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Judges rule in favor of state in contract dispute

July 17, 2012

The Indiana Court of Appeals reversed a trial court judgment against the state in a lawsuit filed by a subcontractor working on an airport project in Gary, holding the lower court erroneously determined the state had breached a contract between it and the subcontractor.

Subcontractor Continental Electric Co. sued the State of Indiana Military Department, State Armory Board of Indiana and Gov. Mitch Daniels for breach of contract and quantum meruit. The Indiana Military Department hired Larson-Danielson Construction Co. as contractor. Continental submitted a bid to Larson for $1,794,660 to “furnish and install the labor, material and equipment necessary for the electrical portion of the above project.”

At dispute is an alternative known as Alternate No. 2 relating to the installation of a generator at the facility and what was included in the bid. Continental contended to Larson that it included all labor and materials associated with the generator in its bid and that the company would need a change order of $207,000 because this was the amount above the cost for the generator quoted to Continental at the time of the bid.

After trying to resolve the dispute with the state to no avail, Continental sued the state actors, claiming it performed all work under the contract and hadn’t been paid all of the money owed. Continental also made a claim for quantum meruit, claiming the government accepted the benefits it provided, despite the opportunity to decline them, and that Continental had not been paid. It also argued it was denied due process because Daniels refused to respond to an appeal by Continental even though the main contract between Larson and the government provided a remedy and appeals process.

The trial court ruled Continental was allowed to recover under its unjust enrichment claim, that the state was in breach of contract by refusing to participate in the administrative appeal, and it awarded Continental nearly $207,000 plus costs.

The Court of Appeals found there was no contract between the state and Continental, so the lower court erroneously ruled the state breached a contract between the two. Any remedy Continental sought had to be against Larson as general contractor.

The judges also found there was no showing the state unjustly retained a benefit without paying for it. Despite what Continental claimed, there was no confusion in the main contract about what was or was not to be included in the agreement regarding the generator.

 

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