When does the general contractor have to pay us, and what does late payment cost it?
Under R.C. 4113.61(A)(1)(a), as the First District set it out, a contractor must, within ten calendar days after receipt of payment from the owner or construction manager for improvements to property, pay to the subcontractor an amount equal to the percentage of completion of the subcontractor's contract allowed by the owner for the amount of labour or work performed; failure to abide by that provision entitles the subcontractor to prejudgment interest at a rate of 18 percent per annum, and R.C. 4113.61(B)(1) allows the court to award attorney fees to a party that prevails on a prompt-pay claim (H & H Glass). Separately, R.C. 4113.62(C)(1) makes void and unenforceable as against public policy any provision of a construction contract that waives or precludes liability for delay, or waives any other remedy, when the cause of the delay is a proximate result of the owner's act or failure to act (IPS Electric Services).
The trap
The interest is not automatic on every unpaid invoice. H & H Glass records that the Supreme Court of Ohio held in Masiongale that prejudgment interest is not warranted under R.C. 4113.61 where the contractor, in good faith, withholds amounts over disputed performance of labour or furnishing of materials, so a genuine performance dispute, not a contract clause, is what usually defeats the claim - and that is exactly what happened in H & H Glass itself. The subcontractor won its breach-of-contract action and still got neither the 18 percent interest nor fees, because succeeding on the contract did not preclude a finding of a good-faith dispute, which made the Prompt Pay Act inapplicable. And R.C. 4113.62(C)(1) is narrower than a general ban on no-damages-for-delay wording: it reaches delay proximately resulting from the owner's act or failure to act, and in IPS Electric Services a clause limiting the state's liability for delay attributable to a separate contractor was held not to contain a prohibited provision. The same decision enforced something a contractor is more likely to trip over: general conditions under which a failure to follow the contract's dispute resolution procedure irrevocably waives the claim are not prohibited by R.C. 4113.62(C)(1), because they bar the claim procedurally rather than on its substance - and they barred the contractor's claim.
8 authorities
- case2016-Ohio-3029H & H Glass, Inc. v. Empire Bldg. Co., L.L.C.Ohio Ct. App. 1st Dist.decided 2016
The words that state the rule
In pertinent part, R.C. 4113.61(A)(1)(a) provides that a contractor, within ten calendar days after receipt of payment from the owner or construction manager for improvements to property, shall pay to the subcontractor “an amount that is equal to the percentage of completion of the subcontractor’s contract allowed by the owner for the amount of labor or work 6 OHIO FIRST DISTRICT COURT OF APPEALS performed.” Failure to abide by this provision entitles a subcontractor to prejudgment interest at a rate of 18 percent per annum.
- case2016-Ohio-361IPS Elec, Servs., L.L.C. v. Univ. of ToledoOhio Ct. App. 10th Dist.decided 2016
The words that state the rule
In Ohio, "no damages for delay" clauses violate public policy and thus are invalid. R.C. 4113.62(C)(1) provides in pertinent part: "Any provision of a construction contract * * * that waives or precludes liability for delay during the course of a construction contract when the cause of the delay is a proximate result of the owner's act or failure to act, or that waives any other remedy for a construction contract when the cause of the delay is a proximate result of the owner's act or failure to act, is void and unenforceable as against public policy."
- case2016-Ohio-361IPS Elec, Servs., L.L.C. v. Univ. of ToledoOhio Ct. App. 10th Dist.decided 2016
The words that state the rule
Contrary to IPS's assertions, however, these provisions do not contain a clause prohibited by R.C. 4113.62(C)(1).
- case2016-Ohio-3029H & H Glass, Inc. v. Empire Bldg. Co., L.L.C.Ohio Ct. App. 1st Dist.decided 2016
The words that state the rule
In addition to an 18 percent interest award, R.C. 4113.61(B)(1) allows the court to award attorney fees to a party that prevails on a prompt-pay claim.
- case2016-Ohio-3029H & H Glass, Inc. v. Empire Bldg. Co., L.L.C.Ohio Ct. App. 1st Dist.decided 2016
The words that state the rule
Masiongale Elec.-Mechanical, Inc. v. Constr. One, Inc., 102 Ohio St.3d 1, 2004-Ohio-1748, 806 N.E.2d 148 (prejudgment interest is not warranted under R.C. 4113.61 where the contractor, in good faith, withholds amounts over disputed performance of labor or furnishing of materials)
- case2016-Ohio-3029H & H Glass, Inc. v. Empire Bldg. Co., L.L.C.Ohio Ct. App. 1st Dist.decided 2016
The words that state the rule
H&H’s ultimate success on its breach-of-contract action did not preclude a finding of a good-faith dispute, rendering the Prompt Pay Act inapplicable. And upon a review of the record, we hold that this 7 OHIO FIRST DISTRICT COURT OF APPEALS finding is not against the weight or the sufficiency of the evidence. See Eastley, 132 Ohio St.3d 328, 2012-Ohio-2179, 972 N.E.2d 517. This argument therefore has no merit. {¶21} H&H also contends that the trial court should have awarded it attorney fees under the Prompt Pay Act. However, since the Prompt Pay Act does not apply in this case, H&H was not entitled to attorney fees pursuant to that act.
- case2016-Ohio-361IPS Elec, Servs., L.L.C. v. Univ. of ToledoOhio Ct. App. 10th Dist.decided 2016
The words that state the rule
Before the enactment of R.C. 4113.62(C)(1) in 1998, "no damages for delay" clauses were standard in state construction contracts and were considered valid and enforceable in Ohio. Cleveland Constr., Inc. v. Ohio Pub. Emps. Retirement Sys., 10th Dist. No. 07AP-574, 2008-Ohio-1630, ¶ 10; Dugan & Meyers Constr. Co. at ¶ 33. However, as a result of the enactment of R.C. 4113.62(C)(1), "an owner cannot cause a delay, and then avoid the natural consequences for causing the delay by using boilerplate contract language." Cleveland Constr., Inc. at ¶ 19.
- case2016-Ohio-361IPS Elec, Servs., L.L.C. v. Univ. of ToledoOhio Ct. App. 10th Dist.decided 2016
The words that state the rule
General conditions 8.1.4, 8.2.4, and 8.5.3, also do not contain "no damages for delay" clauses. Pursuant to these general conditions, a contractor's failure to comply with the procedural dispute resolution provisions of Article 8, as to any claim arising under the contract, results in an irrevocable waiver of the claim. Thus, Article 8 procedurally bars IPS's breach of contract claim because IPS failed to comply with the dispute resolution procedures. Article 8 does not, however, bar or limit any claim on the basis of the substance of the claim. Therefore, these contractual terms are not the type prohibited as a matter of public policy by R.C. 4113.62(C)(1).
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.