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for Private Projects That Receive Public Funds
In September 2009, the Strickland Administration announced new “guidelines” for the application of the State’s prevailing wage law. Since that time, for private developers receiving public funding on construction/renovation projects in Ohio, there has been a fog of uncertainty regarding whether their projects were subject to prevailing wage laws. Under Ohio’s prevailing wage law, contractors and subcontractors are required to pay the “prevailing wage” to laborers and mechanics on public improvement projects. For owners/developers, this can mean a 15 – 25% higher construction cost than for non-prevailing wage construction. Recently, the Ohio Supreme Court helped to remove this uncertainty when it held that prevailing wage requirements are not automatically triggered every time public funds are expended on a private development project.
In the case of Northwestern Ohio Bldg. & Constr. Trades Council v. Ottawa Cty. Improvement Corp., Fellhauer Mechanical Systems, Inc. (“Fellhauer”) purchased a building, the land on which the building stood, and the office equipment within the building. Fellhauer was a private for-profit heating, cooling, and plumbing contractor, who also had a retail business that sold security systems, audio and video equipment, televisions, and home-theater systems. Fellhauer intended to renovate a portion of the building for use as a retail showroom.
Fellhauer acquired both public and private funding for the project, which consisted of a $300,000 grant from the Ohio Department of Development (“ODOD”)^1; a $36,750 loan from the Ottawa County Improvement Corp. (OCIC), and a $308,250 bank loan. Pursuant to the terms of the ODOD grant and the OCIC loan, Fellhauer used these public funds solely for the purchase of the land, building and equipment and used private funds, $135,000 from the bank loan and $40,000 of his own cash, for the building renovation. However, the Northwestern Ohio Building & Construction Trades Council (the “Trades Council”) filed a complaint alleging that Fellhauer’s project was subject to Ohio’s prevailing wage law, and demanded that Ottawa County and the OCIC be compelled to comply with the prevailing wage laws, simply because Fellhauer expended public funds on the project.
At the heart of the Trades Council’s argument was their assertion that any time a “public authority” spends public funds the project is subject to prevailing wage, even if it is not a public improvement. In a unanimous decision, the Court disagreed with the Trades Council’s argument and made clear that prevailing wage laws only apply to “public improvement” projects. Most importantly, the Court held that a “public improvement” project must be constructed by a public authority or must benefit a public authority. A “public authority” is defined as any “officer, board, or commission of the state, or any political subdivision of the state, authorized to enter into a contract for the construction of a public improvement or to construct the same ...or any institution supported in whole or in part by public funds and said sections apply to expenditures of such institutions made in whole or in part from public funds.”
The Court concluded that the Fellhauer project was not a construction of a public improvement because the project was not going to be used by or for any public authority. Because the project did not meet the definition of a “public improvement,” prevailing wage was not required.
The Northwestern decision has provided much needed clarification of Ohio’s prevailing wage laws to private entities that are currently or are considering obtaining public funds to support private construction/development projects. The Court significantly narrowed the definition of “public improvement” from that announced by the Strickland Administration in September 2009. While a public authority can require the payment of prevailing wage as a condition of obtaining public funds, e.g. the construction of a public road, the use of public funds for that portion of the project does not automatically subject the entire private improvement project to Ohio’s prevailing wage laws.
Joseph Reidy is a partner and coordinator of Schottenstein Zox & Dunn’s Brownfield Practice Areas in Columbus, Ohio. He can be reached at (614) 462-2207 or jreidy@szd.com.
^1 Ottawa County applied to ODOD for Community Development Block Grant (CDBG) funds on behalf of Fellhauer.
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