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Michael A. Bohinc, CPA19111 Brookfield DriveAuburn Twp. OH 44023Phone: 440-708-2583Libb Co., Inc.Donald Dwyer, President7860 North Central Dr.Lewis Center OH 43035Phone: 800-362-9719Moen, Inc.Brady Rubin10 Canterbury CourtCanfield OH 44406Phone: 440-292-5478Mueller IndustriesChris Lasso6128 Commonwealth Dr.Westerville OH 43082Phone: 614-296-5248Noveon, Inc.Alan Darby9911 Brecksville Rd.Cleveland OH 44141Phone: 216-447-6015Output Sales Corp.Richard G. Hildebrand119 Hunt Valley Rd.New Kensington PA 15068Phone: 724-334-5600Pickrel Bros., Inc.Thomas R. Pickrel901 South Perry StreetDayton OH 45402Phone: 937-461-5960Preferred Sales Inc.Michell Lewnes / Randy EtterOne Industrial Dr.Hermitage PA 16148Phone: 724-981-5500Promarc Sales Inc.Jeff Davis and Ray Lisowski13718 Enterprise Ave.Cleveland OH 44135Phone: 216-267-8754Rheem Mfg. Co.Jerry Wolens69 Valley Brook Blvd.Hinckley OH 44233Phone: 330-273-9882Robertson Heating Supply Co.Marvin Shipley701 N. UnderwoodZanesville OH 43701Phone: 740-452-9417Robertson Heating Supply Co.Larry Smith1711 6th Street S. W.Canton OH 44706Phone: 330-456-4304Robertson Heating Supply Co.Rick Brown30 W. Fifth St.Mansfield OH 44902Phone: 419-524-3012Robertson Heating Supply Co.Dan Lowery1400 Home AvenueAkron OH 44310Phone: 330-633-0990Robertson Heating Supply Co.Brian Wright860 Freeway Drive, S.Columbus OH 43229Phone: 614-888-1332Robertson Heating Supply Co.Greg Harsar5301 Evergreen ParkwaySheffield Village OH 44054Phone: 440-934-0059Robertson Heating Supply Co.John Vasey129 Butte St., P.O. Box 397Steubenville OH 43952Phone: 740-283-3368Robertson Heating Supply Co.Dennis Bowsher512 W. High StreetLima OH 45801Phone: 419-228-2261Robertson Heating Supply Co.Jim Meyers2106 Great Trail Dr.Wooster OH 44691Phone: 330-262-3300Robertson Heating Supply Co.Eric Meyers1908 Superior St.Sandusky OH 44870Phone: 419-626-0335Robertson Heating Supply Co.Troy Orr450 South 22nd StreetHeath OH 43056Phone: 740-522-4338Robertson Heating Supply Co.Jerry Hollback501 Gaston AvenueEast Liverpool OH 43920Phone: 330-386-6542Robertson Heating Supply Co.Rick Perkins524 Bowers Ave., N.W.New Philadelphia OH 44663Phone: 330-343-3011Robertson Heating Supply Co.Richard Lerch830 S. Columbus St. at Rt. 33Lancaster OH 43130Phone: 740-653-8292Robertson Heating Supply Co.David Roberts, Dir. Of Mktg.PO Box 2448 / 2155 W. Main St.Alliance OH 44601Phone: 330-821-9180Robertson Heating Supply Co.Clay Dill6065 Towpath DriveValley View OH 44125Phone: 216-328-2979Robertson Heating Supply Co.Rankin Walkup3243 Frenchmens RoadToledo OH 43607Phone: 419-531-3862Robertson Heating Supply Co.Don Tarolli1290 Crescent St.Youngstown OH 44502Phone: 330-743-1143S.V.F. SalesSusan Fesz4901 Brookpark RoadCleveland OH 44134Phone: 216-741-7000The Bobb Chevrolet CompanyAlan HeiligmannP.O. Box 06351Columbus OH 43206Phone: 614-228-4567The Frank Gates Service Co.Mark MaGinnP.O. Box 182364Columbus OH 43218Phone: 614-791-7696VictaulicChris Burton3763 Wild Cherry WayMason OH 45040Phone: 513-292-64302321 Needmore RoadDayton OH 45414Phone: 937-236-4260W. W. Grainger, Inc.Darren Lackman8700 Le Saint DriveHamilton OH 45014Phone: 513-341-2063W. W. Grainger, Inc.Marty Jamieson939 W. 8th St.Downtown OH 45203Phone: 513-744-8760W. W. Grainger, Inc.Rohan Thambrahalli100 Grainger ParkwayLake Forest IL 60045Phone: 847-535-5024W. W. Grainger, Inc.Gary Brown4420 Glendale Milford RoadBlue Ash OH 45242Phone: 513-786-8673Welker-McKee Supply Co./ Div. ofHajocaArt Mighton6606 Granger RoadCleveland OH 44131Phone: 216-447-0050Wolff Brothers Supply Inc.Brian Pekala6078 Wolff Rd.Medina OH 44256Phone: 330-225-2240Wolverine Brass, Inc.Chris Pellegrino165 Oak Drive NWNorth Canton OH 44720Phone: 330-323-1973W. W. Grainger, Inc.Timothy Qunilisk1455 E. 2nd St.Franklin OH 45005Phone: 937-743-3943W. W. Grainger, Inc.Jon Wyss1781 W. Main St.Troy OH 45373Phone: 937-440-6757W. W. Grainger, Inc.Rick Larson915 Industry Ave.Lima OH 45804Phone: 419-228-0155W. W. Grainger, Inc.Randy PattonVolume 2008, Issue 3 OHIO PHC CONTRACTOR23

