Commonwealth Court Affirms Dismissal Of Late-Filed Claim With The Board Of Claims

In a recent, unreported decision, the Commonwealth Court of Pennsylvania affirmed the dismissal by the Board of Claims (Board) of a late-filed contractor claim. Under the Board’s jurisdictional statute, 62 Pa. C.S. § 1712.1(e), a formal statement of claim must be filed with the Board, either within 15 days of the mailing date of a final determination denying a claim, or within 135 days of the filing of a claim, whichever occurs first. Read more

Posted on July 19, 2016 by Christopher I. McCabe, Esq. in Board of Claims, DGS Comments Off

Pa. Board Of Claims Will Continue To Hear Non-Procurement Code Contract Claims

Does the Pennsylvania Board of Claims have jurisdiction to decide all “contract” claims against the Commonwealth of Pennsylvania? Prior to 2002, the Board did have such jurisdiction, without question. However, since 2002, with the passage of Act 142, the Board has been faced “with a constant series of jurisdictional challenges” on grounds that its enabling provisions, now contained in the Procurement Code, limit its jurisdiction only to claims under Procurement Code contracts.

In a decision issued on September 11, 2013, the Board said it could and would continue to hear claims arising under non-Procurement Code contracts, even while it declined to hear the particular non-Procurement Code contract claim before it. The Board found that it was required to read its jurisdictional statute broadly “so as to acknowledge the Board’s historical purpose, serve the public interest and avoid the potential for disruption to existing Commonwealth business and commercial interests should the validity of its non-Procurement Code contractual relations be called into doubt.” In its ruling, the Board said that it did not believe that the General Assembly intended to radically alter the Board’s jurisdiction. The Board agreed that restricting its jurisdiction to Procurement Code contracts only “could potentially threaten to disrupt several significant commercial and economic relationships enjoyed by the Commonwealth outside the Procurement Code arena.” The Board also pointed out that the legislative history of the 2002 amendments did not contain any discussion regarding modification of sovereign immunity coverage for contract claims against the Commonwealth.

Indeed, the Board went so far as to proclaim that: “We believe the circumstances … provide strong indication that the General Assembly did not intend to materially change the Board’s function, the scope of sovereign immunity or the long-established public policy served by the Board.” The Board also found that a broad reading of its jurisdictional mandate “ultimately serves the best interest of the Commonwealth by providing parties contracting with a Commonwealth agency assurance that it may rely upon the agency to fulfill its obligations as well, avoiding the economic disruption that may result from public knowledge of a contrary holding.”

The Board’s decision came in the context of a claim involving a loan made by a Commonwealth agency. In August 2011, Telwell, Inc., filed claims in the Court of Common Pleas of Philadelphia County against Public School Employees’ Retirement System (PSERS). Telwell claimed that it was owed $500,000 in overpaid interest on a loan made to it by PSERS. The claim stemmed from the fact that the loan commitment and the note recited different interest rate terms. The claim was eventually transferred to the Board of Claims.

When Telwell filed for summary judgment, PSERS raised the issue of the Board’s subject matter jurisdiction. PSERS claimed that Board’s jurisdiction did not extend to claims arising from a loan made by a Commonwealth agency. PSERS further argued that it enjoyed the defense of sovereign immunity. PSERS’s position derived support from the 2002 amendments to the Procurement Code which codified the Board of Claims by moving its jurisdictional provisions into the Procurement Code. Thus, the Procurement Code, at 62 Pa.C.S. § 1724(a), now arguably limits the Board’s jurisdiction to claims arising from a “contract entered into by a Commonwealth agency in accordance with this part…” This “part” is a reference to Part I of the Procurement Code. Section 102(f.1) of the Procurement Code further provides that “[t]his part does not apply to loans.” Again, this “part” is a reference to Part I of the Procurement Code. On the other hand, section 1724(c) of the Procurement Code extends the Board’s jurisdiction to “a contract entered into by a Commonwealth agency involving real property interests in which the Commonwealth agency is the respondent.”

