Be Prepared for the Effects of Dugan & Meyers

By Michael Leary, P.E., Senior Vice President &
Craig Hutchison, Senior Project Consultant

It does not happen too often that you find yourself involved in a landmark legal ruling that will impact the construction industry. As you have probably heard, the Dugan & Meyers vs. Ohio State University case has been decided by the Supreme Court of Ohio in favor of OSU. The decision will have far reaching impact to contractors in Ohio as well as elsewhere. The Buric Companies assisted the Electrical Prime Contractor during the project and testified in trial.

All contractors including Dugan & Meyers, the Lead Prime, received a sizable award from the Trial Court of Claims in 2003 after failing to resolve the dispute in an Article 8 hearing. Dugan & Meyers’ award was later reversed on appeal and this decision was subsequently upheld in the Supreme Court of Ohio. Only one of the seven judges in the Supreme Court of Ohio agreed with Dugan & Meyers’ position.

The $33,000,000 multi-prime project encompassed new construction for the Ohio State University’s Fisher College of Business. The work consisted of three separate state-of-the-art, multi-story classroom buildings. Work commenced in August 1997 and was planned to complete in June 1999. Work was actually completed about six months later in January 2000 due in part to design errors and omissions, and conflicts. All parties were assessed liquidated damages by OSU for delay. Most Prime Contractors filed claims against OSU.

The Trial Court of Claims agreed with Dugan & Meyers and according to recent legal publications, recommended a sizable award because it determined that:

• A Public Owner owes an implied warranty of the plans and specifications (Spearin Doctrine)
• Minor design problems are anticipated but not unbuildable plans
• The principle cause of delay was the excess number or cumulative impact of design problems
• Liquidated damages were improperly assessed by OSU
• Constructive notice was given and the lack of written notice was a harmless error

OSU appealed the case with Dugan & Meyers, while the rest of the Prime Contractors settled their awards with OSU. In 2005, the Court of Appeals reversed the Trial Court’s decision supposedly stating that:

• Cumulative impact damages have no basis in Ohio law and are contrary to the contract
• The shear numerosity of design changes is not enough to demonstrate the damage
• Dugan & Meyers was not excused from the contractual requirement for actual notice

In 2007, the Supreme Court of Ohio affirmed the judgment of the Court of Appeals allegedly further denying the claim under the no-damage-for-delay clause in the contract, which was legal in 1997 when the contract was executed. It refused to apply the Spearin Doctrine because it determined the damages flowed from the project delays due to plan changes.

So what are Contractors and Owners to do? The following are some suggestions and recommendations that should be reviewed on a case-by-case basis with your attorney and will help to ensure the timely and successful completion of projects given the various interpretations of the decision currently being circulated:

1. Take the time to provide thorough, complete and constructible contract documents, including clear provisions for notifications, impacts and project scheduling.
2. Review and understand the contract and specifications required when you bid and construct a project, and follow them.
3. Make formal requests for time extensions and compensation for any project impacts in a timely manner.
4. Owners should respond timely and with certainty to requests for additional time and compensation.
5. Prepare good project schedules, updates, and revisions and consider cost/resource loading them.
6. Discretely document your project impacts and associated costs.
7. Make sure all change order work has been either in writing or a written directive to proceed has been issued.
8. Stay tuned to recent court case rulings as they may have already legally impacted this decision.

It is important to us to keep our clients informed about current court decisions.

Please contact the authors of this article if you have any questions or comments.