prevailing party generally cannot collect
attorney fees. Hagans v. Habitat Condominium Owners Ass’n, 166 Ohio App.3d 508, 517, 851
N.E.2d 544 (2nd Dist.2006). Attorney fees can be awarded, however, if there is statutory
authorization to award attorney fees, an enforceable contract provision provides for an award of
attorney fees, Id., or the losing party has conducted the case in bad faith or in a vexatious manner.
Wing Leasing, Inc. v. M & B Aviation, Inc., 44 Ohio App.3d 178, 183, 542 N.E.2d 671 (10th
Dist.1988) (citing Sorin v. Board of Education, 46 Ohio St.2d 177 (1976)).
Although there are several statutes in Ohio that allow the prevailing party to seek attorney fees,
Ohio Revised Code §§ 2743.19 and 2335.39 are particularly applicable to the construction
industry. These sections provide, in pertinent part, that a party who successfully defends itself
against a claim brought by the State in the Court of Claims is entitled to attorney fees if “the
state's position in initiating the matter in controversy was not substantially justified.” O.R.C. §
2743.19(A) (“The court of claims shall award compensation for fees to a prevailing party in an
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action under this chapter in accordance with section 2335.39 of the Revised Code.”) and O.R.C.
§ 2335.39 (B)(1)(c), (2). Thus, if the state brings a claim against a construction company that is
not substantially justified, the construction company can collect attorney fees.
In a dispute between parties to a contract, the prevailing party may also be awarded attorney
fees if they are provided by terms of the contract. Ohio courts will uphold contract provisions
providing for attorney fees “absent a showing of grossly unequal bargaining positions between
the parties, misunderstanding, deception or duress,” Goldfarb v. Robb Report, Inc., 101 Ohio
App.3d 134, 147, 655 N.E.2d 211, and as long as “the fees awarded are fair, just, and reasonable.”
Northwood Condominium Owners’ Ass’n. v. Arnold, 147 Ohio App.3d 343, 348, 770 N.E.2d 627
(8th Dist.2002).
Attorneys’ fees may also be recoverable by statute in specific situations. For example, claims
under the Prompt Pay Act allow attorneys’ fees to the prevailing party, which could include the
general contractor if they successfully defend such a claim.
To determine if the amount of attorney fees award is reasonable, a court should look at a number
of factors, the most important of which is how the fee allowed compares to the other damages
awarded. Wing Leasing, Inc., 44 Ohio App.3d at 184 (10th Dist.1988). “Apart from the amount
recovered, the number of claims successfully litigated in relation to the total number of claims
asserted, and the relation between the successful and unsuccessful claims should also have an
important bearing on the reasonableness of the fees.” Id. (citing Hensley v. Eckerhart, 461 U.S.
424, 103 S.Ct. 1933 (1983)).
B. Interest
Under Ohio Revised Code § 1343.03(A), a person owed money payable on a contract or judgment
is entitled to receive prejudgment interest at a rate per annum on the amount owed. Pursuant
to Ohio Revised Code § 5703.47, the interest rate is determined by adding three percent to the
federal short-term rate as determined by the Ohio tax commissioner on October 15 of each year.
This interest rate is used “unless a written contract provides a different rate of interest in relation
to the money that becomes due and payable, in which case the creditor is entitled to interest at
the rate provided in that contract.”
In a breach of contract claim brought by a contractor against an owner for failure to pay for
construction costs, the court can award prejudgment interest to the contractor and that interest
will begin to accrue from the time payment on the contract became due. See, for example,
Gordon Constr., Inc. v. Peterbilt of Cincinnati, Inc., 2003 WL 22227380, 2003-Ohio-5111 (12th
Dist.2003). Such interest is also allowed for damages awarded as part of civil actions against the
state “for the same period of time and at the same rate as allowed between private parties to a
suit.” O.R.C. § 2743.18(A)(1).
In cases where a court awards damages to a contractor for the delay caused by the state, the
contractor is entitled to “prejudgment interest on all damages from the time of the accrual of the
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claim,” which is when the contractor, “had substantially completed its work on the project.”
