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84-296 WMITE - CITY CLERK - PINK - FINANCE CITY OF SAINT PAiTL Council CANARV - DEPARTMENT X�y 9 BLUE - MAVOR File NO. u �• • n� C Ordinance N 0. /7/.1' 3 Presented By Referred To Committee: Date Out of Committee By Date An ordinance pertaining to the execution of city contracts ; amending Chapter 86 of the St. Paul Administrative Code. THE COUIVCIL OF THE CITY OF SAINT PAUL DOES ORDAIN: Section 1. That Chapter 86 of the St. Paul Administrative Code, as amended, be and the same is hereby further amended by adding a section to read: 86.09. /Z`ity contracts valid when executed.? �contract lease or a reement shall be va i un ess an unti execute in accor ance wi e provisions o is c ap er. - , Section 2. This ordinance shall be deemed a part of the Saint Paul Administrative Code and shall be incorporated therein and given an appropriate chapter and/or section number at the time of the next revision of said Administrative Code. Section 3. 'I'his ordinance shall take effect and be in force 30 days from and after its passage, approval and publication. COUNCILMEN Requested by Department of: Yeas Nays � Fletcher Drew In Favor Masanz - � Nicos�a Against BY � TedesCo Wilson MAR 2 2 1984 For pprove y torne Adopted by Council: Date r Certified a e Council cre BY � By App Mayor: Date � Z �� Ap by Mayor for Subi io to Council I y PUBLISHED MAR 31 198�4 s . . � .� � ' �� � C�F ��-�9(� - . . �y�� � ��=r� � CITY OF SAINT PAUL `�"�4 ''�`'` OFFICE OF THE CITY ATTORNEY �; �;, �, ������I������ �� EDWARD P. STARR, CITY ATTORNEY '-,,r nn cu u, ^_ l:.• - �`'°�:,,��'`'c 647 City Hall,Saint Paul,�vtinnesota 55102 b12-298-5121 GEORGE LATIMER MAYOR February I5, 1984 RECEIVED FEB 1 51984 MAYOR'S OFFfCE Greg Haupt . Office of Mayor _ 347 City Hall Dear Mr. Haupt : You have written this office for our advice regarding the City' s contracting process and possible liability that the City may be exposed to based on the facts you have related herein. FACTS In late 1983, the City p'roceeded, via competitive bidding, to undertake the contracting process for the installation of storm windows in a particular City building. All reguirements for the formation of this contract had been met, both procedurally and substantively, except for the signature of the Mayor. Chapter 86 of the Administrative Code requires both the Mayor and the director of the Department of Finance and Management Services to sign on Gity contracts. When the contract arrived at the Mayor`� affice you reviewed i�: and this review triggered your recollection that the subject building was scheduled for major remodeling in the next few years and the window installation would be a part of it. Thus, you thought it appropriate to explore the possibility of re- scindi.ng �.ction on �he �ontract and tal�ing the matte� up in the years to come. In discussing this matter we �ndicated to you that passibl.y the entire matter could be construed as a quasi-contract and the bidder could claim some form of damages. No one knew at the time of that conversation the extent to which the bidder may have started to perform work and spend money in its furtherance. But he had at least spent money in the form of �remium paymen+�s for his bond and insurance. , . . , Greg Haupt Page Two February 15, 1984 Because of this occurrence, you have asked us to describe the situation under which the City has a legally binding contract even absent the Mayor`s signature, and hence be liable for damages. DISCUSSION A contract is made by an offer and an acceptance of that offer. The forms of an offer and an acceptance are many and varied and so the law does not key on the performance of a particular ritual in determining whether a contract has been made so long as offer ; and acceptanee are discernible. The City enters into most of its contracts via competitive bidding. We solicit offers (bids) to be made to us but our acceptance is conditional. The conditions of our acceptance are the furnishing of a bond, insurance and other ma.terial as may be required in the bid specifications . The reason these documents are not furnished with the bidder' s bid package is that, as a practical matter, they are unobtainable at that time. A surety (bonding company) will not underwrite an undertaking that does not exist and an insurance carrier will not insure against risks that do not exist. Even if they were obtainable, bidders would not want to spend the money for them without some assurance that a contractual relation- ship was nearly formed. -. -This hiatus is settled when we issue our conditional acceptance embodied in our form letter entitled "Intent-to-Award". This document gives enough assurance to prompt the bidder's surety = and insurance carrier to be forthcoming. Their performance ful- ` fills our acceptance. The form letter and purchasing division staff caution the bidder not to proceed until the purchase contract is received by him reflecting the appropriate signatures, including that of the Mayor, and this serves as the official documentation of the existence of the contract. As you note in the section of this opinion entitled "Law", it would be the view of this office