|April 17, 2013|
Previously published on April 15. 2013
Public construction work can be attractive to contractors, especially in a down economy, because the payments are considered more certain and secure than with private work. One major pitfall of public work, however, is that legal recourse against a government entity can be much more limited than against a private owner. In a recent case against the Commonwealth of Pennsylvania (Commonwealth), a gaming company, Scientific Games International (SGI), learned the hard way that taking legal action against the Commonwealth is considerably more difficult than doing so in a private construction context.
The difficulty stems from legal principal called sovereign immunity. Sovereign immunity means that a government entity like the Commonwealth cannot be sued except under very limited circumstances that are determined by the Legislature. For example, if a contractor is not being paid for work in accordance with its contract with the Commonwealth, the contractor may (after going through an administrative claim process) sue the Commonwealth for breach of contract because the Legislature expressly created this remedy in the Commonwealth Procurement Code.
In Scientific Games International, Inc. v. Commonwealth of Pennsylvania, the Commonwealth solicited bids for the design, installation, and maintenance of a statewide computer system to monitor slot machines at gaming venues. After bids were opened and evaluated, the Commonwealth selected SGI for the award and began to negotiate a contract with SGI. Before contract documents were fully executed (the final draft of the contract had been signed by SGI but not by the Commonwealth), the Commonwealth cancelled the award, noting that the cancellation was “in the best interests of the Commonwealth.” SGI sued the Commonwealth in the Commonwealth Court of Pennsylvania seeking an order from the court that declaring the contract enforceable and preventing the Commonwealth from canceling the contract.
Ultimately, the case went up to the Supreme Court of Pennsylvania, which dismissed SGI’s case because the Commonwealth Procurement Code does not allow bidders to challenge award cancellations if they have not yet entered into a fully executed contract with the Commonwealth. In other words, since the Procurement Code says that cancellations cannot be challenged without a fully executed contract, the Commonwealth is immune from legal challenges.
In addition to confirming the Commonwealth’s ability to cancel solicitations and awards without challenge, the Supreme Court of Pennsylvania also held that even if SGI was permitted to bring this lawsuit against the Commonwealth, it did so in the wrong forum. The Supreme Court concluded that SGI should have filed its case with the Commonwealth Board of Claims because the Commonwealth Procurement Code requires all claims arising from contracts with the Commonwealth and/or its agencies to be brought before the Board of Claims.
For contractors, this case should serve as a lesson that their legal rights are significantly limited without a fully executed contract. Following an award, contractors should strive to negotiate quickly and efficiently and push the Commonwealth to execute the contract as quickly as possible (electronic signatures have become an acceptable means for the Commonwealth to execute its contracts). For construction lawyers, this case should serve as a lesson that the proper forum for all disputes with a Commonwealth agency arising out of a contract is the Commonwealth Board of Claims, not the Commonwealth Court.