Employers should develop,communicate, and enforce clearlydefined policies that address drivingdistractions while operating acompany vehicle. Your local Federatedrepresentative can help! Call today.* National Highway Traffic Safety Administration Report,“What Do Traffic Crashes Cost” Total Cost to Employersby State and Industry,” 1998-2000The FEDERATED Insurance CompaniesHome Office: 121 East Park Square,Owatonna, MN 55060(507) 455-5200 www.federatedinsurance.com24OHIO PHC CONTRACTOR Volume 2008, Issue 3

Legally SpeakingMDepartmentsBob DunleveyDunlevey, Mahan & FurryConstruction Contracts - Controlling Escalating CostsMaterial shortages and price escalations are wreakinghavoc on the construction industry. Be it steel, cement, asphalt,copper, or whatever other commodity that is in demand, thepressures of the global economy and the recent jumps in thecost of petroleum based products are making it very difficult forcontractors to enter into fixed-price contracts without absorbingunnecessary risks of financial ruin. Because projects are pricedand bid months or even years in advance of actual construction,the current volatility of the materials market puts a contractorat significant risk when attempting to guess what the purchaseprice of these materials will eventually be. Who should bearthe risk of the volatile and escalating price of materials?Traditionally, the contractor has been required to perform thecontract without relief from escalating costs. But, risk transferto the owner is attempting to be utilized by many savvycontractors – especially now when the cost of materials is goingthrough the roof. Traditional contract principles have beenshown to be very inadequate in according relief to contractorsthrough change orders and this is why risk transfer needs to beconsidered.Developers and contractors are well familiar withcertain techniques for meeting escalating costs such as valueengineering, substitution of materials, strategic advancepurchasing of materials and other such methods. Hand-inhand with these strategic methods is the need for contractorsto develop, negotiate and incorporate within their constructioncontract provisions the sharing of risk of escalating materialcosts. These types of clauses can take many forms, includingcost-base clauses which seek to compare actual incurred costwith bid cost, and index-based clauses which track and adjustprices based upon numerous existing material price indexes.The general rule of law is that material price increases infixed-price construction contracts are borne by the contractor.Courts have historically taken the view that fixed-pricecontracts are inherently an allocation of risk – “prices go up –bad for seller” – “price goes down – bad for buyer.” Merelybecause performance becomes economically burdensome,it is not sufficient legal grounds to let a contractor out ofperforming. In the absence of specific contract provisions,courts rarely rule a party is excused or entitled to a priceincrease because of unexpected, substantial material priceincreases. However, if material is unavailable, courts are morereceptive to reforming a contract compared with merely when amaterial can be bought at a higher price than expected.The Board of Contract Appeals and the Court of FederalClaims traditionally hold that a contractor assumes the riskof unexpected cost in the absence of clauses shifting risk togovernment. But, four basic arguments do exist for a contractorto be excused from performance: impossibility – commercialimpracticability – frustration of purpose – force majeure. Eachof these theories requires a showing of certain facts to meetlegal criteria and these principles seldom meet with favorbefore the courts.The doctrine of “impossibility” permits the