Type: Law Bulletins
Date: 05/06/2011

Multiple Prime Contracting, Prevailing Wage Rules Targeted by Ohio Governor's Proposed Budget

The most far reaching changes in decades to Ohio statutes on public construction are contained within Governor Kasich’s proposed budget, just passed by the Ohio House of Representatives through House Bill 153. Ohio is currently one of the last states to require public construction to utilize multiple prime contracts involving as many as five separate multiple prime contractors on construction projects. While public construction owners are currently permitted to bid out projects using a single prime contractor, they are also required to issue multiple bid packages to the principal trade contractors, and further required to take the lowest bid as between the prime contractor’s bid and the aggregate total of the multiple contractors’ bids. Because the multiple prime contractors need not include in their bid any amount for overall project supervision, their bids invariably come back lower than does the single prime contractor’s bid for the entire project. Public construction owners have long argued, though, that these initial cost savings are more than made up for by change orders, delay claims, inefficiencies in project administration, and other costs. 

Current Ohio law also requires public construction to pay prevailing wages on any project fairly estimated to cost more than $78,258. These “prevailing wages” are in reality the filed rates established by trade union contracts with the State Department of Commerce. These thresholds are very low and have not been significantly raised in a long time. 

As part of his budget proposal, Governor Kasich has proposed that all public construction owners shall henceforth be permitted to utilize alternate forms of construction procurement, including design/build, construction manager at risk, and general contractor/single prime contractor methodologies. While these proposals were earlier advanced through a task force commissioned by officials in the Strickland Administration, they were not adopted by the legislature. Those earlier proposals softened the blow to the multiple prime contractors by including numerous safeguards against bid-shopping by general contractors and other safeguards designed to ensure fair treatment of those multiple prime contractors that currently enjoy direct privity with the public construction owner. The new proposals, however, remove these so-called MEP protections. In addition, at the request of Ohio State University, additional amendments have been requested that will significantly change the bonding requirements applicable to public construction projects, by ensuring that public universities, at least, need not follow the stringent bonding requirements of current code. These requested amendments are not currently in the legislation, but will likely be debated.

On the prevailing wage front, the Governor proposed to raise the threshold at which prevailing wages are payable from the current $78,258 to $5 million for all forms of public construction except those that involve roads, sewers, or bridges. For these “horizontal” projects, the threshold remains at $78,258 for new construction and $23,447 for reconstruction, alteration, and repair projects. In addition, the new language clarifies that only if a public improvement is constructed by a public authority or for the benefit of a public authority is prevailing wage payable, making it crystal clear that unless these conditions are met, prevailing wage is not payable even if the improvement uses or receives financing, grants, or in-kind support from a public authority. Moreover, prevailing wage requirements will no longer be applicable to any public improvement undertaken by or under contract for a state institution of higher education. Public school construction (grades K-12) has been exempt from prevailing wage requirements for over a decade, and now this exemption is being extended to all higher education construction projects. Finally, provisions of current law (Revised Code 4115.16) that permit interested parties to file their own complaints in local common pleas courts seeking redress for prevailing wage violations are being repealed. Instead, interested parties’ sole remedy is to file a complaint to the Director of Commerce, whose decision that no violation had occurred is appealable to the Court of Common Pleas. In other words, the right of interested parties to file their own direct lawsuits is being repealed.  Last minute changes made by the House reduced the threshold from $5 million to $3.5 million and allowed state higher education institutions to continue to pay prevailing wage if they wished to. Those changes also exempted port authority projects from prevailing wage requirements.

The proposed legislation will introduce much greater flexibility to public construction owners, and may well reduce the costs of that construction. However, both the construction trade unions and the contractors who are unionized have traditionally banded together to vigorously contest changes far less drastic than these. It remains to be seen whether these provisions will survive the Senate’s budget process, or how they may be amended through that process. Clients who are interested in reviewing the actual legislative language in the multi-thousand page budget bill passed by the House should contact Earl Messer or Bill Seitz at the firm’s Cincinnati Office, 513-381-2838.

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