By Grant Yoakum, Esq.

Welcome to the summer 2002 issue of Build On This! To keep those in the real estate and construction industries current, we have prepared two articles on recent court decisions of great importance. Don Leach describes some little-known aspects of the case that led to the resignation of the executive director of the Ohio School Facilities Commission. Several elements of that decision will likely affect construction bidding in the future.

As summarized in the article by John Slagter and me, two other decisions provide guidance on related land use issues. Those who plan to develop their land can be delayed or prevented altogether by one of two types of government action: a regulatory taking, which entitles the owner to compensation, and a development moratorium, which (when valid) does not.

This issue of Build On This also brings you a biography of Craig Paynter, a Shareholder in the Firm’s Columbus office, who describes himself as “a litigator by trade.” Craig believes in client service, especially by finding cost-effective ways to solve the problems that can occur in the often-contentious world of construction.

Grant Yoakum is a member of the Real Estate & Construction Law Practice Group.  He  can be contacted at gyoakum@bdblaw.com or at 330.258.6431.

School Facilities Case Impacts Law Governing Competitive Bidding
By Donald B. Leach, Jr., Esq.

The recent well-publicized case involving the Ohio School Facilities Commission (OSFC) warrants a special look for those involved in bidding on public projects in Ohio.  The case, Monarch Construction Co. v. Ohio School Facilities Commission, et al., 118 Ohio Misc. 2d 248, 2002-Ohio-2955, began as a challenge by a rejected bidder to the decision of the OSFC and a local school board to award the general trades contract for a school construction project to the second bidder as the lowest, responsible bidder. 

In a decision highly critical of the OSFC, the trial court found a number of errors in the responsibility determination process, found the contract with the second low bidder to be void, enjoined any further work on the contract, and was highly critical of the OSFC and its executive director.  One aftermath of the case was the resignation of the executive director at the end of July. 

While the outcome of the case and its resulting political fallout have received much press, several of the issues addressed by the trial court have received substantially less attention even though they have the potential to affect construction bidding for many years.

Bidding on Alternates
Alternates are frequently used by public owners to obtain prices on potential project improvements that may or may not ultimately be selected, depending upon the owner’s budget.  In the Monarch case, the second low bidder responded in a common way to one of the alternates by stating “no bid.”  After initially criticizing the owner’s use of alternates at all, the trial court surprisingly found the “no bid” submission to be “unresponsive” since the Instructions to Bidders required a bid on all items.

LESSON:  A public owner should provide in the Instructions to Bidders that “no bid” is acceptable on an alternate that the contractor cannot or will not supply.  The repercussion of a “no bid” if that alternate is selected is the disqualification of that bid.

If a “no bid” is not specifically authorized in the Instructions to Bidders, contractors should inquire pre-bid whether it is an acceptable response.  Alternatively, a contractor could simply bid a very high price for an alternate that it cannot or will not supply.

Providing the “Reasons” for Rejection of a Bid
Ohio Revised Code Section 9.312 requires that if a public owner decides to award a contract to a bidder other than the apparent low bidder, the owner is to notify the apparent low bidder in writing “of that finding and the reasons for it.”  The apparent low bidder then has the right to a meeting with the public owner.

A common practice has been for public owners in such situations to list the relevant factors enumerated in the statute for determining responsiveness or responsibility, with little or no other detail.  Although previous courts have not expressed concern about that approach, in Monarch, the court acknowledged that the owner had specified factors set forth in R.C. 9.312, but found that to be insufficient.  Specifically, the court found that in the notice “no supporting reasons that could be effectively addressed at a protest meeting were supplied, and this, in itself is a failure to comply with the mandate of R.C. 9.312, and renders the award process defective.”

LESSON:  While the court goes beyond what previous courts have required with respect to the notice of the reason for the decision to reject a bid, the prudent owner at this time will provide at least a brief summary of reasons for the decision (i.e., more than simply a list of the statutory factors) so that a contractor has an opportunity at its hearing to specifically address the owner’s concerns.

How Much “Evidence” of Non-Responsibility Is Enough
The case of Cleveland Construction, Inc. vs. Ohio Department of Administrative Services (1997) 121 Ohio App. 3d 372, 700 N.E.2d 54, has served in recent years as the model for a responsibility determination.  In that case, the author of this article represented the second low bidder to whom the general trades contract for the OSU Fisher College of Business was awarded after the apparent low bidder was rejected as not responsible.  The low bidder unsuccessfully challenged the decision in Franklin County Common Pleas Court and the Franklin County Court of Appeals. 

Under the Cleveland Construction facts, the low bidder’s lack of responsibility had been determined by a committee whose conclusions were then carefully reviewed and independently confirmed by the state administrators.  By contrast, in Monarch, the court found the decision of non-responsibility to be based solely on the investigation of the construction manager.  Those investigative reports were then found by the court to arise from only one project, to be inconsistent with the written and oral statements of the individuals on whom they were allegedly based, and to be “arbitrary, being without adequate determining principle and not governed by fixed rules or standards.” 

