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Amendments to Ohio P3 Legislation Add Bonding Requirements with a Twist




by:
Lisa M. Wampler
Cohen Seglias Pallas Greenhall & Furman PC - Pittsburgh Office

 
July 21, 2014

Previously published on July 11, 2014

It is no secret within the construction industry that public-private partnership (P3) project delivery has recently become all the rage. The demand for infrastructure repairs and improvements is high, and the public dollars needed to fund them are scarce. P3 projects incorporating public and private funding have, therefore, become a creative delivery alternative that states like Ohio have adopted. And with new delivery methods comes the need for new legislation to regulate and administer these types of projects.

The Bonding Requirements

Last month, Ohio Governor John Kasich approved new amendments to the state’s public-private partnership (P3) legislation that could have drastic impacts on subcontractors and suppliers performing work on Ohio P3 projects. The new law, which goes into effect this September, requires prime contractors to provide both performance and payment bonds on P3 projects in Ohio—a change that subcontractors and suppliers will likely be touting as it will help to secure the payment obligations of prime contractors to their subs.

The Catch

The catch is that the director of the Ohio Department of Transportation (ODOT), Jerry Wray, will have discretion to determine the amount of the bonds. In other words, the director could fix a bonding amount that is less than the prime contract price, leaving potential bond claimants somewhat exposed to the risk of nonpayment.

The legislation also requires that the performance bond be conditioned on the private entity performing the work according to the agreed upon terms, within the time prescribed, and in conformity with any other terms and conditions that the director requires. Similarly, the payment bond must be conditioned on the payment for all labor, work performed, and materials furnished in connection with the P3 agreement and any such terms and conditions that director requires.

What Do the Amendments Mean for the Future?

This bonding requirement is a major change to Ohio’s P3 legislation, which is currently silent on bonding. The new bonding requirement, which gives the director considerable discretion, is markedly different from some of Ohio’s other legislation relating to public construction. The Ohio Transportation Code, for instance, requires a payment and performance bond for 100% of the contract amount for transportation projects.

Depending on the amount specified by the ODOT director for the payment and performance bonds, starting in September of 2014, contractors farther down the chain on Ohio P3 projects may have little or no payment protection other than directly bringing an action against the contracting party directly upstream. We will continue to monitor the implementation of the new P3 bonding requirement and how ODOT’s director decides to use his discretion.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Author
 
Lisa M. Wampler
Cohen Seglias Pallas Greenhall & Furman PC
 
Pittsburgh Office
Practice Area
 
Construction Law
 
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