Public construction work can be attractive to contractors, especially in a down economy, because the payments are considered more secure than with private work. One major pitfall of public work, however, is that the legal recourse available to contractors against a governmental entity is oftentimes more limited than the remedies contractors have against a private owner. In a recent case against the Commonwealth of Pennsylvania (“Commonwealth”), a gaming company, Scientific Games International (“SGI”), learned the hard way that taking legal action against the Commonwealth is difficult.

The difficulty contractors face stems from a legal principal called “sovereign immunity.” Sovereign immunity means that a government entity, like the Commonwealth, cannot be sued except under very limited circumstances that are determined by the Legislature. For example, if a contractor is not being paid for work in accordance with its contract with the Commonwealth, the contractor may (after going through an administrative claim process) sue the Commonwealth for breach of contract only because the Legislature expressly created this remedy in the Commonwealth Procurement Code.

In Scientific Games International, Inc. v. Commonwealth of Pennsylvania, the Commonwealth solicited bids for the design, installation, and maintenance of a statewide computer system to monitor slot machines at gaming venues. After bids were opened and evaluated, the Commonwealth selected SGI for the award and began to negotiate a contract with SGI. Before contract documents were fully executed (the final draft of the contract had been signed by SGI but not by the Commonwealth), the Commonwealth cancelled the award, noting that the cancellation was “in the best interests of the Commonwealth.” SGI sued the Commonwealth in the Commonwealth Court of Pennsylvania seeking an order from the Court declaring the contract enforceable and preventing the Commonwealth from canceling the contract.

Ultimately, the Supreme Court of Pennsylvania considered the issue and dismissed SGI’s case because the Commonwealth’s Procurement Code does not allow bidders to challenge award cancellations if they have not yet entered into a fully executed contract. The Procurement Code specifically provides that “[a]n invitation for bids, a request for proposals or other solicitation may be canceled, or any or all bids or proposals may be rejected, at any time prior to the time a contract is executed by all parties when it is in the best interests of the Commonwealth.” In other words, since the Procurement Code states that cancellations cannot be challenged without a fully executed contract, the Commonwealth is immune from legal challenges. This provision of the Procurement Code can have harsh effects on awardees that have signed their contracts but are simply waiting for the various Commonwealth Agencies and officials (e.g., the Department of Revenue, the Commonwealth Comptroller, the Office of Chief Counsel, the Office of General Counsel, and/or the Office of the Attorney General) to fully execute the contract.

In addition to confirming the Commonwealth’s ability to cancel solicitations and awards without challenge, the Supreme Court of Pennsylvania also held that even if SGI was permitted to bring this lawsuit against the Commonwealth, it did so in the wrong forum. The Supreme Court concluded that SGI should have filed its case with the Commonwealth Board of Claims because the Commonwealth Procurement Code requires all claims arising from contracts with the Commonwealth and/or its agencies to be brought before the Board of Claims.

For contractors, this case should serve as a lesson that their legal rights are significantly limited without a fully executed contract, especially in the public contracting arena. In fact, the Uniform Electronic Transactions Act provides that if a law requires a signature, an electronic signature satisfies the law. Electronic signatures have become an acceptable means for the Commonwealth to execute its contracts, which can be a good way to expedite contract execution. Contractors are well advised to be respectfully vigilant during the contract execution phase. As demonstrated in the SGI case, if the Commonwealth decides to cancel the award before signing the contract, the contractor’s ability to challenge the Commonwealth’s actions is weakened considerably. Following an award, contractors should strive to negotiate quickly and efficiently and urge the Commonwealth to execute the contract as quickly as possible.