In the much-publicized “Kenwood Towne Place” litigation in Cincinnati, which involves over $40MM in lien claims, presiding Judge Beth Myers issued a Decision and Entry that disposed of subcontractor claims against the Port Authority of Greater Cincinnati (the Public Authority involved with the project). The Court dismissed the subcontractors’ claims for takings and negligence.
One aspect of Judge Myers’ decision makes it glaringly important for contractors of all shapes and sizes to perform independent assessments of front-end protection on a public project: the Court determined that the requirement of a performance and payment bond (or lack thereof in this case) was a matter of discretion for the Port Authority and, consequently, not mandatory under Ohio law.
To reach its Decision, the Court focused on Sections 4582.31 (specific to port authorities) and 153.54 (applies to public projects) of the Ohio Revised Code. The Court determined that Section 4582.31 gives the Port Authority discretion whether to require competitive bidding and whether to require security–“As a matter of law, it had no duty to require a performance or payment bond.” The subcontractor claimants relied on Section 153.54, which requires performance bonds in competitive bidding, and the competitive bidding provision of 4582.31. But the Court found that the Kenwood Towne Place litigation is governed by the discretionary provisions granted to port authorities because the project was funded exclusively from bond proceeds and special funds (bond discretionary) instead of general revenue funds or funds raised through taxation (bond mandatory).
Among other things, the Court summarily dismissed the subcontractors’ common law claims for negligence because, under Ohio law, when a statute imposes a duty upon a public entity which is intended for the public good, the failure to adequately perform the duty does not permit a private right of redress for injuries caused by that failure. The Court’s ruling may come as a surprise to many contractors in the public sector. Notwithstanding, Judge Myers’ decision should be a lesson to all that significant diligence for adequate assurance of payment should not be delegated or accepted at face value. The current economic climate places that duty at an all-time high for those contracting for work in the public arena.