Telwell conceded that its claim was not based on a Procurement Code contract, but it argued that the Board needed to retain jurisdiction over claims arising from all contracts with the Commonwealth. While the Board agreed with many of Telwell’s arguments (as noted above), the Board ultimately sided with PSERS, relying primarily on section 102(f.1) of the Procurement Code which explicitly exempted “loans” from its purview, and, by extension, from the Board’s jurisdiction. The Board did not see any neat way around this unambiguous and blanket exclusion. Nonetheless, in doing so, the Board acknowledged the far reaching and potentially disastrous ramifications of a ruling that it could not hear any claims under any non-Procurement Code contracts, noting that, if a contract claim does not fall within the Board’s jurisdiction, then there is no exception to sovereign immunity and no possibility of redress against the Commonwealth.

While the Board expressed its firm view that it could continue to hear non-Procurement Code contract claims, it appears certain that contract claims arising out of Commonwealth loans cannot be heard by the Board. This in and of itself is a far reaching decision. Moreover, there is no guarantee that Board’s expansive view of its jurisdictional legislation will be supported by the courts.

Thus, for this reason and more, the ruling in Telwell is potentially foreboding. A party obtaining a loan from the Commonwealth or a Commonwealth agency is now suitably forewarned – there is no remedy for a breach by the Commonwealth. Moreover, any party entering into a non-loan contract with the Commonwealth or a Commonwealth agency, but outside the purview of the Procurement Code, would be wise to look both ways, and think twice. If the Commonwealth breaches such a contract, and the contracting party is damaged, the contracting party may well be out of luck, without any recourse or remedy if the arguments in favor of limiting the Board’s jurisdiction hold sway with the Commonwealth Court or the Supreme Court. Section 1724(b) of the Procurement Code may provide some relief to parties contracting with the Commonwealth. This subsection gives the Board jurisdiction to arbitrate claims arising from “[a] written agreement executed by a Commonwealth agency and the Office of Attorney General in which the parties expressly agree to utilize the board to arbitrate disputes arising from the agreement.” If the contract is an non-Procurement Code contract, the contracting party should insist that the Commonwealth agency and the AG’s office sign off on using the Board of Claims to hear claims. This would arguably effectuate a waiver of sovereign immunity.

The Board of Claims decision can be found here.

A hat tip and thanks to West Chester attorney, Paul Drucker, Esq., who brought this decision to my attention.

Posted on November 13, 2013 by Christopher I. McCabe, Esq. in Board of Claims, Procurement Code Comments Off

Pa. Board of Claims Retains Exclusive Jurisdiction For State Contract Claims

I recently posted about a not-so-recent December 2011 decision in Scientific Games International Inc. v. Commonwealth of Pa., Department of Revenue, where the Pa. Commonwealth Court held that it had original jurisdiction to hear state contract claims seeking non-monetary relief. Well, it turns out that the Commonwealth Court was wrong. So, forget everything I wrote.

In a decision issued on March 25, 2013, the Supreme Court of Pennsylvania reversed the Commonwealth Court and held that claims arising from state contracts can be brought only in the Pa. Board of Claims. In its decision, the Supreme Court wrote that:

… we conclude that the Commonwealth Court erred in interpreting Section 1724(d) [of the Procurement Code] so broadly as to sanction original-jurisdiction actions in a judicial tribunal over nonmonetary claims against the Commonwealth.

***

On account of the doctrine of sovereign immunity, however, contractors, bidders, and offerors have limited recourse and remedies. Relative to controversies in matters arising from procurement contracts with Commonwealth agencies, the Board of Claims retains exclusive jurisdiction (subject to all jurisdictional prerequisites), which is not to be supplanted by a court of law through an exercise of original jurisdiction.

The full Supreme Court decision can be found here. The factual background for the Court’s decision can be found in my earlier post.

Posted on April 2, 2013 by Christopher I. McCabe, Esq. in Board of Claims, Court Decisions, Procurement Code Comments Off

Commonwealth Court Can Hear State Contract Claims For Non-Monetary Relief

[UPDATE: The case discussed in this post is no longer valid. The Supreme Court has overruled the Commonwealth Court.]

Despite common misperception, the Pa. Board of Claims is not the exclusive forum for all state contract claims.

In a decision from December 2011, Scientific Games International Inc. v. Commonwealth of Pa., Department of Revenue, the Pa. Commonwealth Court held that it has jurisdiction to hear state contract claims seeking non-monetary relief. The decision concerned an RFP issued by the Department of General Services (DGS), on which there were two bidders, GTECH, the incumbent contractor, and its competitor, Scientific Games. Scientific Games was awarded the contract, which it executed (DGS did not execute contract). GTECH then protested. The protest was rejected by DGS and was also found to be in bad faith. Nevertheless, DGS canceled the RFP, stating that the cancelation was in its best interests.

