Municipality Held Not Liable Under Breach of Contract for Additional Unauthorized Work Performed by Contractor

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[author: Maria Mazza]

In a recent decision, the Illinois Supreme Court in Patrick Engineering, Inc. v. City of Naperville, held that a municipality was not liable under breach of contract for additional work performed by a contractor which was not authorized by the city council.

After a public bid, the city entered into a contract with a contractor for work on a project to manage its stormwater. The contract contained a provision for additional services beyond those identified in the contract, which required that any additional services be agreed to in writing by the parties. The provision also stated that if the contractor did not obtain written confirmation of the approval by the city for the additional services, the contractor would not be paid for such additional services.

The contractor performed additional work, however, it did not obtain written approval from the city, as required by the contract, and, instead, it relied upon the verbal representations of two city employees, the strategic services manager and the information technology leader. The city did not pay for the additional services and then the contractor filed suit against the city for payment for such services.

The contractor argued that the doctrine of equitable estoppel applied to bar the city from denying payment for the additional work. The contractor argued that it relied upon the apparent authority and the verbal representations of the city employees that the additional services were approved and would be paid by the city. The doctrine of equitable estoppel applies where a party makes a representation that has been reasonably and detrimentally relied upon by another party; in such a case, the party making the representation is barred from denying it.

While the doctrine has been applied to municipalities, the Supreme Court noted that its application against public entities is limited and will only apply in extraordinary and compelling circumstances. In order for the doctrine to apply to a municipality, the Supreme Court noted that there must be: (1) an act by a municipality (such as legislation) or an act by an official with express authority to bind the municipality and (2) reasonable reliance that induces a party to change its position, based on the party’s inquiry of the official’s authority.

Applying these factors to the present case, the Supreme Court affirmed the trial court’s dismissal of the breach of contract claims against the city, finding that the contactor failed to establish that the city employees had express authority to approve the additional services and that it reasonably relied upon the representations of the city employees.

This decision demonstrates the limited application of the doctrine of equitable estoppel against a municipality and the difficulty contractors will face when attempting to seek compensation for additional services which are not expressly authorized. While the Supreme Court did not opine on whether the decision would apply to other local public bodies, such as school districts, it is likely that a court would apply the same rationale to actions against other local public bodies. Despite this ruling, however, employees of public bodies should only make purchases and accept services from third parties when they have expressed authority to take such actions.