Follow the Rules or Lose: Claims and Disputes on City of Chicago Construction Projects

August 12, 2019 Publications

By:  Mark Noth

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The City of Chicago’s Chief Procurement Officer (“CPO”) decides contract claims on City construction projects.  The CPO renders her decision through an administrative proceeding, where the City acts as opposing party and judge.  If a contractor disputes the CPO’s decision, the contractor may, as its exclusive judicial remedy, file a common law writ of certiorari in the circuit court.  The purpose of a writ of certiorari is to have the administrative record brought before the court to determine, from the record alone, whether the CPO proceeded according to the law.

But this is a limited remedy.  The law does not permit the court to review anything outside the administrative record.  In other words, if you do not raise a fact, argument, defense, or objection before the CPO, you cannot raise it in court.  Furthermore, the court must apply substantial deference to the CPO’s findings.

Because judicial remedies are so limited, it is imperative that contractors scrupulously comply with the applicable claim and dispute resolution requirements.  In addition to providing a synopsis of the applicable requirements, this article provides a cautionary tale for the unwary contractor.  Know the rules—and follow them.  If you don’t, you may suffer drastic consequences.

I.    An Overview of Claim and Dispute Requirements on City of Chicago Projects

The City uses standardized construction contracts.  The contracts vary depending on the procuring agency or funding source, but they generally include the same claim and dispute provisions.  These provisions must be read in conjunction with the City’s Regulations for Resolution of Disputes Between Contractors and the City (the “Dispute Regulations”).  Together, the contract and the Dispute Regulations set forth the procedures a contractor must follow to prosecute claims.

Contractor Must Comply with Initial Notice and Claim Requirements

Contractors must satisfy initial notice requirements and timely elevate claims to the appropriate person.  Contractors satisfy initial notice requirements by submitting a written claim to the City’s resident engineer or project manager (the “Commissioner’s Representative”) within 14 days after the basis for the claim arises.  If the contractor and the Commissioner’s Representative cannot promptly resolve the claim, the contractor must submit the claim to the head of the procuring agency (the “Commissioner”).[1]  The Commissioner has 30 days to respond to the claim.  If the contractor disagrees with the Commissioner’s resolution or denial, it may, within 10 days of the resolution or denial and no later than 120-days after expiration of the contract, invoke the dispute resolution procedures by submitting the claim to the CPO.[2]  The City has 15 business days to respond and submit its own materials to the CPO.

These notice requirements and timeframes are not suggestions.  The CPO (and the courts) strictly enforce these requirements, even if enforcement results in dire and seemingly unfair consequences.

CPO Renders a Final Decision

The CPO then proceeds to render a final decision on the claim.  The CPO may decide the dispute based solely on the written submissions of the parties.  The written submission may be a contractor’s only shot at proving its claim, so it is critical that contractors take this submission seriously and present a persuasive, well-drafted claim that includes all supporting arguments, defenses, and project documents.

The CPO may, upon the request of either party, meet with all or some of the parties to obtain information not available in the written submissions or to better understand the parties’ positions.  If the CPO grants a meeting, she presides over the proceedings like a judge, wielding significant authority.  She may meet with either party separately, or in the presence of another party.  She may question the parties in any order.  And, she may even permit the parties to question each other.  The parties may be represented by counsel during the proceeding, but the formal rules of evidence do not apply.

The CPO will render a final decision within 60 days of the hearing or the City’s response to the contractor’s submission, whichever occurs last, unless the CPO needs an additional period to prepare the decision.  The CPO’s decision is conclusive, final and binding.  If either party disagrees with the CPO’s decision, they may, as their exclusive remedy, file a common law writ of certiorari.  A party waives its right to seek judicial review if it fails to file the writ within 35 days of the CPO’s decision (under the form contracts) or within 30 days of the CPO’s decision (under the Dispute Regulations).