party to beexcused if performance has become objectively impossible as aresult of an unexpected event. For it to apply, there must be noway for performance to be achieved, not merely uneconomical.For commercial impracticability, it is not necessary thatperformance be impossible, but it must be extremely costly,time consuming and impracticable. Because the courtsrecognize that this principle could be abused, they have statedthat it is not to be invoked merely because performance hasbecome more expensive than contemplated. For the excuse of“commercial impracticability” to be applicable, the contractormust exhaust all alternative means of performance. Theimpracticability must come from an unexpected change. Arise or collapse in the market is not a justification becausethat is exactly the type of business risk fixed-price contractsare intended to cover. But, severe shortages of raw materialscaused by war, embargo, unforeseen shutdown of a supplysource and the like can excuse performance. “Frustration ofpurpose” is another defense to performance but the parties’purpose of the contract must be almost completely frustratedby supervening events. Frustration must be substantial – notthat the transaction has become less profitable or would sustaina loss. “Impossibility”, “commercial impracticability” and“frustration of purpose” generally require the party seekingrelief to prove an unforeseen event, no allocation of risk forVolume 2008, Issue 3 OHIO PHC CONTRACTOR25

the unexpected occurrence in the contract, and the unexpectedevent must render performance commercially impracticable.These are large hoops to jump through.The final excuse to avoid performance is force majeure.Contracts typically contain a force majeure clause. Inconstruction contracts, these clauses customarily allow acontractor additional time to perform because of circumstancesbeyond the contractor’s control – flood, earthquakes, fires andstrikes. AIA contracts and other similar form contracts usuallyaddress this issue. But, courts generally do not view priceincreases, even when dramatic, to be unforeseen.What should you do now to avoid future risks beyondusing contract escalation clauses? Make changes to your bid/quote forms now. Limit your price to be good for a certainnumber of days. Qualify your bid/quote to be subject toincreases in prices of materials and benchmark the prices.Make sure your quote which contains the escalating priceprovision becomes part of the contract. Specify that if a changein price of a certain material is more than 5% between the dateof the bid proposal and date of installation it shall warrant an“equitable adjustment” in the price. As to your contract withsuppliers, make sure the commitment you receive from asupplier parallels the obligations you have with your customer.Most importantly, review your construction contracts with aconstruction attorney and put clear price escalation clausesin your new contracts. Some standard form constructioncontracts require the parties to agree on a method to establishthe baseline price of the material and calculate an adjustmentbased on market conditions. The purpose is to shift the risk(or possibly the benefit) of price changes to the owner (orcontractor above you). If the owner resists, negotiate the clauseto allow the owner to benefit if material prices decrease or givethe owner the benefit if the volume of that material increases inmagnitude. Explain to the owner that insisting on fixed-pricecontracts with no escalation clause will cause contractors toquote higher numbers to cover themselves.In this volatile period of esc

Todd R. Pippenger & Son Todd Pippenger P.O. Box 1289 Warren OH 44482 Phone: 330-393-4726 Tri-County Plumbing Gary Yoakum Peterman Plumbing & Heating, Inc. . Waker Plumbing, Inc. Mike Waker 1760 E. David Road Kettering OH 45440 Phone: 937-434-2678 Walsh Mechanical Contracting Donald Walsh 4200 Simon Rd.