Ruling adds uncertainty for contractors working for governments

By Robert Lawson | Aug 30, 2016

HARRISBURG — It will be more difficult for contractors in Pennsylvania to collect payments and legal fees from local and state government agencies that withhold payment in bad faith after a recent state Supreme Court decision. 

Traditionally, payment disputes that headed to court would be heard by a jury of peers, but in A. Scott Enterprises v. City of Allentown, the ultimate authority on such matters was decided to rest with the court trial judge. 

A jury can still hear the case, according to Matthew Gioffre and Lane Kelman, attorneys for Philadelphia-based law firm Cohen Seglias Pallas Greenhall & Furman PC. They say the decision was based on how the law technically reads as a statute, rather than on its initial intention of creating an even playing field. 

I-99/US 220 near Broad Street, Blair Township, Pennsylvania   Photo by Andrew Bossi

In the case, a jury decided that the City of Allentown acted in bad faith because the contractor that was working on construction of a public roadway accrued more expenses due to a project's contaminated soil that needed to be replaced, which was not tested, and none of this was communicated to the contractor.

A. Scott Enterprises refused to continue work until compensated for the additional work. Even though the jury sided with the contractor, the trial judge refused to award any penalties or attorneys fees to it, rendering the entire jury process virtually meaningless in court for the contractor. 

The attorneys say the decision will now have potential to create an uneven playing field for contractors. 

"The way we see it is, the statute provides for penalties to contractors in the event that a state/government entity acts in bad faith, so it acts as a check when dealing with a private contractor," Gioffre told the Pennsylvania Record

"If you take the power away from a jury of peers and hand it back to the government itself, it creates an uneven playing field and takes the power away from the private contractor."

Kelman explained why this has the potential to create problems for contractors in the state.

"If you choose a jury, you want someone who is distanced from the powers that be," Kelman said. "The Supreme Court said the powers that be make this determination.

Why did the court leave this issue to the discretion of trial court judges?

"This was a matter of statutory interpretation itself," said Kelman. "They found that the way that it is read leaves it up to the court. It could be a trial judge or a jury. It was based on a strict construction of the statute rather than the reason it was created."

This may or may not be bad for contractors.

"This is a case where bad facts made bad law," said Kelman "I'm hopeful that there won't be restrictions on the application of attorneys' fees and costs."

Both Kelman and Gioffre felt confident that contractors in the state will continue to seek state projects and noted that people typically don't expect to be unpaid for the work they do, no matter who the client is. 

"Not a concern at all," said Gioffre. "Folks go where the work is."

Attorneys' fees and other legal costs can certainly add up when heading to court in a dispute over non-payment from an agency and this especially is true for cases like this one. 

"Any jury case like this initially is going to be expensive," Gioffre said. "Appellate court is also expensive. It's expensive but hopefully there are business decisions going in about the risks and the reward."

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