Complete Gen. Constr. Co. v. Ohio Dept. of Transp., 94 Ohio St.3d 54, 62, 760 N.E.2d 364, (2002).
C. Stigma Damages/Economic Waste
Under Ohio law, “stigma damages cannot be recovered unless there is actual, physical damage
to a plaintiff’s property. Ramirez v. Akzo Nobel Coatings, Inc., 153 Ohio App.3d 115, 117-18, 791
N.E.2d 1031 (5th Dist.2003) (citing Chance v. BP Chemicals, Inc., 77 Ohio St.3d 17, 670 N.E.2d 985
(1996)). Where damage has been done to real property or such property has not been built as
specified and the cost to repair such defect is “grossly disproportionate to the good attained,”
Ohio courts will award diminution of value damages instead of restoration damages in order to
avoid economic waste. Tru-Built Garage and Lumber Co., Inc. v. Mays, 1993 WL 15664 at 4 (2nd
Dist.1993). Diminution value damages are calculated by finding “the difference in value of the
structure contracted for [or before it has been harmed] and the structure received [or after it has
been harmed].” Id. Thus, in a case where a construction company used roof rafters instead of
storage trusses and the cost to replace the roof rafters with the storage trusses was more than
the diminution of value caused by having the rafters instead of the trusses, the proper amount
of damages was not the cost of replacing the rafters with trusses, but was the difference between
the value of the house with the rafters and the value of the house with trusses. Id.
Some Ohio courts will require a plaintiff to put on evidence of both repair costs and diminution
of value to prove which measure of damages is appropriate. Other courts will allow the plaintiff
to elect its remedy and leave it to the defendant to prove the elected remedy is not the best
measure of damages as a defense to the claim. This is an issue that depends upon which county
and which appellate district you are in, and therefore, you will need to verify which rule applies.
X. INSURANCE COVERAGE FOR CONSTRUCTION CONTRACTS
Like the majority of states, commercial general liability insurance policies (“CGL” policies) in Ohio
provide that insurance companies have a duty to defend and indemnify a policy holder whenever
there is an “occurrence”, typically defined as an accident that causes property damage or bodily
injury, that is not specifically excluded by the policy. The duty to defend is broader than the duty
to indemnify, meaning that an insurance company may have to defend a claim that, in the end,
its policy did not cover. In order to determine if an insurance company has a duty to defend,
Ohio courts must apply four different tests. Cole v. American Industries and Resources
Corporation, 128 Ohio App.3d 546, 553, 715 N.E.2d 1179 (7th Dist.1998). “If any one of the tests
results in a determination that the duty to defend exists, then the insurance company is obligated
to defend.” Id. These tests are:
1) The “Allegations Rule”, which provides that an insurance company is
required to defend an insured when the “scope of the allegations
contained in the complaint brings the action within the policy coverage.” Id.
at 554.
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2) The “Expanded Allegations Rule”, which provides that an insurance
company is required to defend a claim even when the duty to defend is
not apparent from the pleadings if “the allegations state a claim which is
potentially or arguably within the policy coverage.” Id.
3) The “Groundless, False, or Fraudulent, Claims Test”, which provides that if
an insurance company represents that it will cover a claim that appears to
fall with the policy’s coverage even if it is factually unsupportable, the
insurer is required to provide coverage. Id.
4) The “True Fact Test”, which provides that an insurance company does not
have to provide a defense “if there is no set of facts alleged in the
complaint against an insured which, if proven true, would result in the
insurance company’s duty to pay damages, then the insurance company
need not provide a defense.” Id.
