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Expired Contract Not Revived Due to Sovereign Immunity and the Ex Contractu Clause

This post was written and edited by Chadd Reynolds and David Cook.

A few months ago, a decision by the Supreme Court of Georgia in Georgia Department of Labor v. RTT Associates, Inc. provided a strict rule for contractors that work with state agencies to determine whether a state agency has waived its sovereign immunity.  The issue as framed by the Court was “whether an agency’s waiver of immunity from a breach of contract claim as a result of entering into a written contract remains intact in the event the contract is extended without a written document signed by both parties expressly amending the contract, as required by its terms.”

The case involved a contract executed on March 1, 2012, by a contractor, RTT Associates, Inc. (RTT), and the Georgia Department of Labor (DOL), whereby RTT was to develop certain computer software for the DOL by the completion date, June 30, 2012.  The contract required that amendments be in writing and fully executed by both parties.  Time was of the essence and RTT’s obligation under the contract survived the expiration or termination of the contract.

The contract contained four milestones RTT needed to achieve during the course of the project.  DOL made progress payments for the work involved in the first and second milestones, but claimed that the work involved in the second milestone was never completed.

During the execution of the contract, two changes were required by federal law that impacted the intended software design and increased the cost of the contract.  DOL executed the two changes through internal project change requests approved on June 12, 2012 and September 17, 2012, respectively.

The Court noted that neither of the change requests were provided to or executed by RTT.  Plus, no written amendments to the contract were executed to extend the completion date of the contract.  RTT also admitted to not completing the work before the written contract’s expiration date.

The parties, however, continued to work together to develop a software product to meet DOL’s requirements.  The DOL notified RTT on April 3, 2013, that it was in breach of the contract for failing to deliver a product that complied with the contract requirements by the contract’s completion date.  The notification stated that the contract was terminated immediately and RTT was later informed that DOL would not utilize its software.

As a result, RTT filed suit, alleging that DOL breached the contract.  RTT asserted that DOL improperly terminated the contract since it was extended by the parties’ course of conduct and DOL’s internal writings.  DOL argued that RTT’s claims were barred by sovereign immunity since the contract was not extended or amended by a writing executed by both parties, as required by the contract.  The trial court ruled in favor of DOL, while the Court of Appeals, reversed, holding that issues of material fact remained as to whether the parties waived or extended the completion date.

The Supreme Court reversed the Court of Appeals’ ruling.  The Georgia Constitution states that a state agency’s sovereign immunity is waived only in actions for breach of a written contract or by an act of the General Assembly.  While the Court noted that under common law, contract terms may be modified by the parties without a writing, even when the contract provides that all modifications be in writing, the enforceability of a contract against the state is governed by the constitution and by statute, not common law.  Consequently, the Court of Appeals erred in extending common law rules of contract to create liability against the state for agreements that do not meet the in-writing requirements to waive sovereign immunity.  All conduct relied upon by RTT to support its argument that the parties waived the in-writing requirement of the contract occurred after the contract expired.  At that point, DOL’s waiver of sovereign immunity expired.  Therefore, RTT’s claims were barred by DOL’s sovereign immunity.