“Loophole” for Unauthorized and Improperly Bid Construction Contract Closed

The Illinois Supreme Court’s recent decision in Restore Construction Company v. Board of Education of Proviso Township High Schools District 209 conclusively closed an unusual loophole through which public entities could, in some cases, avoid payment on a completed contract for services that was not authorized by its governing board or bid competitively as required by law. We described the case at length in an earlier alert, the analysis of which remains valid under the recent Supreme Court decision. Public bodies should take note that companies will expect payment for work completed under a contract even if the contract is “invalid” for technical reasons. 

Restore involved a dispute between a high school district and a construction company over approximately $7 million in work the construction company completed for the school after a fire. The Board of Education for the district never formally authorized the contract and it was not submitted to the competitive bidding process required for such agreements. The only authorizations for the contract were from the Superintendent on an emergency basis and by the chief fiscal officer of a Financial Oversight Panel (FOP) for the board. After the work was completed and a portion of the costs were paid by the district’s insurance company, the district disputed the remaining costs, claiming that the lack of adequate School Code bidding requirements and board approval rendered the contract void form the outset. Restore sought payment based on an equitable theory that allows payment to a person performing services in some cases even if there was no valid contract.

The Supreme Court agreed that Restore was due equitable payment for the work it completed. The court noted that because the FOP had the authority to exercise financial oversight over the District, its approval of the agreement was sufficient to make it valid. The court also pointed to the board’s powers under the School Code to exercise powers necessary to maintain its schools and to expend funds in emergencies in certain circumstances in support of the validity of the contract.

Most importantly, the court held that even when a governmental unit has not complied with its policies and procedures for awarding contracts, it would be unjust to allow the public entity to retain goods or services received without paying a reasonable sum in compensation. Here, the District benefitted from the completion of Restore’s construction work without paying the remaining amount owed, resulting in “a substantial windfall to the District and its taxpayers and a substantial loss to Restore.” Accordingly, payment was appropriate on equitable principles even if there was no valid contract.

For more information about construction or other contract, contact the authors of this post or any other Franczek attorney.