So your company has just landed a terrific contract with the state and the future couldn’t be better. But then it all starts to fall apart and the next thing you know, the state is refusing to pay for work you’ve already performed. You don’t want to ruin your relationship with the state, so you limp along talking to your state contact hoping to work things out. Besides, the state is paying you for some work, just not all of it. But at the end of the contract, the state still refuses to pay for work that you did earlier in the project. Now it’s time to get tough. You’ll just hire a lawyer and sue the state to get the money you are owed right? Wrong!

You cannot sue the state without its permission to bring the suit. And in contract matters, the Legislature has provided an administrative process to resolve disputes on written contracts that you must go through before you can even ask for the state’s permission to sue it. Whether you realize it or not, just by signing a contract with the state you have agreed to use this procedure. There are a few traps of which you should be aware both prior to signing a contract with the state and while performing that contract.

Prior to signing the contract you should be aware that even with the administrative claims process in place, there are limits on what you can recover. You will be limited to the amount still owed on the contract plus the fair market value of any extra work requested by the state and actually performed. You will not be allowed to recover damages for any monetary loss you had due to the state’s failure to perform their end of the contract and you won’t be able to recover any punitive damages even if the state intentionally caused the problem knowing you would be hurt by their actions. And if you can’t prove that the state requested that extra work by having a written change order, you can’t recover anything for that extra work. Lastly, you cannot recover any attorney’s fees you incurred in pursuit of your claim against the state or any home office overhead. If your claim is granted through the administrative process, the state may be ordered to pay you what you are owed up to $250.000.00. But if your award is for more than $250.000.00, you must go to the legislature to seek an appropriation to pay your award.

After you have signed the contract, you should know that you are required to give the state written notice of any claim you have in writing within 180 days of the event that gave rise to your claim. All of those conversations with your state contact don’t count. The written invoice for the work does not count. Your notice of claim must contain a written description of the specific problem that gave rise to your claim, the amount you seek to recover and a statement of the legal theory on which your claim is based. Failure to give this written notice in a timely fashion will keep you from participating in the administrative process, and failure to participate in the administrative process will prevent you from seeking permission to sue the state from the legislature. Without that permission to sue, you will have no legal recourse against the state for breach of your contract.

How do you avoid these problems? Know your rights and remedies before you get started on your next contract with the state.