Although these tests seem to require an insurance company to defend almost any claim brought
against its insured, Ohio courts have found that certain types of claims against construction
companies are clearly not covered by a CGL policy. For example, Ohio courts have held that
claims for defective workmanship of a contractor or its subcontractor do not fall within the
definition of “occurrence” under a CGL policy unless the claim alleges that the defective
workmanship has caused collateral or consequential damage to other property. See, Westfield
Ins. Co. v. Custom Agri Sys., Inc., 133 Ohio St.3d 476, 2012-Ohio-4712, 979 N.E.2d 269 (holding
that claims for defective construction or workmanship brought by a property owner are not
claims for “property damage” caused by an “occurrence” and are therefore not covered under a
CGL policy); Heile v. Herrmann, 136 Ohio App.3d 351, 354, 736 N.E.2d 566 (1st Dist.1999) (holding
that insurance company did not have duty to defend because the only harm alleged by plaintiff’s
claim was the insured’s defective workmanship); Erie Insurance Exchange v. Colony Development
Corporation, 136 Ohio App.3d 419, 736 N.E.2d 950 (10th Dist.2000) (holding that insurance
company had a duty to defend because plaintiff claimed that defective workmanship caused
harm to other parts of plaintiff’s property).
XI. MECHANIC’S LIENS
Contractors and material suppliers may use mechanic’s liens a method of obtaining payment
from owners. Mechanic’s liens are creatures of statute and are considered in derogation of the
common law. Thus, Ohio courts will strictly construe the statutory requirements regarding when
and whether a lien arises and substantial compliance with these requirements is not sufficient to
secure the lien. However, one the lien has been established, substantial compliance is all that is
required to succeed on the lien claim.
A mechanic’s lien will be strictly construed when a question arises as to whether there has been
proper perfection. The rule of liberal construction only applies to post-attachment matters, once
there has been a determination that all the procedural requirements for perfection have been
followed. See O.R.C. §1311.22.
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Ohio provides mechanic’s lien rights to all laborers, subcontractors and material suppliers who
perform work or provide materials used to improve real property, regardless of their contractual
relationships on the project. Ohio’s mechanic’s liens law is codified and can be reviewed at O.R.C.
§1311.01 et seq.
A. Private Projects
Ohio law treats residential project liens a little differently than non-residential liens. If the work
is being done on a residential project as defined in O.R.C. §1311.01, then certain defenses can
apply to a lien claim that benefit owners that do not apply in non-residential situations. The idea
is to protect homeowners from having to pay twice for the same work or materials. No such
protection benefits owners on non-residential projects.
In addition to mechanic’s lien rights on traditional construction projects, the Ohio lien law also
permits mechanic’s liens on oil and gas wells subject to limitations as to whose interest can be
liened. Lien rights can also accrue on work done to improve streets, turnpikes, roads, sidewalks,
rights of way, drains, ditches and sewers as described in O.R.C. §1311.03.
1. Notice of Commencement
Except for home construction contracts where a residence is built specifically for a homeowner,
every project must have a recorded Notice of Commencement recorded prior to beginning any
construction activities. See O.R.C. 1311.04; O.R.C. 1311.011(A)(1). The purpose of the Notice of
Commencement is to put all subcontractors and material suppliers who are not in direct privity
of contract with the owner on notice that work is about to begin to improve real property and to
provide these parties with the information that they need to perfect mechanic’s liens to the
extent of the improvements they construct.
If a project owner fails to file a Notice of Commencement, then subcontractors and suppliers who
are not in privity of contract with the owner or general contractor, will not have to provide any
type of notification to the owner that these individuals are providing labor or materials to the
project in order to keep their rights to a lien. The lien statute provides that the Notice of
Commencement must contain very specific information. See O.R.C. §1311.04(B). The contents
of the Notice of Commencement must be verified in affidavit form by the owner, part owner,
lessee or the agent completing the form. Id.
2. Notice of Furnishing
The first major step for perfecting a mechanic’s lien requires the lien claimant to prepare and
serve a “Notice of Furnishing,” pursuant to O.R.C. §1311.05. This step applies only if (a) the lien
claimant is a materialman, subcontractor, or lower-tier subcontractor; and (b) a Notice of
Commencement has been filed for a project.
