Contractor Denied Payment For Work Performed Because Contract Violated Virginia Public Procurement Act

Imagine doing emergency repair work worth over $500,000 for a school board, only to have the school board later take the position that it had illegally contracted with you, and so was not going to pay you for your work. Shouldn’t there be some way for you to get paid? Recently, a Federal Court in Virginia said no.

The case is H.S. Martin Construction Corp. d/b/a Insurance Claims Construction Services v. Lee County School Board, decided by the U.S. District Court for the Western District of Virginia last month. It involved work done by H.S. Martin in 2014 and 2015 for two schools in Lee County, Virginia to address storm damages.  The School Board has contracted H.S. Martin to perform mitigation and reconstruction work, including repair of the schools’ roofs.  The School Board and its insurance company authorized the contractor to perform the work.  The School Board even signed a document entitled “Authorization to Pay,” specifying that any insurance proceeds could be paid to the contractor.

The contractor performed the work as requested and received partial payment from the insurance company.  As the work progressed, however, the insurance company refused to authorize further payments to the contractor, and $500,000 was not paid to H.S. Martin; who then sued the School Board, the insurance company, and others for the unpaid amounts.

The School Board and the insurance company moved to dismiss the claim because the contract for the work did not comply with the Virginia Public Procurement Act (VPPA), which requires public bodies to conduct competitive sealed bidding for construction contracts.  Noting that a school board can exercise only “those powers expressly granted by the General Assembly,” the court found that the School Board had no authority to enter into the contract unless it complied with the VPPA, even though it had expressly authorized the work.  (It also appears that the School Board did not comply with the VPPA’s procedure for authorizing emergency work.); and the court then dismissed the claims against the School Board and the insurance company even though it acknowledged that the School Board may have received work for which it did not pay.

While seemingly a very harsh result, this case further illustrates the complexities, and risks, of government contracting; and the need to understand, and strictly follow, Virginia’s procurement requirements.