I haven’t discussed public construction projects much recently, particularly in the context of procurement in Virginia. If you are a commercial contractor in Virginia and have sought to perform work for the state or one of its subdivisions, you are likely familiar with the Virginia Public Procurement Act (VPPA). This Act controls the means and methods for procurement of goods and services by the various state and local entities in Virginia. Among these services is construction.
A recent case out of the Western District of Virginia highlights the importance of understanding the VPPA by both contractors and the public bodies that hire them. In H.S. Martin Construction Corp. v. Lee County School Board the Court considered a claim for breach of contract against both the Lee County School Board and it’s self insurance pool.
The basic facts are these. Two Lee County, Virginia schools were damaged by weather and needed repairs. The School Board, without following the competitive bidding process outlined in the VPPA, and through its insurance pool, hired H. S. Martin to perform the work. Furthermore, the board, through its insurance pool, paid a majority of the payment applications for the work performed, to the tune of close to $1,000,000.00, upon the prior authorization of the School Board. However, even after these payments were made, H. S. Martin still had outstanding bills totaling approximately $585,000.00. When neither the Board or its self insurance pool paid these final balances, the inevitable suit for breach of contract against the Board and bad faith breach of contract against the self insurance pool under a third party beneficiary theory.
The Court, applying Virginia law, determined that despite the prior course of conduct and the clear direction and intention of the Board to hire and pay H. S. Martin for its work (at least at the time it hired H. S. Martin), H. S. Martin could not collect on the final balances. The Court reasoned that the contract between the Board and H. S. Martin was void ab initio because of the non-compliance with the VPPA. In ruling this way the Court stated:
When a school board attempts to enter into a contract without complying with the VPPA, the school board seeks to exercise powers beyond those granted to it by the General Assembly, and the resulting contract is therefore ultra vires.
The Court therefore dismissed the claims against the Board and using an extension of the same reasoning, against the insurance pool. The Court held that because the underlying contract was void, that any claim for bad faith non-payment pursuant to that contract was void as well. The Court then determined that H. S. Martin was never made a third party beneficiary of the insurance policy. In sum, H. S. Martin did not have a contractual right to payment because the school board failed to follow the VPPA and could use this non-compliance as a shield against payment.
The takeaway? As a construction contractor in Virginia, be sure to double check that the public body asking you to perform work both understands and follows the procurement rules. In the H. S. Martin case, all of the hallmarks of a good contract and a good claim were there, however, the failure of the public body to follow its own rules blew the claim out of the water. Of course a good understanding of the VPPA procurement rules and the counsel of an experienced construction lawyer are key as well.
What are your thoughts on this opinion? Does this reading lead to potential abuse of the procurement process by public bodies? I’d love to hear your thoughts.
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