The Colorado Town of Dillon recently won a case in the Colorado Court of Appeals that might spell disaster for some Colorado public works contractors.
From the published opinion of the Court it appears that a contractor contracted with Dillon for street improvement work. The contract price was slightly under $300,000. During progress, the town requested several changes which increased the contract sum to over $380,000. The contractor was paid nearly $300,000. The $80,000 balance was not paid and the contractor sued.
The Town of Dillon unleashed a somewhat obscure provision of the Colorado state budget laws applicable to local governmental entitles. It found a statute which provided that contracts were void to the extent that the amount contracted for by the municipality exceeded the amount it had formally appropriated for the particular project. Dillon's town council had only appropriated $150,000 for that particular paving project.
Accordingly, the Town denied owing the contractor anything. Instead, it sought to recover back its claimed overpayment of $150,000.
The trial court ruled that Dillon did not have to pay the balance owed to the paving contractor because of the statutory provisions which invalidated any agreement to pay more than the appropriated dollar amount.
The result: the contractor was denied full recovery for approved change orders to his contract and may have even been denied recovery of his original full contract price. The Colorado Supreme Court has refused to . reconsider the ruling and it now stands as the law of this state.
The particular case involved is F.J. Kent Corp. v. Town of Dillon, 648 P.2d 669 (Colo. App. 1982), and the statutory provision is Section 29-1-1 13 of the Colorado Revised Statutes.
Unless the statutory provision is amended by the Colorado General Assembly, contractors doing certain local government work in this state must take special precautions. The solution?
First, before entering into a contract with a Colorado local governmental body, contractors should: 1 ) determine the present law as related to appropriations by the particular governmental unit involved, and if the above-mentioned law applies, follow the steps below,
(2) require that the governmental agency provide a certified copy of the ordinance or resolution making appropriation for the particular work involved,
(3) assure that the appropriation covers the contract dollar amount,
(4) request that the contract documents require the owner to adopt necessary ordinances or resolutions to increase appropriations as necessary if contract increases (extras) are proposed, and
(5) do not perform any additional work without a signed change order AND a certified copy of a resolution or ordinance appropriating sufficient monies for payment of that change order.
The penalty for a failure to carefully follow the above steps may spell disaster for the contractor.