that as to the specific facts no contract, real or implied, could be construed and thus the City held liable. However, the reason that we flagged this situation is that it has been our experience that some project managers being new, inexperienced or pressured based on considerations of ti.me, will, with the best of interitions, direct the bidder to perform without . _ , , . • . . . �� ��-°2�� - � , � /7�a? 3 Greg Haupt Page Three February 15, IR84 our acceptance as outlined. above. We have seen these directions range from instructing a bidder to assemble materials and machinery at a job site, to telephoning the second low bidder from the field and having them perform work on t� spot w t� absolutely nothing in place to suggest a contract and the re- lated items discussed above. � These ma.y be infrequent occurrences in the competitively bid area of contracts, but happen often enough to have prompted our expressing our concern to yau, Further, in the area of non- competitively bid con�racts -- the hiring of cansultants, archi- tects, specialists of all kinds, at least once a month we are requested to draft an "after the fact contract". In other words, a person has been hired or an event held and only sometime after- ward are we approached to formalize the relationship. These occurrences further underscore the reason why we express caution in the specific case and have, in turn, prompted your request for advice in this whole general area. LAW All who contract with the City are charged with a knowledge of their powers and limitations. � Do 1e v. Cit of St. Paul (1939) 204 Minn. 558, 284 N.W. 291. Uti izing t is case aw authority as to the specific case, we would have taken the position with regard to the storm window installation �hat x�o contract existed as the bidder was assumed to have knowledge of Chapter 8$ of the St. Paul Administrative Code and would be bound accordingly. Further, our position would have been buttressed by the letter of intent to award which sets forth the admonitions not to proceed until the formalities are in place. However, your request for our advice compels us to discuss the area of law dealing with an implied or quasi-contract. A municipality may be liable for services or property on an implied or quasi-contract. 13 A. Dunnell Minn. Digest 2nd, Municipal Corporations, Section 11 . 01 (3rd ed. 1981) . An implied or quasi-contract exists when the actions of the parties indicate that a contract has been formed by work being performed and re- sulting benefits received even though the formalities of a contract do not exist. , ' ' r - Greg Haupt Page Four February 1S, 1984 Acknowledging rights and obligations under an implied or quasi- contract is part and parcel of a time-honored legal prohibition against what the old common law lawyers term "unjust enrichment". - This sanction holds that a party who receives the benefits of services performed under what appears to be a contract must - promptly disavow the other�s actions or otherwise he will be held liable for benefits received. The law will not aid a party who receives benefits under what appears to be a contract; does nothing; and then refuses to pay for what he has received. To have it otherwise wouZd be to unjustly enrich the benefited party. There are several modifications of this legal theory which would aid the City in defending any claim based on an implied or quasi- contract theory. A prompt disavowal clearly co�nunicated will relieve the City from liability. If work were to continue after that event, it would be at the performing party's risk. Further, the fact that :a municipality has enjoyed the benefits of an unauthorized contract will still not make it liable if it has had no opportunity ta reject the benefits (id) . This rule addresses tlie overly aggressive contractor who wants to pressure the City into an implied contract setting. Additionally, even though the City may be liable for the reason- able value of services and goods that it has used or consumed so that they cannot be restored, the liability ends if there is no material use (id) . SUNINIARY We cannot factually list all af the situations in which an implied or quasi-contract might arise outside of those alluded to in the "discussion" section of this opinion or that one could imagine falling within the confines of the rules discussed herein. As to the specific case, we can state that there would be no contract, real or implied. But other claims advanced on a contract theory would have to be individually judged based on pitting the Doyle case against the unjust enrichment theory discussed herein. It is recommended that our position be buttressed by an appropri- ate amendment to Chapter 86 of the Administrative Code wherein it could be clearly announced that no legally b�nding obligation . . . �. , .. . • � = ' � � . C�F ���9 ' � �7i�z 3 Greg Haupt Page Five February I5 , I984 would fall upon the City without the signatures as required there- in. If you wish us to draft such an amendment, we would be glad to submit it to you for your review. You ruly, A P. S ARR Ci Attorney � C - PAUL F. MC LOS Y Assistant City Attorney EPS :PFM:cg cc : Ma.yor Latimer Council Members