Illinois Appellate Court Requires School Board to Pay for Services Rendered Under an Invalid Construction Contract

A recent Illinois Appellate Court case appears to have closed a loophole through which some school districts and other public entities have avoided liability for work performed by construction companies under invalid contracts. Although the Illinois Supreme Court has agreed to review the decision, school districts and other public entities should be aware of the potential effects of this case if the decision is upheld.

Restore Construction Company v. Board of Education of Proviso Township High Schools District 209 involved a dispute between a high school district and a construction company for work resulting in approximately $7 million in emergency repairs the company made for the high school after a fire. The repairs were never authorized by the Board of Education or and the contract was not submitted to a competitive bidding process. Rather, the Superintendent first signed a contract with the company. Later, the Board President amended an earlier, Board-approved contract with the company to address the new work; the amendment, however, was not approved by the Board.  Accordingly, neither contract or amendment was competitively bid out or Board approved. 

After paying approximately $5 million to the company for the fire cleanup, the Board refused to pay the remainder due. Relying on earlier court decisions in Illinois holding that a contract cannot be implied “in fact” where the contract was entered into in violation of law, the Board argued that the contracts were void ab initio, or at the start, because they were not entered into in compliance with law, and that no contract could be implied “in fact” without compliance with contractual requirements of the law. 

Here, however, the company sought payment for what it was owed based on equitable principles, not the existence of a valid contract. The Appellate Court held that even though there was no valid contract in place, it would be unjust to allow the school district to retain the company’s services without paying the reasonable value for them. Thus, a contract implied in law could be enforced against the school district.

Prior to this decision through this unusual loophole, public entities could, in some instances, avoid payment for services already provided by third parties. For instance, one case the Appellate Court distinguished in Restore Construction Co. stemmed from work a company performed in excess to the terms of an express contract. In both cases, the company did work that the school district benefitted from, but only in Restore was the school district required to pay for those services. The only distinction appears to be the legal basis under which the company sought relief; in Restore the relief was sought in equity, whereas in the earlier case the company argued that the contract was actually valid.

 The Supreme Court has agreed to review the case, so it remains to be seen if the decision will stand. If it does, however, school districts and other public entities should expect this “loophole” to be closed as companies seeking payment for previously completed work should be expected to proceed under theories of equity instead of contract so that they can rely on the precedent in this case.