Scientific Games then filed a complaint in the Commonwealth Court, claiming that it had a contract with the state and seeking specific performance of the contract and other non-monetary relief. DGS filed objections to the complaint, arguing that the Board of Claims had exclusive jurisdiction over state contract claims and that Scientific Games had an adequate administrative remedy.

The Commonwealth Court rejected the arguments of DGS that the Board of Claims has exclusive jurisdiction of all claims arising out of state-issued contracts. The Commonwealth Court relied upon a provision in the Pa. Procurement Code concerning the jurisdiction of the Board of Claims which states: “Nothing in this section shall preclude a party from seeking nonmonetary relief in another forum as provided by law.” The Commonwealth Court also held that the administrative remedies did not apply as the relief being sought by Scientific Games was non-monetary in nature.

This decision allows state contractors another potential forum for determination of their contract disputes with the state, provided, of course, that the disputes do not seek a monetary payment from the state.

The full court decision can be found here.

Posted on February 5, 2013 by Christopher I. McCabe, Esq. in Bid Protests, Board of Claims, Court Decisions, DGS, Procurement Code Comments Off

When A Claim Is Not A Claim

When is a claim not a claim? When it’s not.

In K-B Offset Printing, Inc. v. Department of General Services, a not-so-recent unreported decision, the Pa. Commonwealth Court held that a letter sent by a contractor to the Pa. Department of General Services and asserting entitlement to more than $1 million in contract underpayments did not constitute a “claim,” as that term is defined in the Pa. Procurement Code. As a result, the contractor was barred from pursuing its claim before the Pa. Board of Claims due to its failure to exhaust administrative remedies. (Under the Procurement Code, a contractor must first file a claim with the contracting officer before it can proceed before the Board of Claims, and the claim must be filed within six months of the date it accrues.)

A five-year contract between K-B Offset Printing and the state had expired in May 2011. An audit by K-B discovered that K-B was entitled to additional compensation, due to contractual price adjustments that were to occur every six months but were never implemented. In June 2011, K-B sent a letter to DGS demanding the underpayments. While DGS conceded that it had not made the necessary price adjustments, DGS refused to recognize the K-B claim to additional payments, basing its decision on its belief that K-B’s claims were barred by a six-month statute of limitations.

K-B then filed a claim with the Board of Claims. DGS objected, claiming that the Board lacked jurisdiction because K-B did not first exhaust its administrative remedies by filing a claim with the contracting officer. The claim was then dismissed by the Board of Claims. On appeal, the Commonwealth Court accepted DGS’s argument that K-B’s claim was not ripe because K-B did not first file a claim with the contracting officer before it proceeded with filing its claim with the Board of Claims. The Commonwealth Court held that K-B’s June 2011 letter was not a “claim,” and that K-B’s claim for the additional payments did not accrue until DGS sent the July 2011 letter which stated that DGS would not make any further payments. The Court rested its holding on a rule of the Supreme Court that a “claim” does not accrue until a claimant is affirmatively notified that it will not be paid by the Commonwealth.

At first blush, the court’s reasoning appears to be a monumental splitting of hairs. K-B sends a letter to DGS demanding more than $1 million as a matter of right under a contract. That looks and sounds like a claim. DGS then sends a letter conceding that it goofed on the pricing adjustments, but refusing to pay any more money to K-B due to a legal technicality. That looks and sounds like a denial of a claim. Nonetheless, the Commonwealth Court holds that a “claim” must still be filed with the contracting officer, even if such a claim is identical to the first letter and is doomed to ultimate failure. However, the first letter was not a claim because at that time DGS had not yet stated that would not pay K-B the underpayments. Until that statement was made by DGS, there was no “claim” that could be filed and pursued.

The moral of the story? File the paperwork, and dot your i’s and cross your t’s, even if the claim is pre-destined to be rejected and doomed to failure. The Commonwealth Court has now made it abundently clear that even a pointless gesture must be pursued in order to perfect a claim before the Board of Claims.

The K-B Offset court decision can be found here. Read it and be forewarned.