Note: Turner Construction Company (Contractor/Applicant) contracted with Ohio State University (University/Beneficiary) to complete a medical center as the designated "construction manager at risk" after Contractor/Applicant passed a qualifications-based selection process. As a result of a temporary experimental law to test alternative methods of securing public construction projects, Contractor/Applicant was not required to furnish a surety bond to secure its performance. The estimated cost of a surety bond would have increased the cost of the US$658.3 million project by US$11.9 million. Instead, Contractor/Applicant provided Beneficiary with a standby LC in the amount of US$20 million in favor of University/Beneficiary and also purchased subcontractor-default insurance.

The American Subcontractors Association ("ASA"), American Subcontractors Association of Ohio, Inc. ("ASA-Ohio"), and Surety and Fidelity Association of America ("SFAA") commenced an action for a writ of mandamus to compel University/ Beneficiary to require Contractor/Applicant to furnish a surety bond.

The Supreme Court of Ohio, O'Connor, C.J., Pfeifer, Lundberg Stratton, O'Donnell, Lanzinger, and Cupp, JJ., dismissed the claims of ASA and ASAOhio because they lacked standing, and denied SFAA's mandamus claim.

The Court rejected ASA and ASA-Ohio's claims that their members had been injured due to the lack of a surety bond through lost business and increased risk of loss because no subcontractors working on the project for Contractor/Applicant complained about the lack of a bond and the bidding on the project by subcontractors was at the expected level.

Recognizing that members of SFAA were injured due to the loss of what the Court described as a "handsome profit" from using a surety bond, the Court denied SFAA's mandamus claim. It ruled that the laws of Ohio only require a bond for a person bidding for a contract with the state. Contractor/Applicant did not bid for the contract, rather, under the temporary law, Contractor/Applicant passed a qualifications-based selection process.

Comment: Interestingly, the Court did not comment that a standby LC was in several respects superior to a bond. It is.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.