Georgia Supreme Court Holds that Sovereign Immunity Bars Software Vendor’s Claim that State of Georgia waived the contractually Required Completion Date for the Contract


By:  Bart Gary and Brian Lake

A software vendor entered into a written contract with the Georgia Department of Labor (GaDOL) to develop computer software. The contract required a certain completion date and contained a stipulation that amendments to the contract had to be in writing and executed by the vendor and the GaDOL. There were no written amendments to the contract. The completion date passed without the vendor delivering a functioning software product, but the parties continued to communicate and work together for the development of the software. Finally, about nine months after the contract’s required completion date had passed, the GaDOL gave notice of termination of the contract for the vendor’s failure to deliver a functioning product that complied with the contract. The vendor sued the GaDOL for breach of contract. At trial, the Court found in favor of the GaDOL, which had argued that the vendor failed to prove that the contractual completion date had been amended or extended by a writing executed by both parties, as required by the contract. The GaDOL framed its argument in terms of sovereign immunity under the Georgia Constitution, which provides that the state’s defense of sovereign immunity is waived “as to any action ex contractu for the breach of any written contract.”  Sovereign immunity comes to us from the ancient notion that the “King (or Queen) can do no wrong.”

The vendor appealed to the Georgia Court of Appeals, who reversed the trial court and held that the parties’ course of conduct created a question for the jury to resolve as to whether the parties waived or extended that contractually required completion date or the provision that the contract could be amended only in writing. The Georgia Supreme Court accepted the case for review and reversed the Court of Appeals. Specifically, the Supreme Court reasoned:

While private parties, however, may be able to modify and extend written contracts by manifesting their intent to do so even without a written agreement, the enforceability of a contract against the state is governed by the constitution and by statute. In order for sovereign immunity to be waived with respect to contract actions against the state, the contract must be in writing. The Court of Appeals erred in extending general common law rules of contract in a manner that creates contract liability against a state agency for an agreement that does not meet the in-writing requirement for waiver of sovereign immunity.

Thus the vendor had no basis to assert that the time requirements for its services had been waived or abandoned by the GaDOL’s conduct or communications that appeared to recognize the continued existence of a contract.

The case involved a software vendor, but the decision has greater implications for public construction projects—buildings, roads, and highways—for the state and counties in Georgia. Construction contracts have the same requirements for amendments to be in writing, especially for written change orders for additional work, changed conditions, and time extensions, among other reasons. Indeed, the Supreme Court distinguished or disapproved several earlier decisions by the Court of Appeals that held that the state or county waived written modification (change order) requirements by conduct.

Of particular note, the Supreme Court abrogated the 53-year old decision of the Court of Appeals in State Hwy. Dept. v. Wright Contracting Co., 107 Ga. App. 758 (1963), which applied contracting principles to hold that where the public owner verbally orders extra work on a construction project with notice that the contractor expects additional compensation, the owner waives the contract’s requirement for a written change order and the contractor may recover compensation. Wright stood for many years to allow recovery for extra work even where the parties did not promptly attend to the required paper work. The Court reasoned that Wright was decided before the principle of sovereign immunity became a part of the State Constitution in 1974. Now those contracting with a state agency or department, a county, or other government authority need to “get it in writing” or risk losing a claim to sovereign immunity.

Georgia Dept. of Labor v. RTT Associates, Inc., Case No. S15G1780 (May 23, 2016)