ONLY AUTHORIZED SIGNATORIES MAY BIND A GOVERNMENT
ENTITY TO A CONTRACT

The Second Division of the Arizona Court of Appeals recently handed down an Opinion regarding the ability of government entities to bind themselves under a contract. In Kaman Aerospace Corporation v. Arizona Board of Regents, the University of Arizona (“UofA”) entered into a contract in December 2001 with Kaman for construction work on a lavatory building on the UofA campus. The contract provided certain billing milestones when Kaman was to be compensated for work to be completed between 2002 and 2006, and provided that any modifications to the contract hadto be agreed upon by the parties and that the price enumerated in the contract was a fixed price for the work performed. Subsequently 11 different modifications were agreed to by the parties. This case concerned two modifications made in May and August 2002 increasing the value of the contract. These modifications were not signed by either of the two UofA officers with authorization from the school to commit to the increase. Thereafter, the Arizona Board of Regents rejected the claims for payment.

The Court of Appeals held for the UofA in part, saying that only a designated contracting officer for the State may bind the UofA. Kaman in its filings with the lower court did not dispute that the state and its subdivisions can never be found to be bound by unauthorized acts of its employees. Moreover, “Arizona law is clear that persons dealing with public officers are bound, at their peril, to know the extent and limits of their power and that no right can be acquired except that predicated upon authorized acts of such officers.” Para. 20 citing Pinal County v. Palmoroy, 60 Ariz. 448, 455, 139 P.2d 451 454-55 (1943). Kaman did respond that the parties’ conduct through the course of dealings demonstrated that neither side contemplated that changes to the design guidelines would require written contract modifications. The Court noted that Kaman, however, did seek an additional $6,000,000.00 for work it performed or would need to perform outside the original Scope of Work. The Arizona Court of Appeals cited a Maryland case holding that a government entity’s course of conduct may not modify a written contract that had bound the state even if that course of conduct is identical to the party’s intent at the time of entering into the Contract. ARA Health Services Incorporated v. Department of Public Safety and Correctional Services, 685 A.2d 435 (Maryland 1996).

This case demonstrates that staff of a government entity may not modify a contract that has been approved by that entity’s governing board unless authorized to do so either in the contract or by separate action of the governing board.    

THE FOREGOING IS MERELY A PARTIAL SUMMARY OF THE CASE
AND IS NOT INTENDED TO BE RELIED UPON AS A LEGAL OPINION.