Construction Law: The Unique Risks of State Contracting Work
Doing business with the State of Connecticut is not the same as working with a private business. As the economy improves, construction and design firms may reconsider the unique risks on public works projects.
There are two prominent issues that every business working with the state should consider. The state has a sword and shield that private businesses do not have. As a shield, the state has sovereign immunity. Connecticut law imposes strict limits on who can enforce claims against the state and the categories of claims that can be enforced. As a sword, there is virtually no limit on the time within which the state can bring claims. As might be expected, the combination of these sovereign prerogatives puts a private business at a distinct disadvantage when doing business with the state.
For years, it has been well established that the state is immune from suit unless the legislature has expressly provided that they are subject to suit. With some exceptions, §4-142 of the Connecticut General Statutes requires parties to obtain permission from the Claims Commissioner to bring suit. As held by the Connecticut Supreme Court in Envirotest Systems v. Commissioner of Motor Vehicles, 293 Conn. 382 (2009) the state, moreover, cannot waive sovereign immunity by contract unless a statute specifically permits such a waiver.
Statutory waivers of sovereign immunity are narrowly interpreted. For example, G.C.S. §4-61 allows suit by a party who has entered into a "public works contract" with the state. In Department of Public Works v. ECAP Construction, 250 Conn. 553 (1999), the Connecticut Supreme Court determined that a signed agreement between the state and general contractor to settle claims arising from a construction contract was not the sort of public works contract to which §4-61 applies. The general contractor could not compel the state to arbitrate a dispute over the agreement to settle claims as that agreement to settle, although related to the original public works contract, did not arise "under" the public works contract so as to subject the state to the limited waiver of sovereign immunity in §4-61.
A general contractor is also precluded from pursuing, as a conduit, claims asserted by its subcontractors for damages attributable to the state. Rather, the general contractor must first accept and then prove liability for its subcontractors' claims in order for the general contractor to have standing to bring suit against the state. This is characterized as a prohibition on "pass through" claims. As a result, many subcontractor claims which deserve more serious consideration by the state are not pursued, and the state, therefore, is able to avoid liability to a subcontractor for valuable work on a project. Construction attorneys and construction trade groups have over the years unsuccessfully sought a legislative correction to §4-61 to allow fair consideration of "pass through" claims. The state has consistently opposed this effort. State policy should not rely on the state avoiding its financial obligations.
In November 2012, the Connecticut Supreme Court, in State of Connecticut v. Lombardo Brothers Mason Contractors, 307 Conn 412 (2012), confirmed that the common law doctrine of nullum tempus occurit regi (no time runs against the king) remains viable in this state. Simply put, no statute of limitations or repose applies to the state unless the statute specifically states or necessarily implies that it applies to the state. This applies to all claims by the state in any context.
The Lombardo Brothers decision took many in the construction industry by surprise. Nullum tempus means that all participants on a state construction project are perpetually exposed to claims by the state or its subdivisions. This applies to all causes of action, not just breach of contract. If the state perceives that it has a good faith basis for a negligence or products liability claim, there is no time limitation applicable to the state's claim. In the Lombardo Brothers case, the state waited 12 years after project completion to commence suit and assert various contractual and torts causes of action against many project participants, no matter how attenuated a parties' connection to the project might have been. There is no time-based defense—not a statute of limitations, not a statute of repose, not a contractual limitation on the time to bring suit, and not laches—that would defeat claims brought by the state. The state operates unfettered by the time constraints that otherwise bind private parties.
One effect ofnullum tempus is that private business, not the state, bears the risk of errors by state officials. This concept was clearly demonstrated in the Lombardo Brothers decision. One defendant's contract with the state contained a clause that expressly adopted a seven-year period of repose. The court, however, ruled that this contractual provision was unenforceable because the statute authorizing the contract did not grant the state official the authority to waive nullum tempus. As with sovereign immunity, only the legislature can waive or otherwise limit the scope of nullum tempus. This holding makes every contract with the state suspect. Parties cannot reasonably rely upon assurance that state officers are acting within their legislative authority, even (as in the Lombardo Brothers case) when the contract is a form that has been reviewed and approved by the Attorney General's office. This holding could be cited by the state to challenge other contract terms which limit the state's ability to assert claims. The court mandates that private business be wary of the state when entering any contract.
Businesses may face stale claims even if the state does not name them as defendants. Late claims by the state may trigger indemnity claims against third parties. Pursuant to C.G.S. §52-598a, the statute of limitations on an indemnification claim does not begin to run until the date of the judgment or settlement for which the party seeks indemnification. Additional defendants may also be introduced to a torts or contract suit through the operation of §52-102b, the apportionment statute. As a result, a company may find itself one of many defendants in a complex legal dispute relating to activities that took place decades ago. Similarly, the insurer or surety for each business may be subject to a stale claim for a project previously believed to be completed to the state's satisfaction.
There are strong public policies in favor of statutes of limitation and repose. By eliminating protracted and unknown potential liability, they lend certainty to people's affairs and protect against the difficulty in proof and record-keeping imposed by suits involving old claims.
Based on these public policies, even the most heinous offenses are subject to time limitations. The benefits of time limitations would apply in the public construction context as well. Documentary records are too costly to preserve indefinitely. Witnesses disappear. Memories fade. The resolution of stale claims is more likely to be based disproportionately on litigation avoidance rather than on merit. State policy should not rely on nuisance litigation.
Businesses would be unwise to ignore the significant consequences and risks of performing public work. However, it is impossible to accurately value the risk of litigation exposure for an indefinite period of time. No practical document retention policy can account for eternity. A merger with a state contractor may have hidden risks. For any professional (architect, engineer, accountant, lawyer, etc.) performing services for the state, adequate long-term professional liability coverage after retirement may be impossible to obtain.
Other states, including states in the Northeast such as New York, Massachusetts and New Jersey, have adopted statutes of limitations that apply in general to claims by the state or specifically to claims by the state arising out of public projects. To date, Connecticut officials have denied the need to move toward a more level playing field. Unless or until Connecticut finds its way out of the economic downturn, the state may still be able to find ample contractors and designers willing to bear the disproportionate and unique risks of a public construction project. In 2006 and 2007, there were not enough contractors for the construction projects available and prices skyrocketed. As financial conditions improve in neighboring states and throughout the country, contractors and designers may turn away from public work in Connecticut. Perhaps then the legislature will act to correct this unfair situation.•