Court Decision Reminds School Boards of the Importance of “Sunshine” in Guaranteed Energy Savings and Other Construction Contracts

In a recent Illinois Appellate Court decision, a taxpayer unsuccessfully challenged a school district’s guaranteed energy savings contract. School Board members should be aware of this decision because the favorable outcome for the District hinged on the significant notice and open discussion of the contract that the Board engaged in over the life of the agreement. The case also highlights the need to consider challenges to the propriety of contracts with outside vendors at the time they are raised.

In Kampmann v. Hillsboro Community School District No. 3, a taxpayer filed a lawsuit challenging an agreement between a school district and an energy company, Ameresco Inc., under which Ameresco completed bathroom renovations and roof work for one of the District’s schools. Before entering into the contract, the School Board issued a bid for proposals and the Board’s building and grounds committee considered three proposals at a public hearing. The committee voted to recommend Ameresco to the Board for the work. Over the next two years, the Board discussed and voted on the work to be completed, an agreement with Ameresco, and bonds to pay for the work during numerous open meetings. In each case, the Board provided notice of the subject of its deliberations in agendas before the meetings.

The agreement and change orders for the project said that there would be over $7 million in guaranteed energy and operational savings over a 20-year period, but the Board waived any audit, measurement, or recovery of all but a minor fraction of that savings, and procured no independent evaluation to assess the likelihood of actually realizing the stipulated savings. The Board also never sought to audit, measure, or recover any of the guaranteed taxpayer savings that it did not waive.

The taxpayer’s lawsuit alleged that the agreement with Ameresco was entered into in excess of valid statutory authority and in violation of Article 19b of the School Code, which requires, among other things, consideration of the savings to taxpayers in the award of guaranteed energy savings contracts. Notably, the taxpayer did not file his suit until approximately four years after the Board entered into the original agreement with Ameresco, three years after the bonds to pay for the work were issued, and more than a year after all construction had been completed and all payments made.

Relying on a doctrine known as laches, the Appellate Court held that the taxpayer’s complaint should be dismissed. Laches is an equitable defense that bars recovery by a party whose unreasonable delay in bringing an action has prejudiced the rights of the other party. Here, the taxpayer had notice of the Board’s actions at multiple points over the life of the project, yet failed to bring suit until after construction had been completed, all payments had been made, and the Board had issued bonds. The Board had also, during the bond approval process, certified that it had complied with relevant law and that it knew of no pending objections or litigation about the project. On those facts, the court found it would be unfair to allow the lawsuit to proceed.

This decision is an important reminder to school boards that the “sunshine” required by the Open Meetings Act and other laws can sometimes be a shield to protect school districts from liability. Had the Board in this case been less fastidious with respect to notice and open deliberations on the contract, the court might not have been convinced that the taxpayer had sufficient notice for laches to apply. Strict compliance with open meetings responsibilities can help avoid costly litigation alleging noncompliance with the many legal requirements surrounding contracts in general and guaranteed savings contracts specifically.