LESSON:  The review of a low bidder’s responsibility should be based on a fair and well-defined process, administered objectively in a way so as to minimize the risk of one person’s bias (i.e., several people should be involved) and those reviewing and considering both the initial recommendation and the information presented at the protest meeting must be fair and reasonable in their own evaluation of the information presented.

A number of other issues were addressed by the court in its decision, but space does not permit a more thorough review of them.  The case is on appeal to the Franklin County Court of Appeals and, to put it mildly, the decision of that court will be closely watched for its impact on competitive bidding in Ohio.

Donald Leach, Jr.  is a Shareholder and member of the Real Estate & Construction Law Practice Group.  He is also a member of the School Law Section of the Business Practice Group and the Litigation Practice Group.  Don can be contacted at dleach@bdblaw.com or 614.227.4262.

Land Use Law Update – Regulatory Takings and Development Moratoria
By John P. Slagter, Esq. and Grant M. Yoakum, Esq. 

In two recent decisions, the Ohio Supreme Court and the United States Supreme Court issued rulings providing much-needed clarification on compensation for regulatory takings and the validity of development moratoria adopted by local governments. 

In Shemo v. Mayfield Heights (2002), 95 Ohio St. 3d 59, the Ohio Supreme Court found that residential zoning of property constituted a regulatory taking.  Since a taking occurred, the Court also found that the property owner was entitled to compensation for the period the property owner was unable to use the property because of the zoning.

It is generally understood that if a government physically takes possession of property, the owner is entitled to compensation.  What Shemo clarifies is that Ohio law will permit recovery for a regulatory taking and a temporary taking.  A regulatory taking occurs when property is not physically taken or occupied but the regulations restricting use of the property either do not have a legitimate purpose as applied or deny the owner an economically viable use of the property.  A temporary taking is a taking for a limited period of time.

The Shemo decision outlines the steps that a property owner must take to challenge the constitutionality of zoning or other land use regulations and, if successful, to pursue compensation for the taking.

In another case involving regulatory takings, Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency (2002), 122 S.Ct. 1465, the United States Supreme Court found that a 32-month ban or moratorium on property development was a valid planning method and did not constitute a regulatory or temporary taking.  Moratoria are being used more and more to prohibit or limit development of land for a certain period of time to allow the local government time to create infrastructure or improvements to handle the growth, such as roads and sewers.  This decision confirms the validity of moratoria and that they do not automatically create a regulatory taking claim. 

In rejecting the landowner’s claim that the ban, in and of itself, constituted a regulatory taking, the Court noted that the facts of each case will dictate whether a specific moratorium constitutes a taking.  The factors identified by the Court to help make this determination include the good-faith action of the government, the duration of the moratorium, the landowner’s reasonable development expectations, the actual impact on property values, and the scope of the plan or moratorium. 

It must be noted that in upholding the Lake Tahoe moratorium the Court placed great importance on preserving the clarity and quality of Lake Tahoe and accepted the need of the local government to stop development while it created a plan to protect water quality.

While the decision was a loss for the individual property owners, it provides other owners and developers with a list of factors to consider in analyzing local moratoria. Further, local governments must be careful to identify significant and legitimate public purposes before adopting a moratorium.  Without such a purpose, they may find themselves liable for a regulatory taking and be forced to pay the property owners  for the period of the moratorium.

John Slagter is a Shareholder and Co-chair of the Real Estate & Construction Law and Litigation Practice Groups.  He can be contacted at jslagter@bdblaw.com or 216.615.7331.  Grant Yoakum is an Associate attorney and member of the Real Estate & Construction Law and Business Law Practice Groups and can be reached at gyoakum@bdblaw.com or 216.615.7356.

Practice Group Profile Featuring Craig B. Paynter, Esq.
Craig B. Paynter is a Buckingham, Doolittle & Burroughs, LLP Shareholder, resident in the Buckingham Columbus^SM office, and Co-chair of the Real Estate & Construction Law Practice Group.  A graduate of Denison University, Craig earned his Juris Doctorate from the University of Akron School of Law, where he was a staff member of the Law Review.  He has a Martindale-Hubbell rating of AV, indicating a legal ability rating of “very high” to “pre-eminent” and a general ethical standards rating of “very high,” Martindale-Hubbell’s highest rating.

Craig’s interest in real estate and construction law began with his work as Assistant Prosecuting Attorney for Franklin County, Ohio, in the Civil Division.  He represented towns and townships on issues that included annexation, eminent domain, and the construction of government buildings such as firehouses and sewer plants.  His focus was on public improvements, acquisition of land, and construction of the actual buildings.

“There is a lot of planning involved in this type of work,” Craig explains, “including how to pay for the infrastructure, where to locate it, how to acquire the site, drafting the actual construction contracts for the building, and complying with statutory requirements such as prevailing wage laws and public bidding.  Resolutions or ordinances must be drafted in compliance with the law.”  He presently represents several public entities such as villages and townships.

Today his practice is concentrated in construction, especially litigation and arbitration.  “I am a litigator by trade,” Craig says.  “My work with towns and litigation prepared me well for the issues that arise in a construction lawsuit, such as bidding, drafting the construction documents, dealing with owners, the technical aspects of litigation disputes, evidentiary issues, and simply how to go about litigating.  Construction can be very contentious.  You have owner versus contractor issues, and also contractor versus subcontractor, and sometimes even contractor versus contractor such as in a bid contest situation.  When things go wrong during the construction of a large building like an office tower, there are oftentimes dozens of parties to sort through in terms of trying to assign responsibility.”

