G4S Tech. LLC v. Mass. Tech. Park Corp., 2018 Mass. Lexis 357 (June 13, 2018)

A state development agency (the “Agency”), received state and federal funding to build a 1,200-mile fiber optic network.  It contracted with G4S Technology LLC (“G4S”) for the project under a $45.5 million design-build agreement.  As a result of project delays – the cause of which the parties disputed – G4S achieved final completion of the work more than one year after the contractual deadline.  Shortly after completion, the Agency issued a notice of withholding, claiming a right to withhold $4 million from G4S to compensate the Agency for delays and expenses incurred as a result of G4S’s alleged failures to perform.

G4S sued the Agency in Massachusetts Superior Court, asserting claims for breach of contract and quantum meruit.  It sought release of the contract balance plus an equitable adjustment of the contract price and deadlines.  In discovery, the Agency learned that G4S had repeatedly submitted inaccurate progress payment applications during the project, which falsely represented that G4S had timely paid its subcontractors.  The Agency cited this evidence in support of a motion for summary judgment, arguing that G4S’s conduct barred its right to recover money owed to it under the contract and under a theory of quantum meruit.  The Superior Court granted the motion, and G4S appealed.
On appeal, the Supreme Judicial Court of Massachusetts reaffirmed its well-established rule that a contractor cannot recover under a construction contract unless it shows complete and strict performance of its contract.  It clarified, however, that the complete and strict performance requirement is limited to the contractor’s design and construction obligations.  Ancillary provisions, such as the payment application provision at issue in the case, are subject to the material breach standard generally applicable under Massachusetts contract law.  Because its contract explicitly required timely payment to subcontractors and due certification of such payment, the Court found G4S’s breach to be material, barring recovery for breach of contract.

Concerning G4S’s quantum meruit claim, the Court noted that a contractor may recover in quantum meruit if it proves substantial performance of the work and a good faith effort to fully perform.  The Court then cited long-standing precedent barring recovery in quantum meruit when a contractor intentionally breaches its contract because such a contractor cannot demonstrate a good faith effort to perform.  The Court accepted G4S’s invitation to overrule that precedent.  Departing from the rigid, bright-line rule, the Court adopted a multi-factor equitable approach that considers contractual performance as a whole; both parties’ actions, breaches, and resulting damages; and, most importantly to the Court, the value of the work performed compared to the amount paid for it.  It remanded for additional fact finding on the issues of responsibility for delay and whether the falsified payment applications harmed the Agency in any way so that the court could balance the equities and determine whether G4S had a right to recover in quantum meruit under the newly-articulated standard.

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