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Karlsberger Architecture Loses Case Against Ohio State University

December 15, 2010

By Debra K. Rubin, with C.J. Hughes
This story first appeared in Engineering News-Record

An Ohio state claims court judge on Dec. 6 dismissed a 2009 suit against Ohio State University by Karlsberger Architecture Inc., Columbus, that sought $1.3 million in design fees for completed work after the university terminated the firm on its 1-million-sq-ft ProjectONE hospital megaproject. The firm was replaced in its role on the $1-billion project by HOK, the job's master planner.

Karlsberger Architecture was seeking $1.3 million in design fees for a hospital project.
Photo courtesy Ohio State U.
Karlsberger Architecture was seeking $1.3 million in design fees for a hospital project.
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Judge Joseph T. Clark upheld the termination, finding no "implied covenants" that would contractually prevent the university's action.

In its eight-count complaint, Karlsberger had claimed that the lack of a stated cause for the termination violated open-government laws, further contending that its contract remained "in full force and effect." The firm had also sought $32 million in damages. Healthcare-focused Karlsberger had been architect of record on the project, a 19-story tower structure.

"We are pleased that the Ohio Court of Claims concurred with our contention that the agreement with Karlsberger Architecture provided the right to terminate the contract without cause at anytime," says a university medical center spokesman. "We simply exercised that option based solely upon business reasons. A project of this magnitude necessitated having the best team in place and we are confident that is now the case."

Karlsberger officials could not be reached for comment on the ruling or how the firm plans to respond.

And in a separate legal action against OSU involving ProjectONE, the Associated Subcontractors Association and its Ohio chapter filed suit Nov. 23 in Ohio Supreme Court , claiming the university violated state statutes that had required it to mandate a payment bond for project subcontractors. The trade group for sureties joined in the suit.

The complaint contends OSU's decision not to require the project's construction managers, Turner Construction and Bovis Lend Lease, to post the bond places the subs at financial risk, since they are required to waive their mechanic's lien rights. "Construction subcontractors will provide hundreds of millions of dollars of credit on ProjectONE," says Timmy McLaughlin, president of Alexandria, Va.-based ASA. "Public owners should support, not block, vital subcontractor payment protections that reduce financial uncertainty and the costs of construction."

The project was set to generate up to 5,000 construction jobs by its estimated completion date in 2014. It was designated an OSU "Construction Reform Demonstration Project," one of three at public colleges and universities in the state authorized to use alternative project delivery approaches. According to ASA's complaint, "the university determined that it did not have to require a payment bond" on the guaranteed-maximum-price project, which includes $925 million in state funding. At the 2009 unveiling of its design, the expansion was touted as "one of the largest job-generating initiatives in Ohio's history."

The university says it "intends to vigorously defend its interests in this lawsuit," says a spokesman, who adds that Ohio's Construction Reform Law, "does not require" Turner, the project's CM at risk, "to furnish a performance and payment bond." He says that OSU "has secured Turner's performance by requiring a Letter of Credit, which is consistent with the national trend of moving away from requiring bonds on exceptionally large projects, such as this expansion." He adds that the university and Turner "have numerous contractual mechanisms in place to protect the interests of subcontractors and suppliers. In addition, the contract requires that Turner supply insurance covering subcontractor defaults to increase opportunities for minority-owned firms and other small businesses who might not otherwise be able to obtain bonds for their work."

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