Section 112 of New York’s State Finance Law provides that no contract with the State which exceeds $50,000.00 is considered effective prior to its approval by the State Comptroller. This statute was enacted to prevent state employees from making improvident or extravagant contracts and from creating liabilities for which there was no appropriation. Section 112 has been held to apply to a wide variety of contracts, including construction contracts.
In the recent case of C&L Electric, Inc. v City University of New York, an appellate court used Section 112 of the State Finance Law to deny a contractor a recovery on that portion of a delay claim which pre-dated the State Comptroller’s approval and filing of the contract.
In 2001, C&L Electric, Inc., was notified that it was the successful bidder on a project to install a fire alarm system throughout four buildings of the City University of New York’s1 New York City Technical College in Brooklyn. C&L went to work on the project at some time after May 3, 2002, the date on which C&L sent a notice to CUNY complaining of the long delay in awarding the contract. In 2007, C&L submitted a request for an extension of time from April 4, 2004 to December 31, 2007, citing, amongst other delays, the delay in the start of the project. This extension of time was approved, but with the caveat that CUNY was still evaluating the delay claim change order. Ultimately, C&L’s contract was terminated by CUNY for reasons unrelated to the delay claim, and C&L sued on its delay claim, among others.
The State moved for summary judgment dismissing C&L’s lawsuit on various grounds. As to the delay claim, the State argued that it was barred by the “no damages for delay” clause in the contract. The lower court denied the motion, finding that there were questions that had to be resolved by a jury as to whether the facts of this matter fit into one of the four categories where damages are permitted even in the face of a “no damages for delay” clause (delays resulting from bad faith or grossly negligent conduct on the part of the owner; uncontemplated delays; delays so unreasonable that they amount to an abandonment of the contract; and delays resulting from the breach of a fundamental obligation of the contract). The State appealed.
On appeal, the appellate court upheld the lower court’s finding that there was an issue to be resolved by a jury. However, that court modified the lower court’s order to apply Section 112 of the State Finance Law, holding that claims for any delays which arose prior to September 26, 2002, the date on which the contract was approved and filed by the State Comptroller, were subject to dismissal. The appellate court also rejected C&L’s argument that the parties’ course of conduct indicated a waiver of the statutory protection, citing to well established case law holding that “employees of a state agency cannot, through words or a course of conduct, bind the State to a contract that the Comptroller has not approved”.
As this case demonstrates, no rights exist under a contract which has not been approved by the State Comptroller, as that contract does not legally exist before such approval. While the State here did not make an issue of its obligation to make payment of the base contract balance for work performed prior to the contract’s acceptance date, there is case law that holds that because there is no legally existing contract, the State has no obligation to pay for such work either under a contract or an unjust enrichment theory.
While state agencies are often anxious to get their construction projects under way, and while they typically do not weaponize this statutory provision to disclaim the obligation to pay for work performed in good faith prior to the formal acceptance and filing of the contract, know that in the event that a litigated contract dispute arises this shield is available to the state. A contractor would be well advised to make inquiries with the state agency and the State Comptroller’s office as to the status of the Comptroller’s acceptance of the contract so that they can be sure that they are working under a valid and enforceable agreement.
1 The City University of New York is a part of the State University of New York system and, thus, a State, not a City, entity.