As with the Notice of Commencement, Ohio’s lien statute requires that the Notice of Furnishing
must contain very specific information as well. See O.R.C. § 1311.05. The Notice of Furnishing
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need not be in the form of a sworn affidavit. However, it must substantially comply with the
statutory form set forth in O.R.C. §1311.05(B). The party supplying the Notice of Furnishing may
rely on the information contained in the Notice of Commencement for the project when
completing the statutory form.
B. Public Projects
Ohio’s law on public improvement liens are proscribed by sections 1311.25 through 1311.33 of
the Revised Code, and are interpreted differently from private improvement liens. Public liens
are available to any subcontractor, material supplier, and/or laborer who not only performs
specified services for a public entity, but also to those who furnish materials in furtherance of a
public improvement project. O.R.C. §1311.251. These materials must be furnished with the
intent to be used in the course of the public improvement. Courts may also require the materials
are actually incorporated in and/or consumed during the course of the project. Id. The delivery
of materials to the site of the public improvement creates a conclusive presumption that the
materials were used in the course of the public improvement or were incorporated into the public
improvement. Id. All deliveries and/or sales of materials, tools and machinery constitute a single
claim for the unpaid portion of goods, pursuant to O.R.C. §1311.251.
1. Notice of Commencement
A public authority must prepare a Notice of Commencement before any work is performed. The
public Notice of Commencement serves a function similar to that of those existing in the context
of private projects. The rights of a claimant under O.R.C. §1311.252 are not negatively impacted
if the Notice of Commencement is not produced in a timely manner or if it contains incorrect
information which the claimant relies upon to his detriment.
O.R.C. §1311.252 requires that the notice incorporate very specific information including: (1) the
name, location, and a number, if any, used by the public authority to identify the public
improvement; (2) the name and address of the public authority; (3) the name, address, and trade
of all principal contractors; (4) the date the public authority first executed a contract with a
principal contractor for the public improvement; (5) the name and address of the sureties for all
principal contractors; and (6) the name and address of the representative of the public authority
upon whom service shall be made for the purposes of serving an affidavit. A claimant’s statement
of amount and value of labor materials cannot merely list charges and payments received without
further elaboration. The statement should set forth in some detail the separate instances in
which labor was performed and list the material or machinery furnished. Crock Constr. Co. v.
Stanley Miller Const. Co. (1993) 66 Ohio St.3d 588.
Another important aspect of Ohio mechanic's lien law is that unlike liens upon privately owned
property, mechanic's liens with respect to work done on Ohio public projects attach not to the
property, but to a public fund set aside for the payment of subcontracts. O.R.C. §1311.26. See
also Poenisch v. Kingsley-Dunbar, Inc., 64 Ohio App.3d 699, 582 (10th DIst.1990); Talco Capital
Corp. v. State Underground Parking Comm'n, 41 Ohio App.2d 171 (10th Dist.1974), (lien against
public works only attaches to fund since law forbids execution against public property). A
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materialman who is owed money by the principal contractor may only retain a lien upon
payments that the public authority owes to the principal contractor. The lien does not attach to
the funds held by the public authority until those funds are due to the principal contractor.
Intercargo Ins. Co. v. Mun. Pipe Contrs., Inc., 127 Ohio Misc.2d 48, 2003-Ohio-7363, 805 N.E.2d
606.
In order to obtain a lien, a claimant must first provide the public authority named on the Notice
of Commencement with an affidavit stating the amount due and unpaid for the labor and work
performed and material furnished. O.R.C. §1311.26. The affidavit must also include the mailing
address of the claimant, as well as, the times at which the last of the labor or work was
performed, and when the last of the material was furnished, including all credits and setoffs. Id.
This affidavit must be served within one hundred twenty days of time the work was finished or
the materials were last furnished. Id. One affidavit may include the claims of more than one
laborer as long as each claim is separately identified according to each laborer. Id. The affidavit
may also be filed and served by an agent of one or more laborers. Id.
2. Notice of Furnishing
In order to obtain a lien, a subcontractor or materialman who has performed work or furnished
materials to a public authority must serve a Notice of Furnishing. O.R.C. § 1311.261. The Notice
of Furnishing must be served on the principal contractor within 21 days after the date the
subcontractor or materialman first performed labor or work of furnished materials on the site.
