Contracting with Governmental Entities Requires Caution

By: Werner Sabo

As a general rule, a contract entered into with a governmental entity—such as a school district—must follow the proper formalities. All states have laws that spell out in great detail what must be done to comply with the law. Failure to do so will render the contract void and unenforceable. There are numerous cases where contractors and others have rendered services to such governmental bodies and not been paid because these formalities were not followed. Usually, the contractor (or architect or engineer) is just out of luck.

A recent Illinois case, Restore Construction Co. v. Board of Education of Proviso Township High School Dist. 209, 2019 IL App (1^st) 181580 (June 28, 2019), illustrates the issue, although this case was an exception to the rule. On May 10, 2014, there was a fire at the high school, causing significant property damage and dangerous conditions within the school. The upcoming school year was scheduled to begin on August 13, and the district needed prompt remediation and repairs.

Immediately after the fire, district representatives contacted the contractor and asked it to provide emergency mitigation services to the district. The district previously contracted with this contractor for flood damage. On May 24, 2014, the district superintendent signed two contracts on behalf of the district for the repair work. The contracts did not go through the typical competitive bidding process; the district board was never presented with a copy of the agreements and did not vote to approve them.

The contractor performed some $7.2 million in work and was paid $5.8 million by the insurance carrier for the district. At the end of the project, the contractor was not paid some $1.4 million that was previously approved by the architect for the district.

The contractor then filed suit for the balance of the funds owed. The district argued that the complaint should be dismissed because the contracts were void, as the school board had not voted on them. The trial court agreed and also dismissed the contractor’s quantum meruit count. The district argued that a school district cannot be liable under quantum meruit where the agreements purporting to bind the district were never properly approved and void ab initio (meaning from the start).

The appellate court reversed. While the contracts were, indeed void ab initio, there is no general policy in Illinois that recovery under quantum meruit is barred where the intended contract with a municipal unit has been determined to be void ab initio. This was a contract implied in law, a form of quantum meruit. The court stated:

Here, plaintiffs’ claims are based on the theory of quantum meruit, which means literally “‘as much as he deserves’ and is an expression that describes the extent of liability on a contract implied in law (also called a “quasi-contract”); it is predicated on the reasonable value of the services performed,'” Restore Construction Co. v. Board of Education of Proviso Township High School Dist. 209, 2019 IL App (1^st) 181580 (June 28, 2019). “To recover under a quantum meruit theory, a plaintiff must prove that (1) it performed a service to the benefit of the defendant, (2) it did not perform the service gratuitously, (3) defendant accepted the service, and (4) no contract existed to prescribe payment for the service.” 

In this case, all of these conditions were met: the contractor performed services for the district for which it expected to be paid; the district accepted the services, and the court found that there was no contract for the services. Thus, the contractor was entitled to be paid based on a contract implied in law.

While this contractor was ultimately successful, it took litigation, including a trip to the appellate court, to achieve the result. It would have been far better to have the contracts voted on by the district. Even though this was an emergency, the contractor likely could have forced a vote by refusing to work until the contracts were formally approved by the board.

Practice Tip: This situation applies to other states and other types of governmental bodies. An attorney familiar with the laws of the state where the project is located should be consulted whenever such a contract is contemplated. Here, the attorneys for the contractor saved the day, but that may not always be the outcome and anyone dealing with a governmental body needs to exercise caution.