Extra Work Claim Against School District Does Not Require Written Change Order Or Adherence To Section 508 Of Public School Code

Long-standing precedent in Pennsylvania required a contractor's change order claim against a public entity to be supported by a written change order and strict adherence to the contract requirements and any applicable public law. For claims against school districts, all of that Read more

Chris McCabe Is Running For Judge Of The Philadelphia Courts!

Dear friends and followers, This post is a bit off-topic, more personal than legal. I am happy to announce that I am a candidate for Judge of the Philadelphia Courts.  There are 12 spots open on the Court of Common Pleas Read more

Commonwealth Court Again Holds That Penalty Award Is Mandatory On Finding Of Bad Faith

In a recent, unpublished opinion, in the case of Klipper Construction Associates, Inc. v. Warwick Township Water and Sewer Authority, the Commonwealth Court of Pennsylvania affirmed its recent holding in A. Scott Enterprises, Inc. v. City of Allentown (Oct. 2014), Read more

Payment Rights, Obligations and Remedies on Pennsylvania Public Works Projects

On Thursday, November 6, 2014, I gave a dinner presentation to the Southeast District meeting of the National Utility Contractors Association (Pennsylvania).  The topic was "Payment Rights, Obligations and Remedies on Public Works Projects."  If you would like a Read more

Extra Work Claim Against School District Does Not Require Written Change Order Or Adherence To Section 508 Of Public School Code

Long-standing precedent in Pennsylvania required a contractor’s change order claim against a public entity to be supported by a written change order and strict adherence to the contract requirements and any applicable public law.

For claims against school districts, all of that changed in 2007 with the Commonwealth Court’s decision in James Corp. v. North Allegheny School District, 938 A.2d 474 (Pa.Cmwlth.2007).  In James Corp. the Commonwealth Court allowed an extra work claim in the absence of a formal written change order and held that Section 508 of the Public School Code of 1949 (requiring affirmative vote of a majority of all the members of a school board for contracts) did not bar the claim.

And now the decision in James Corp. has been re-affirmed by the Commonwealth Court.  On March 6, 2015, the Commonwealth Court issued a formal opinion in East Coast Paving & Sealcoating, Inc., v. North Allegheny School District, a case involving a change order claim based on a directive to perform work without a formal written change order, and cited its decision in James Corp. as binding precedent.  In East Coast Paving, the Commonwealth Court stated:

With respect to the School District’s argument that a change order was a necessary condition to payment, our holding in James Corp. v. North Allegheny School District, 938 A.2d 474 (Pa.Cmwlth.2007), is binding precedent. Notably, it involved the School District as the defendant and the very same contract language invoked here by the School District.

The Commonwealth Court also rejected the school district’s argument that Section 508 was an insurmountable obstacle to the contractor’s extra work claim:

In its second issue, the School District argues that the trial court erred in concluding that the School District authorized East Coast to do the soft spot repair work. The School District contends that a change to a contract “must be approved by affirmative vote of the school board members and the approv[al] must be reflected in the minutes or record as provided by Section 508 of the Public School Code, 24 P.S. § 5–508.” School District Brief at 15. According to the School District, the School Board did not approve the soft spot repair work.

The School District made this argument in James, and we rejected it there. We explained:

We reject [the School District’s] argument [that] Section 508 of The Public School Code of 1929, Act of March 10, 1929, P.L. 30, as amended, 24 P.S. §§ 5–508 (requiring school board approval for increases or decreased to indebtedness), bars [the contractor’s] claim for payment of additional work. Testimony established [the School District] considered the work part of the contract; thus, further school board approval was unnecessary.

James, 938 A.2d at 478 n.12. Moreover, we explained:

[The School District], having directed [the contractor] to perform the additional work asserting it was required by contract, cannot now disavow liability for costs incurred by claiming [the contractor] did not have written authorization [from the School Board].

Id. at 487.

The record established that the School District required East Coast to do the soft spot repair work. The School District does not argue that the soft spot repairs were not necessary. As in James, it was not necessary for the School Board to approve, specifically, the soft spot repair work. The School Board approved the paving project and its completion by East Coast, and that is all that was required by Section 508.

Thus, at least for the time being, and at least with respect to contractor claims against school districts in Pennsylvania, a contractor does not need a formal, written change order in order to pursue a claim for extra work performed at the direction of an official or employee of the school district.  Moreover, Section 508 of the Public School Code is not a legal impediment to these claims.  This is more than welcome news for contractors doing business with school districts across the Commonwealth of Pennsylvania.  Of course, contractors are advised to consult with experienced counsel when faced with these types of claims.

The Commonwealth Court decision in East Coast Paving can be found here.

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Posted on by Christopher I. McCabe, Esq. in Court Decisions Leave a comment

Chris McCabe Is Running For Judge Of The Philadelphia Courts!

Dear friends and followers,

This post is a bit off-topic, more personal than legal.

I am happy to announce that I am a candidate for Judge of the Philadelphia Courts.  There are 12 spots open on the Court of Common Pleas (the local trial court) and 3 spots open on the Philadelphia Municipal Court (the local small claims court).

The primary election date is Tuesday, May 19, 2015.

My official campaign website is mccabeforjudge.com.  My campaign email address is mccabeforjudge@gmail.com.  You can find my campaign Facebook page here: take a look.  If you are a Facebook user, give it a “Like,” and share the page with your friends and family who live in Philadelphia so they know who to vote for.  You can also follow me on Twitter at: @mccabeforjudge.

In the meantime, as the campaign season heats up, you may see less posts than usual.  I will try to post once a month if possible.  Any more than that will be tough.  Sorry about that.

Thank you for your interest and support, and, if you are a registered Philadelphia democrat, don’t forget to vote for Chris McCabe for Judge on Tuesday, May 19.

