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Waiver of Sovereign Immunity in Georgia Contract Claims

Posted in Case Law,Performand Bonds,Public Works Projects by Blue Blog on the October 1st, 2014

Georgia Construction Contract Claims

On September 22, the Supreme Court of Georgia ruled that the state’s sovereign immunity is waived for a surety’s claim against a contract with the state in State of Georgia Department of Corrections v. Developers Surety and Indemnity Company.

What is Sovereign Immunity?

Soverign Immunity and Georgia Construction Contracts

Generally, sovereign immunity protects the state and other government entities (such as the federal government) from being sued without consent. This doctrine comes from British law and embodies the idea that the government (or, originally, the monarch) cannot commit a legal wrongdoing. Governments may waive this defense of immunity – thereby agreeing to be sued – so that citizens with claims against them may seek proper recourse.
Before the United States began waiving its sovereign immunity, would-be claimants’ only recourse was to get Congress to pass a bill in their favor. The unwieldiness of that process eventually brought about sovereign immunity waivers for particular types of claims – such as contract disputes, import duties, and internal revenue complaints – in specialty courts, allowing the government to be sued. Today, governmental entities – from local municipalities to the federal government – voluntarily waive their immunity in a variety of situations.

How Does the State of Georgia Approach Sovereign Immunity?

In 1939, the Georgia Supreme Court recognized the historical presence of sovereign immunity in the state and noted that if the citizens preferred to allow suits against the government, they should seek the removal of the immunity through their elected legislators.  However, the people of Georgia embraced sovereign immunity by approving a constitutional amendment in 1974. Today, the Georgia Constitution allows for the state’s sovereign immunity to be waived by the General Assembly in specific situations and explicitly waives it for claims stemming from a breach of a written contract entered into by the state.

How Does Sovereign Immunity Impact Construction Contracts on Georgia Public Works Projects?

The State of Georgia Claimed that Performance Bond Company Could Not Sue State Agency due to the Doctrine of Sovereign Immunity:  In the case decided last week, the Georgia Department of Corrections – a state agency – contracted with a roofing company for work on a prison. The company obtained the required payment and performance bonds from a surety company. In addition, the roofing and surety companies signed an indemnity agreement that assigned the roofer’s right to payment under bonded contracts to the surety. The state allegedly restricted jobsite access to the roofing company, contrary to the contract terms, which inhibited the roofing company’s ability to perform under its roofing contract with the state agency. When the roofing company failed to perform under the contract, the surety fulfilled its performance bond obligations by providing another company to complete the roofing work. The surety later sued the state for breach, claiming it had no obligation under the payment and performance bond issued to the roofing company due to the state agency’s duty to provide access to the site.

Performance and Payment Bonds on State Prison ProjectSurety Prevails In the Lower Court:  The trial court ruled in favor of the surety, concluding that the state waived sovereign immunity by contracting with the roofing company and that the surety could stand in place of the roofing company since it assumed the obligations under the bond. The state appealed on the basis that the surety (the performance bond and payment bond company) was not a party to the roofing contract and therefore, it claimed, the state’s waiver of sovereign immunity for breach didn’t apply to the surety. The appellate court affirmed the lower court’s findings.

Surety Prevails on Appeal to Georgia Supreme Court:  On final appeal to the Georgia Supreme Court, the state lost again by the same reasoning: (1) the stated waived sovereign immunity by entering into a written contract, and (2) after paying the debts of the contracting party, the surety may stand in the place of that party for rights under the contract. As the Court noted, the constitutional waiver addresses the suit – not the party suing – against the state.
This decision comes just a week after the Texas Supreme Court addressed the sovereign immunity issue in Zachry Construction Corporation v. Port of Houston Authority relating to a general contractor’s delay claims against a local government entity. The Court held that the government could not claim an absolute defense against the contractor’s claims, although the Court was divided on this point. A Texas statute waives sovereign immunity for a contract claim for “balance due and owed.” The Court was split as to whether delay damages were “due and owed” under the contract since the no-damage-for-delay clause prohibited such damages.

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