Subs Argue GC Can't Change Legal Rules on T&M Payments

ALEXANDRIA, VA. - When a construction subcontractor agrees to perform work on a time-and-material basis, it makes a promise to commit its work force and furnish materials to a project, and submits invoices for those, including an agreed-upon mark-up, as the job progresses, the American Subcontractors Association, based here, points out.

In a court case in Ohio, however, a general contractor argues that it should be able to enter into T&M contracts with subcontractors but be legally required to pay them only if the subcontractors can then additionally prove that their invoices aren't "extravagant" or "wasteful". On Nov. 2, the American Subcontractors Association filed a friend-of-the-court brief in the appeal of Mid-Ohio Mechanical v. Eisenmann Corp. arguing that this attempt to add new hurdles for subcontractors to get paid for their properly performed work was just an effort "to avoid the jury's verdict" that a subcontractor should benefit from the delayed payment of its T&M invoices.

The appeal is expected to be heard sometime this year.

"ASA is helping to ensure that Ohio contractors and subcontractors can continue to come to a true meeting of the minds in T&M contracts," said 2007-08 ASA President David Bradbury, Precision Concrete Construction Inc., Alpharetta, Ga. "The general contractor's appeal does not hold water. It undermines trust by presuming that subcontractors invoices are excessive and shouldn't be paid until proven valid."

Subcontractor Mid-Ohio Mechanical performed work in 2003 and 2004 under a T&M contract on part of the construction and installation of the paint line of a factory. Eisenmann, the project's general contractor, did not pay Mid-Ohio's invoices and Mid-Ohio filed a mechanic's lien, which Eisenmann and the project owner released by posting a cash bond.

Mid-Ohio Mechanical, Licking County, Ohio, was a subcontractor to Carden Metal Fabricators Inc., which went out of business during the project. Mid-Ohio was retained by Eisenmann on a T&M basis to finish the project. Because Carden had not paid Mid-Ohio for more than $750,000, Mid-Ohio placed a lien on the property. The owner and Eisenmann then deposited more than $1.1 million as a cash bond to avoid the lien foreclosure process. Mid-Ohio has been unsuccessful, however, in its attempts to get paid out of those funds.

In its brief, ASA pointed out: "While tradesmen on a construction project rarely give consideration to the burden of proof that will apply if they have to argue about their bill for services, the courts of Ohio have long ago considered such issues … the court rejected the argument that a contractor billing on a plus basis must not only prove that the costs were incurred but also prove that the costs incurred were reasonable."

Eisenmann originally prevailed in its legal efforts to avoid payment of Mid-Ohio when a lower court ruled that Mid-Ohio's work on equipment supplied to the project was not an "improvement" to the real property and thus not lienable. However, matters took a different turn on Oct. 6, 2006, when an appellate court reversed that decision. ASA filed an amicus curiae brief that bolstered Mid-Ohio in this initial victory, arguing that the lower court's decision against Mid-Ohio, "ignores the plain language of the Ohio Mechanic's Lien statutes, contradicts recent Ohio precedent in a case directly on point and destabilizes the foundation of the construction industry."

In this second appeal of the case, Eisenmann Corp. is challenging not only the amount of Mid-Ohio Mechanical's T&M invoices but also its efforts to collect the cash bond. In its brief, ASA notes that, "Eisenmann seeks to create procedural hurdles for contractors and subcontractors who cooperate with an owner seeking to provide such alternate security" and fails to substantiate its case in, "any provision of the Ohio Civil Rules or any applicable Ohio case law."

ASA tapped its Subcontractors Legal Defense Fund for the funds to pay legal fees for ASA in the case. The SLDF is funded entirely by voluntary contributions, and is earmarked for cases where ASA determines that important legal precedents affecting subcontractor rights are at stake.

Additional information is available at www.asaonline.com or at 703/684-3450.

Founded in 1966, ASA amplifies the voice of, and leads, trade contractors to improve the business environment for the construction industry.