Regardless of the complexity of the project, though, Craig emphasizes that he is devoted to the service aspect of practicing law.  “I enjoy helping clients solve problems in a cost-effective manner.  You have to be willing to litigate and know how to do it to be effective.  Others need to respect your ability to stand up for your clients.  The key to client service in this field, like most others, is being accessible and responsive to clients.”

He was recently named Chairman of the Columbus Bar Association Construction Committee, indicating recognition by his peers of his experience in this area.  Service on this committee gives Craig access to a lot of people in the construction field.  He values this opportunity to build relationships with both lawyers and members of the construction business community.

Craig grew up in Stow, near Akron, and is a graduate of Western Reserve Academy in Hudson, Ohio.  He is a member of the school’s alumni association and still maintains ties to the Akron area even though he works in Columbus.  He is a member of the Builders Exchange of Central Ohio and a Columbus Leadership 2001 Program Participant.

Craig Paynter is a Shareholder and member of the Real Estate & Construction Law, Employment Law and Litigation Practice Groups. He can be reached at cpaynter@bdblaw.com or 614.227.4263.

The Firm is pleased to announce that Craig S. Marshall was recently named Managing Partner of its Akron, Ohio office. 

Mr. Marshall joined the firm in 1986 and represents a wide variety of small, medium, and large privately-held businesses throughout the area, specializing in corporate law, business transactions, mergers and acquisitions, business dispositions, business succession planning, business start-ups, and tax-related issues.  He is considered among his peers to possess very high to pre-eminent legal ability and very high ethical standards as is reflected in his “AV” rating established by opinions from members of the local legal community.

Save the Date for these Upcoming Presentations:

On September 24, 2002, Donald B. Leach, Jr. (Buckingham Columbus^SM) will present a program on “Ohio’s Mechanics Lien Law”  for the Central Ohio Chapter of the Associated Builders and Contractors.  Please access www.abc.org for registration and additional information.

Kenneth A. Fisher (Buckingham Columbus^SM) will be presenting as follows: 

“The Basics of Project Delivery Systems” on October 11, 2002, at The American Institute of Architects Columbus Convention.  To register go to www.aiacolumbus.org.

“ARE Preparation:  Contract Documents” on October 19, 2002 for The American Institute of Architects Columbus.  For registration and additional information please visit www.aiacolumbus.org.

“Mechanics’ Lien Law and Strategies” on November 19, 2002 for the National Business Institute. Visit www.nbi-sems.com for registration information. 

On December 3, 2002, Donald B. Leach, Jr. (Buckingham Columbus^SM) will be speaking on “Ohio Mechanics’ Lien Law:  The How’s and Why’s of the Paperwork,” for the Builders Exchange of Central Ohio.  For additional details, go to www.bx.org for registration and additional information. 

Donald B. Leach, Jr. will present “Economic Loss Rule in Construction” and “Design Build Contract and Insurance Considerations” for the Professional Education System Institute, LLC.  The dates and locations are as follows:

• December 4, 2002 – Cleveland, Ohio
• December 5, 2002 – Columbus, Ohio
• December 6, 2002 – Cincinnati, Ohio

Please reference www.pesi.com for registration and additional information.

On December 10, 2002, Gerald B. Chattman and John P. Slagter (Buckingham Cleveland^SM) will be presenting “Legal Issues Involving Ohio Local Governments”  for the National Business Institute.  Visit www.nbi-sems.com for more details and registration.  

Out and About – Recent Presentations:

Kenneth A. Fisher (Buckingham Columbus^SM) presented “Advanced Construction Contracting: AIA Document A201,” for the Builders Exchange of Central Ohio.  He also spoke on “The Architect, the Owner and the A201” for The American Institute of Architects Columbus.  

Donald B. Leach, Jr. (Buckingham Columbus^SM) presented “Ohio Mechanics’ Lien Law: The How’s and Why’s of the Paperwork,” for the Builders Exchange of Central Ohio.

Frederick  M. Lombardi (Buckingham Akron^SM),  Alan DiGirolamo, Robert A. Hager, and John P. Slagter (Buckingham Cleveland^SM) were presenters at a series of seminars titled “Using Ohio Construction Laws To Your Advantage” sponsored by Lorman Education Services this month.  They spoke on various topics dealing with “Legal Aspects of Construction Contracts and Ohio Construction Law.” 


If you are interested in obtaining information on upcoming seminars or would be interested in having speakers from Buckingham, Doolittle & Burroughs make a presentation to your organization, please contact: Cheryl Warren, Director of Client Relations and Marketing at cwarren@bdblaw.com or 800.686.2825 ext. 546.


At BDB we are always improving our processes so that we operate efficiently and effectively. Please let us know how you like our new broadcast format. E-mail: bdb@bdblaw.com Phone: 330.258.6473 Fax: 330.252.5473. 
Thank you.