Judicial Review on Writ of Certiorari is a Limited Remedy

Judicial review on a writ of certiorari is limited.  The court reviews the record of the administrative proceeding and determines, from the record alone, whether the CPO proceeded according to the applicable law.[3]  If the court finds that the CPO proceeded according to the law, it quashes the writ.  If the court finds that the CPO did not proceed according to the law, it quashes the CPO’s decision.[4]  In making this determination, the court reviews the record of the administrative proceeding.  It may not consider evidence outside the record, and the record can only be supplemented to include records that were present during the proceeding and omitted from the filed record.  In addition, the court must apply substantial deference to the CPO’s findings.  It cannot quash the decision unless it determines that (a) the CPO’s findings of fact were against the manifest weight of the evidence; (b) the CPO made a mistake of law (based on de novo review); or (c) the CPO’s application of the facts to the law was clearly erroneous.

Again, the importance of the written claim submission cannot be stressed enough.  Courts will not look beyond the written submissions of the parties and the administrative record when determining whether the CPO proceeded according to the law.

1. In My Baps, the Courts Confirmed the CPO’s Denial of a Six-Million-Dollar Claim Based on the Contractor’s Failure to Comply with the Claim and Dispute Resolution Requirements

In My Baps Constr. Corp. v. City of Chicago, 2017 IL App (1st) 161020, 87 N.E.3d 987, the appellate court affirmed the orders of the circuit court and confirmed the CPO’s denial of a contractor’s six-million-dollar claim.  My Baps involved a dispute on two CDOT projects for the construction of alleyways.  The project scope included removal of existing alley pavement and construction of new alleyways.  Before awarding the contract, bidders submitted a schedule of prices for each line-item of work specified in the bid package.  The bid package included three line-items for excavation: line-item 2, Earth Excavation, line item 3, Special Excavation, and line-item 49, Alley Pavement Removal and Subgrade Preparation.  Line-item 49 required special precautions during excavation works and carried a substantially higher unit-price.

The dispute arose because the City disagreed with My Baps’ claim that it was entitled to payment for the removal of existing alley pavement under line-item 49.  CDOT’s resident engineer maintained that the lower-price line items applied.  My Baps engaged in informal negotiations with the resident engineer sometime in 2008 and 2009, but the resident engineer refused to pay My Baps under line-item 49.  My Baps then engaged with CDOT’s deputy commissioner.  Unable to obtain relief through discussions with the deputy commissioner, My Baps submitted a written claim to the deputy commissioner on November 4, 2009, over a year after the resident engineer first refused payment under line-item 49.

“[H]aving exhausted its efforts to resolve the matter with the Commissioner’s representative,” My Baps submitted the claim to the CDOT Commissioner on September 20, 2011.  The Commissioner denied the claim on procedural grounds and on the merits.  Procedurally, the Commissioner found that My Baps failed to comply with the 14-day initial notice requirement.  The Commissioner reasoned that the basis for the claim arose when the resident engineer first rejected payment under line-item 49 (presumably in 2008) and that My Baps’ initial claim submission came well after the 14-day time frame.  The Commissioner also noted that My Baps submitted the claim to the wrong person.  The contract required My Baps to initially submit a written claim to the resident engineer.  My Baps never did this.  Its initial submission went to the deputy commissioner, a position not contemplated by the contracts.[5]  The Commissioner also rejected the claim on the merits, but that discussion is beyond the scope of this article.

After the Commissioner rejected the claim, My Baps forwarded the claim to the CPO on October 28, 2011.  She too denied the claim on procedural grounds and on the merits.  The CPO’s procedural denial echoed the Commissioner’s denial, but she also found that, in addition to failing to comply with the initial notice requirements, My Baps failed to submit the claim to the CPO by the 120-day contract expiration deadline.  The record indicated that the contracts expired on December 31, 2010.  My Baps never objected to the contract expiration date.  Therefore, My Baps was required to submit its claim to the CPO by April 30, 2011.