Id.
It must also contain the name and address of the principal contractor, the subcontractor or
material supplier; a description of the work to be done and/or materials that will be used; a
description or address of the property where the work will be completed or the materials
delivered, and the name of the individual ordering the labor or goods. Id. The notice must also
contain the date that the work or materials were first performed/furnished or a future date that
the labor will be performed or the materials furnished. Id. However, subcontractors or
materialmen who are in direct privity of contract with the principal contractor are not required
provide to provide this notice. O.R.C. § 1311.261(A)(1).
“The filing of the affidavit immediately imposes a duty to withhold all subsequent payments from
the principal contractor.” B.F. Sturtevant Co. v. Bd. of Education of City School Dist. of Cincinnati,
20 Ohio Law Abs. 48, 51 Ohio App. 348, 352, 1 N.E.2d 148 (1st Dist.1935). When a public authority
receives a lien affidavit it is required to detain funds from the principal contractor or from the
balance of the funds remaining in the contract with the principal contractor. However, the
amount detained cannot exceed the amount claimed by the lien, nor the balance remaining in
the contract. O.R.C. § 1311.28. A subcontractor’s lien generally applies only to funds the public
authority pays to a general contractor after the lien is filed, and not those the authority has
already paid. L.E. Myers Co., High Voltage Systems Div. v. Jordano Elec. Co., 47 Ohio App.3d 132,
135 (10th Dist.1988).
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A public authority cannot detain any funds unless the claimant files a sworn statement averring
the date the Notice of Furnishing was served to the principal contractor. The authority will then
place all detained funds in an escrow account as provided for under section 153.63 of the Revised
Code.
A claimant who serves an affidavit must also file a copy with the county recorder in the county
where the public improvement is situated, or with the county recorder of each of the counties
where the public improvement is situated if the public improvement is situated in more than one
county. O.R.C. §1311.29. Filing the affidavit with the county recorders gives a claimant
preference over other claims not filed with the county recorder. O.R.C. §1311.29. Filing with the
county recorder does not grant a claimant a priority on distribution of detained funds. Id.
Payments to multiple claimants are in prorated amounts, based on the value of each of valid
claim. Id.
Section 1311.31 requires that a public authority or the claimant, (or appropriate agent) serve the
principal contractor with a copy of the claimant’s affidavit within five days of the time it is filed.
The authority must also inform the principal that he must provide notice of any intention to
dispute the claim within twenty days. Failure to dispute the claim within the proscribed time
period constitutes assent to the correctness of the claim, and the authority will use detained
funds to pay the amount claimed.
About the Authors
Thomas Rosenberg is a partner at Roetzel and Andress, LPA with 32 years of construction law
experience representing contractors, subcontractors, owners and design professionals on
projects of all sorts. He can be reached at (614) 723-2006 or at [email protected].
Timothy Pettorini is a partner at Roetzel and Andress, LPA with a focus on construction project
delivery systems and claims. He can be reached at (330) 762-7968 or at [email protected].
Thomas and Tim are members of the firm’s construction law practice and residents in the firm’s
Columbus and Akron, Ohio offices. For more information on the Construction Law Practice at
Roetzel & Andress, please visit www.ralaw.com.
This Compendium outline contains a brief overview of certain laws concerning various litigation and
legal topics. The compendium provides a simple synopsis of current law and is not intended to explore
lengthy analysis of legal issues. This compendium is provided for general information and educational
purposes only. It does not solicit, establish, or continue an attorney-client relationship with any
attorney or law firm identified as an author, editor or contributor. The contents should not be construed
as legal advice or opinion. While every effort has been made to be accurate, the contents should not be
relied upon in any specific factual situation. These materials are not intended to provide legal advice or
to cover all laws or regulations that may be applicable to a specific factual situation. If you have matters
or questions to be resolved for which legal advice may be indicated, you are encouraged to contact a
lawyer authorized to practice law in the state for which you are investigating and/or seeking legal
advice.
