Ohio construction prepares for contract policy law overhaul

Ohio Construction

The passing of state budget bill (HB 153) will change the way the Ohio construction industry operates in a number of significant, and long-awaited, ways.

The Design-Build Institute of America advocated for the law’s passing, calling the original bill the “first significant reform of Ohio construction laws in the past 132 years.” The changes will mostly benefit project owners and financiers who had previously been constricted by century-old rules that harshly limited how projects could be contracted.

An article by William J. Seitz III for Lexology.com explained the previous contracting limitations for those building in Ohio:

“Public owners, particularly Ohio universities, complained that the multiple prime system resulted in cost overruns, delay claims, and project inefficiencies. Public owners usually engaged a construction manager-advisor to coordinate the multiple primes, adding further cost and complexity.”

Due to mounting concerns regarding the seemingly archaic laws, former Governor Strickland established a broad-based Construction Reform Panel in 2009 to recommend changes to the state’s public contracting laws. Their recommendations came to light in the state’s 2012 budget bill, which contained a number of amendments that updated the state’s public construction policies.

Among the amendments include the authorization of three new methods for contracting public projects. Public construction owners may use any of these methods regardless of project size. Public owners may also continue to use the existing multiple prime contracting method. Increased contracting options will give industry professionals a greater flexibility in writing contracts, which will save them both time and money.

On May 9, Kevin Malof of Frost Brown Todd LLC wrote:

“The public construction reforms will significantly alter the landscape of public construction projects for both construction firms and for public entities.”

In supporting the new law, the Design-Build Institute of America outlined a number of benefits that the new design-build approach could offer project owners looking to move away from the traditional prime contracting method of building.

  • overall project cost would be lowered by approximately 6 percent.
  • projects would be completed up to 33 percent faster
  • litigation claims would be reduced by avoiding the warranty gaps needed for prime contracting

Governor Kasich signed the bill on June 30, and the law went into effect immediately.

Surety bond implications

Construction professionals and law firms alike expressed concern over the bill’s original text, which included ambiguous surety bond requirements. However, the final text avoided confusion by including the following surety bond requirement.

Sec. 9.333. (B) “before construction begins pursuant to a contract for design-build services with a design-build firm, the design-build firm shall provide a surety bond to the public authority in accordance with the rules adopted by the Director of Administrative Services (DAS) under Chapter 119 of the Revised Code.”

Because the DAS has yet to establish surety bond requirements for the three new public contracting methods authorized in the state budget bill, the state’s contractors will have to wait a little longer before taking advantage of the long-awaited opportunities.