Why Did California Agency Pay $1 Million if There Was No Contract and Performance Standards Were Not Met?

A California school district and energy conservation contractor are locked in a legal dispute with competing lawsuits over a multi-year energy conservation savings program contract.

2 Lawsuits:  After being hit with a $1.5 million lawsuit from Energy Education, Inc. for unpaid bills and a termination fee, the Sacramento City Unified School District filed a counter suit against the firm. 

What was the District thinking?  The District's defense is somewhat unusual.  The District now claims that the contract is not valid because it was never approved by the school board, and that it was "not properly subjected to the public bidding requirements mandated under the law and that requirements in the contract for termination and unpaid fees are illegal and unenforceable."  All this after the District has already paid the firm almost $1 million since September 2008.  And the District now contends that they never should have paid the firm a performance fee of $23,500 a month because the metrics the firm uses to measure the amount of energy savings is flawed.  They're asking for that money back.

More Information:  Click here to read an April 1, 2012 story from the Sacramento Bee newspaper (published on the Modesto Bee's website) on the dispute.

Lessons Learned:  It will be interesting to see how these lawsuits play out in court.  In the meantime, what can we learn from this situation?

• Selection Process:  Prior to selecting a contractor, public agencies should follow their own requirements for selection.  Such a process should be fair, open, and transparent, and the basis of selection should be clear and consistent with applicable laws and policies.

• Valid Contract:  Both agencies and contractors should pay attention to whether all the appropriate steps and approvals have been received for executing a contract.  Are the parties who signed the contract, in fact, authorized to commit the party?

• Payment Authorization:  Public agencies should not pay a contractor for work not performed, or if the contractor is not in compliance with the performance standards of the contract.

• Checks and Balances:  Does the public agency have sufficient management checks and balances in place to ensure that those responsible for managing the project and authorizing payments are performing their tasks appropriately? 

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

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