Bozied v. City of Brookings
2001 SD 150, 638 N.W. 2d 264 (2001)
Rule of Law:
Whether a change order to a public construction contract is valid without competitive bidding depends on the factual determination of whether the work was necessitated by unforeseeable circumstances and was necessary for the project's completion. If such a contract is found void after payment has been made, the contractor may retain the funds absent fraud, collusion, or undue influence, as the law will leave the parties to a void contract where they are found.
Facts:
- The City of Brookings planned to build an Agri-Plex, and John Mills, owner of Mills Construction, Inc., chaired the designing and planning committee.
- After his company submitted a bid, John Mills resigned from the committee.
- Brookings awarded the construction contract to Mills Construction, whose bid was significantly lower than the next competitor.
- The original contract specified that a south parking lot would be graveled and only 5,000 square feet of a 30,000 square foot research building would be finished.
- Project planners anticipated that the parking lot would eventually be paved and the remaining building space would be improved to accommodate future tenants.
- After construction began, Brookings secured two long-term tenants for the research building.
- Brookings then issued two change orders without public bidding: Change Order #1 for paving the south parking lot ($107,000) and Change Order #12 for tenant improvements in the previously unfinished building space ($441,000).
- The city attorney, whose law partner represented Mills Construction, opined that the change orders were permissible because the circumstances were unforeseen and the work was necessary.
Procedural Posture:
- Bozied, a taxpayer, sought an injunction in circuit court to stop the City of Brookings from paying Mills Construction for the work on the change orders.
- The circuit court denied Bozied's motion for a preliminary injunction.
- Both parties moved for summary judgment.
- The circuit court granted summary judgment for Bozied, ruling that the change orders were void and violated competitive bidding laws.
- The court ordered Mills Construction to refund to the City of Brookings all amounts paid under the two change orders, totaling $548,001.
- Mills Construction and the City of Brookings (appellants) appealed the summary judgment ruling to the Supreme Court of South Dakota.
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Issue:
Did the trial court err in granting summary judgment by finding, as a matter of law, that change orders to a public works project violated competitive bidding laws and that the contractor must refund all payments received for the associated work?
Opinions:
Majority - Konenkamp, Justice
Yes. The trial court erred because the validity of the change orders depends on unresolved questions of fact, and the remedy of full repayment is improper. Whether the circumstances requiring the change orders were 'not reasonably foreseeable' and 'necessary to the completion of the project' under SDCL 5-18-18.3 are factual questions for a trier of fact to decide, making summary judgment inappropriate. Furthermore, even if the change orders are found to be void, the court should not have ordered the contractor to refund payments already received. The long-standing principle is that the law leaves parties to an illegal contract where it finds them; thus, a city cannot recover money it has already paid on a void contract unless there is evidence of fraud, collusion, or undue influence.
Dissenting - Von Wald, Circuit Judge
No. The trial court did not err because the work was foreseeable as a matter of law, and the proper remedy for a void public contract is to recover taxpayer funds. The record, including testimony from Mills, shows that project planners always intended to pave the parking lot and finish the tenant space; therefore, the work was not 'unforeseeable' under the plain meaning of the statute. The change orders are void, and established precedent requires the recovery of public funds paid under an illegal contract to protect taxpayers, who are not equally at fault ('in pari delicto') with the city officials and the contractor. Allowing the contractor to keep the money undermines the public policy behind competitive bidding laws.
Analysis:
This decision significantly alters the consequences for contractors who perform work under void public contracts in South Dakota. While reaffirming that equitable defenses are unavailable, the court carves out a major exception to the forfeiture rule by applying the 'leave them where you find them' principle to benefit the contractor. Previously, this principle was used to deny contractors payment; now, it also prevents the government from clawing back payments already made. This ruling creates a new risk calculus for public entities, potentially reducing their leverage against contractors who perform work under procedurally flawed change orders, and shifts the focus in litigation toward proving fraud or collusion to recover funds.
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