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Construction Alert: Warning To Those Contracting With Public Entities In Maryland – Harsh Ruling Will Stand Against Design Firm Denied Payment For Requested Additional Services

January 2012

By: Scott Patrick Burns

In September 2011 the Maryland Court of Special Appeals issued a wake up call to the unwary who perform work for public entities but fail to strictly follow contractual and procurement requirements. In short, the Court made it clear that performing work outside of the original scope of a contract without formal approval is a recipe for disaster - or at least, a recipe for nonpayment. Unfortunately for those who deal with public entities, the Maryland Court of Appeals recently refused to review the Court of Special Appeals’ decision leaving in place a dangerous trap for the naïve or uninformed. For those planning to work with public entities in 2012, here are some tips to avoid the trap, preserve good working relationships, and get paid for your efforts.

In September 2011, the Court of Special Appeals issued its decision in Baltimore County, Maryland v. AECOM Services Inc. and with it sent a chill down the spines of all contractors who deal with public entities. The case involved a dispute between Baltimore County and DMJM H&N, Inc., now known as AECOM Services Inc. ("DMJM"), over design services performed in connection with the Baltimore County Detention Center expansion. Dissatisfied with completion delays, Baltimore County filed suit against DMJM seeking damages for breach of contract and negligence. Still owed significant amounts for services that had been provided to the County, DMJM filed a counterclaim seeking payment for services provided under the "base contract" and for additional services that were requested by the County, but which fell outside the scope of the base contract. After trial, the jury decided that DMJM was not liable to the County. On the other hand, the jury determined that DMJM was owed a substantial amount by the County for work performed. The jury awarded DMJM damages of $1,653,600. Approximately a million dollars of the jury’s damage award was for "additional services" that were not part of the base contract.

Unfortunately for DMJM, the County wanted the benefit of the additional services at no charge and therefore argued on appeal that it could not be required to pay for additional services because there had been no "formal" contract amendment approved by the County Council. Thus, the appellate issue that should be of interest to all who do work for public entities was whether DMJM was entitled to payment for additional work that was requested and provided, but which never became part of a formal contract amendment approved by the Baltimore County Council.

The Court of Special Appeals reversed the jury’s award, deprived DMJM of payment for the additional services performed, and left Baltimore County the beneficiary of hundreds of thousands of dollars of "free" additional services. In doing so, the Court of Special Appeals relied on the Baltimore County Charter and a strict interpretation of the underlying contract documents. The Court explained that its admittedly harsh ruling was supported by the underlying contract documents which required written authorization to obligate the County to pay for additional services, the County Charter which required County Council approval of amendments, and prior case law that supported the conclusion that the County "may contract only by the method prescribed by the law." In other words, a public entity’s informal approval or instructions to perform additional services will not support a claim for payment in the absence of a formal contract amendment. As a practical matter, the Court of Special Appeal’s decision seems to ignore the realities of many construction projects where changes impacting total costs are frequent and delays can be costly.

Nonetheless, the lesson for those who deal with municipalities is simple – know your documents and the law! When dealing with a public entity, even those who act as agents or officers of a municipality might not have the legal authority to authorize additional work, or more importantly, authorize payment for additional work. Unfortunately, contractors who proceed on informal requests because they believe they are fostering client relations or simply keeping a project on schedule may find themselves working for free.

For a copy of this case or more information about construction related litigation, contact Scott Burns.

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