Every state is has different laws pertaining to waiving rights, claims, and lien waivers. For example, twelve states require that a statutory form must be followed in order for lien rights to be waived. Other states prohibit the unconditional waiving of lien rights. Contract law, for the most part, dictates lien waivers and other waivers. Contractors must be very careful to understand the terms of the contract they are agreeing to. Reading a contract and understanding the terms of the contract are two entirely different things. Contract law is very complicated field of law that has many pitfalls and nuances that can trip up some of the most prudent individuals. Sometimes, a contract provision may seem harmless until an issue arise between the parties involved.

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The Background

On September 19, 2012, University of Toledo hired IPS Electrical Services, then named Henning, to perform electrical work on a public improvement project at the UT Health Science Campus. The completion of the project was affected by problems. IPS complained about these issues through a letter sent on October 24, 2012. Another letter was sent by IPS on December 24, 2012. After more correspondence, IPS finally submitted its “Certified Claim” to UT on April 25, 2013. IPS submitted this claim pursuant to Article 8 of its Contract General Conditions.

In September 2013, IPS brought this action against UT in the Court of Claims alleging breach of contract and unjust enrichment. The Court of Claims dismissed its unjust enrichment claim, determining that a written contract governs the relationship between the parties. The breach of contract claim was rejected because the court found that IPS failed to comply with the contract’s dispute resolution procedure, resulting in the irrevocable waiver of any related claim. Article 8.1.1 and 8.1.2 of the contract dictated that the claim initiation process must be initiated within ten days after the occurrence of the event giving rise to the claim. IPS appealed.

The Case

In IPS Elec. Services, LLC v. Univ. of Toledo, 2016 Ohio 361 (February 2, 2016), the Ohio Court of Appeals declared IPS’s failure to follow the contract’s claim procedure as an irrevocable waiver of the claim. The Court came to this decision based off of Article 8 of the contract. The relevant sections of Article 8.1 specifically read

8.1 Initiation of a Claim

8.1.1 Every claim shall accrue upon the date of occurrence of the event giving rise to the claim.

8.1.2 Except as provided under paragraph 2.15, the Contractor shall initiate every claim by giving written notice of the claim to the A/E and the Contracting Authority within 10 days after the occurrence of the event giving rise to the claim[.]

* * *

8.1.4 The Contractor’s failure to initiate a claim as and when required under this paragraph 8.1 shall constitute the Contractor’s irrevocable waiver of the claim.

One argument IPS raised was that these provisions violated Ohio laws prohibiting “no damages for delay” clauses. These clauses are meant to prevent recovery of damages for delays caused by public authorities. Ohio law prohibits any clause in a construction contract that looks to waive or preclude the right to recover damages caused by a delay of the owner or public authority. The Court disagreed that these provisions constituted a “no damages for delay” clause. The reasoning was that the provisions only limited the liability of the public authority pertaining to the delays of other contractors, not delays caused by itself.

The Takeaway

Contracts and contract law are all about intent. When something is expressly stated in your contract, there is very little way around it. Any ambiguous terms are interpreted against the drafter of the contract. Contract disputes can become extremely messy if all parties involved do not understand the terms of the contract and the laws that dictate and control that contract. Here is a perfect example of another case like this.

The arguments presented by IPS in this case were understandable, but they were not in line with the law or the contract. This is a pitfall of being retroactive rather than proactive. Many contractual disputes and contractual issues can be resolved far before they reach a breaking point. Whether it comes down to knowing, understanding, or disputing the terms of the contract, this should all occur before the contract becomes final. That way all parties involved are adequately protected from a chaotic legal battle down the road. For those of you that never understood the quote, “the pen is mightier than the sword,” this is a scenario that would apply. Put in the time before agreeing to a contract to make sure you are being treated fairly and have adequate protection from pitfalls and disputes like the one above.

Contract Contained Waiver To Claims - What Happened?
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Contract Contained Waiver To Claims - What Happened?
Contract law can be confusing. If this Ohio company took a proactive approach to understand the terms of their contract, the case could have been avoided.
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