My Baps timely filed a three-count complaint in the circuit court of Cook County.  Count I sought a writ of certiorari.  Counts II and III sought damages for breach of contract.  My Baps also raised due process claims.  It argued that it was denied due process because (a) the CPO issued its decision without holding an evidentiary hearing; and (b) the CPO was not an impartial decision-maker.

The City filed a motion for summary judgment on the breach of contract claims, arguing that My Baps’ exclusive remedy was the writ.  The circuit court agreed and dismissed those counts before quashing the writ entirely.  During the proceedings, the circuit court: (a) rejected My Baps’ request to supplement the administrative record; (b) rejected My Baps’ due process claims (on evidentiary hearing and impartiality), ruling that My Baps was procedurally defaulted from raising those claims because it never requested a meeting with the CPO and never raised impartiality before the CPO; (c) confirmed the CPO’s denial based on the 14-day notice requirement and the 120-day deadline; and (d) held that the CPO’s factual determinations were not against the manifest weight of the evidence.

The appellate court (reviewing the CPO’s decision, not the circuit court’s determination) applied similar reasoning and confirmed the CPO’s decision and the circuit court’s determination.  My Baps lost its six-million-dollar claim.

2. Lessons Learned from My Baps

My Baps suffered the consequences of failing to comply with the contractual notice and claim submission requirements, failing to request a hearing with the CPO, and failing to raise all facts, arguments, objections, and defenses before the CPO.  The lessons learned from My Baps are clear.  If you fail to follow the procedural rules, you lose your rights to the claim.  If you fail to raise an issue during the proceedings with the CPO, you lose the opportunity to raise it.  You must take concrete steps to prevent the loss of your rights.

    • Create a flow-chart of the contractual requirements. Review the flow-chart with all members of the project team before construction commences.  Regularly revisit the flowchart with the project team to ensure that all project participants understand the requirements and the consequences of failing to comply with them.
    • Log potential changes. Create a potential change order log that identifies the issue, the date it arose, and all applicable notice and timing requirements that must be met.  Require the project manager and key project staff to meet weekly to review the log to ensure the timing requirements are being met.
    • Calendar key dates and assign responsibility for compliance to a single member of the project team. This will help to ensure deadlines do not slip away due to confusion or miscommunication.
    • Be certain that you deliver notices and claims to the proper person and in the proper manner.  Create an organizational chart of the procuring agency that identifies by name, title, and address all persons involved in the contractual process and all other owner-officials that are not identified in the contractual process.
    • Submission content. Do more than simply comply with the minimum submission requirements set forth in the contract.  Submit a well-written and persuasive claim – with support.  If you think that this will require the assistance of counsel or a scheduling or engineering consultant, engage them early in the process.
    • Preserve relationships by sticking to the facts. The owner should not be surprised or angry to receive a notice or claim submission.  The notice and claim requirements were part of the deal struck when you signed the contract.  Don’t protect relationships by electing not to submit legitimate claims.  Instead, protect relationships by sticking to the facts and the applicable contract requirements, while leaving emotions for another time and place.  Also, give owner’s team a phone call before submitting.  Usually, it is not the submission itself that damages a relationship, but rather the act of catching someone by surprise.
    • Know the project. Before you submit your bid, get to know your project and understand its risks, including the likelihood of unfavorable claim resolution, and price those risks accordingly.

Know the rules, follow the rules, and implement the above strategies – your efforts may just save you from making a six million dollar mistake.

 

 

[1] There is no express timing requirement for this submission.  But it must be submitted early enough to provide the contractor sufficient time to permit the Commissioner to respond to the claim before the deadline to submit the claim to the CPO.  Contractors should not delay this submission—the stakes are simply too high.

[2] See the Dispute Regulations for the list of documents and materials required in the submission to the CPO.

[3] Stratton v. Wenona Community Unit District No. 1, 133 Ill. 2d 413, 427 (1998).

[4] Id.

[5] This was an innocent mistake, as the notice-to-proceed directed My Baps to submit all correspondence to the deputy commissioner.

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