City's Project Manager Has No Authority To Orally Modify Written Contract
U.S. NEUROSURGICAL, INC. V. CITY OF CHICAGO (July 9, 2009)
The City of Chicago entered into a contract with Global Health Systems, Inc. ("Global"), the predecessor to U. S. Neurosurgical, Inc. Global agreed to design, install and manage a computer information system. The purpose of the system was to implement case management and billing for the City’s Department of Health. At the time of the contract, the system only processed hand-entered data. Global represented, however, that its system was capable of processing scanned data. The contract provided that Global would assist the City in assessing the scanning function and modify the hardware and software if the City so desired. The City did decide to include a scanning function. The implementation turned out to be much more difficult and costly than anticipated. Global billed the City for the extra work, even though it did not follow the correct contract procedures. When the City refused to pay, U.S. Neurosurgical sued. After a bench trial, the court concluded that the work was required by the contract and denied relief. Alternatively, the court concluded that the extra work was not properly authorized, was not in writing, and did not comply with the contract procedures. U.S. Neurosurgical appeals.
In their opinion, Judges Bauer, Evans and Williams affirmed. The Court stated that any party doing business with a government entity is presumed to know a contract cannot be enforced unless it meets statutory requirements and is authorized by an appropriate official. Here, the City's procurement officer was the only person authorized to approve the contract. The Court rejected the argument that the City delegated such authority to the project manager. In addition, the Court stated that both the contract and a statute prohibited an oral modification. Although the Court conceded that a written contract can be modified orally notwithstanding a contractual prohibition, the same is not true for a statutory prohibition. The Court also rejected U.S. Neurosurgical's claims for relief based on equitable estoppel and account stated.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select