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Commonwealth Court Again Holds That Penalty Award Is Mandatory On Finding Of Bad Faith

In a recent, unpublished opinion, in the case of Klipper Construction Associates, Inc. v. Warwick Township Water and Sewer Authority, the Commonwealth Court of Pennsylvania affirmed its recent holding in A. Scott Enterprises, Inc. v. City of Allentown (Oct. 2014), and has held again that a finding of bad faith on the part of a public agency in withholding payment from a public contractor mandates the award of a penalty.  This is from the Court’s decision:

Contractor’s assertion that the trial court erred in failing to award any penalty is correct. As noted above, a finding of bad faith requires the trial court to make a penalty award under Section 3935(a) of the Prompt Pay Act. A. Scott Enterprises, Inc., __ A.3d at __, 2014 WL 5335358 at *7. We must therefore reverse the trial court on this issue.

What is “bad faith”?  Section 3935(a) of the Procurement Code has this to say about bad faith:

An amount shall be deemed to have been withheld in bad faith to the extent that the withholding was arbitrary or vexatious. An amount shall not be deemed to have been withheld in bad faith to the extent it was withheld pursuant to section 3934 (relating to withholding of payment for good faith claims).

The takeaway? If you are a public contractor denied payment by a public entity and can show bad faith – arbitrary or vexatious conduct – on the part of the public entity, then you will be awarded a penalty which might be as high as 1% per month on the amount owed.  If you are the public entity and are withholding payment from the contractor, then you must fully comply with section 3934 of the Procurement Code to avoid a finding of bad faith.

The Commonwealth Court decision can be found here.  My earlier post on the A. Scott Enterprises case can be found here.

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Posted on by Christopher I. McCabe, Esq. in Court Decisions, Procurement Code, Public Works Payment Rules Leave a comment

Payment Rights, Obligations and Remedies on Pennsylvania Public Works Projects

On Thursday, November 6, 2014, I gave a dinner presentation to the Southeast District meeting of the National Utility Contractors Association (Pennsylvania).  The topic was “Payment Rights, Obligations and Remedies on Public Works Projects.”  If you would like a copy of the PowerPoint presentation, send me an email, and I’ll be happy to send it along.

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Commonwealth Court Rules That Award Of Fees And Penalty Is Mandatory On Finding Of Bad Faith

In a recently published opinion, the Commonwealth Court has held that a finding of bad faith by a public entity in refusing to make payment to a public contractor mandates the award of attorney’s fees and the statutory penalty of 1% per month.

In 2009, the City of Allentown (Allentown) awarded a road paving contract to A. Scott Enterprises (Scott).  After mobilization, the job was suspended when a pile of contaminated dirt was discovered at the job site.  Scott resumed some of its work and then left the job site while the parties negotiated Scott’s costs.  The parties were unable to agree on payment for the additional costs to deal with the job suspension and the contaminated soil.

Scott then filed suit to recover its losses on the project, and was awarded damages of $927,299.  The jury also found that Allentown breached the contract and acted in bad faith in refusing to make payment to Scott for its contract damages and suspension costs.  However, despite the finding of bad faith, the trial court refused to award Scott attorney’s fees, the statutory penalty of 1% per month, and pre- and post-judgment interest.  Scott appealed to the Commonwealth Court.

On appeal, Allentown argued that an award of fees and penalties was discretionary with the trial court.  The Commonwealth Court rejected Allentown’s arguments, and held that the jury finding of bad faith mandated an award of fees and penalties to Scott:

The purpose of the Procurement Code is to “level the playing field” between government agencies and contractors. See Pietrini Corp. v. Agate Construction Co., 2006 PA Super. 140, 901 A.2d 1050, 1055 (Pa. Super. 2006). It advances this goal by requiring a government agency that has acted in bad faith to pay the contractor’s legal costs, as well as an interest penalty. Otherwise, the finding of bad faith is a meaningless exercise with no consequence for the government agency found to have acted in bad faith. We conclude that Section 3935 of the Procurement Code requires the imposition of attorney’s fees and the statutory penalty upon a jury’s finding of bad faith. See City of Independence v. Kerr Construction Paving Company, Inc., 957 S.W.2d 315, 321-23 (Mo. Ct. App. 1997) (holding that Missouri’s procurement code’s use of “may” regarding penalty interest and attorney’s fees means “shall” and upon finding of bad faith by jury, trial court must award such damages, even though the extent of damages is a matter for the discretion of trial judge).

On the question of when the public agency must make payment to the contractor, the Commonwealth Court had this to say:

There was conflicting evidence on the exact amount the City owed Contractor.  However, the City had an obligation to make a good faith effort to pay for Contractor’s suspension costs and to pay those invoices it did not challenge. 62 Pa. C.S. §3932. If the City disputed the amount of a suspension invoice, it was required to so notify Contractor, withhold the disputed amount and pay the remainder of the invoices. Instead the City paid nothing.

While the Commonwealth Court held that an award of fees and penalties was mandatory, the amount to award is within the trial court’s discretion.  The case was remanded to the trial court for a hearing to determine the award of reasonable attorney’s fees.

The takeaway from this decision is that public agencies have a clear duty to determine what is owed to a contractor and to pay that amount.  They cannot simply throw up their hands and refuse to make any payment because there is a dispute over some items of work.  The Commonwealth Court’s holding strengthens the hand of public contractors in Pennsylvania, and puts public agencies on notice that the Procurement Code has real teeth and that they will be held accountable for bad faith conduct in refusing to make proper and timely payment to their contractors

The Commonwealth Court’s opinion can be found here.

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Posted on by Christopher I. McCabe, Esq. in Court Decisions, Procurement Code, Public Works Payment Rules Leave a comment
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