G4S Technology LLC v. Massachusetts Technology Park Corp. , 479 Mass. 721 ( 2018 )

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SJC-12397
G4S TECHNOLOGY LLC vs. MASSACHUSETTS
TECHNOLOGY PARK CORPORATION.
Suffolk. March 5, 2018. - June 13, 2018.
Present: Gants, C.J., Gaziano, Lowy, Budd, Cypher,
& Kafker, JJ.
Contract, Public works, Construction contract, Performance and
breach, Subcontractor, Damages. Public Works, Delay, Extra
work. Damages, Breach of contract, Quantum meruit, Fraud.
Practice, Civil, Summary judgment, Damages. Fraud.
Civil action commenced in the Superior Court Department on
September 22, 2014.
The case was heard by Janet L. Sanders, J., on motions for
summary judgment, and entry of separate and final judgment was
ordered by her.
The Supreme Judicial Court granted an application for
direct appellate review.
Christopher Weld, Jr. (Megan C. Deluhery & Joel Lewin also
present) for the plaintiff.
Robert J. Kaler (Edwin L. Hall also present) for the
defendant.
Carol Chandler, Brendan Carter, David E. Wilson, Shannon A.
Reilly, & Mark Keough Molloy, for Associated Builders and
Contractors, Massachusetts Chapter, & others, amici curiae,
submitted a brief.
2
Maura Healey, Attorney General, & James A. Sweeney &
Cassandra H. Arriaza, Assistant Attorneys General, for the
Attorney General, amicus curiae, submitted a brief.
KAFKER, J. At issue is a construction contract dispute
between G4S Technology LLC (G4S) and Massachusetts Technology
Park Corporation (MTPC) arising out of a State- and federally
funded project to design and build a fiber optic network in
western and north central Massachusetts. On summary judgment, a
judge in the Superior Court concluded that G4S was barred from
seeking recovery on the contract or under quantum meruit because
it intentionally filed false certifications of timely payments
to subcontractors. The judge also concluded that MTPC could not
maintain a fraud action against G4S, in which it sought damages
in addition to the $4 million payment MTPC already had withheld
from G4S, because any recovery would be duplicative.
On appeal, G4S argues that MTPC was not damaged by the
false certifications, and that the Commonwealth should replace
the common-law rule that "in relation to building contracts,
. . . a contractor cannot recover on the contract itself without
showing complete and strict performance of all its terms," Andre
v. Maguire, 305 Mass. 515, 516 (1940), with a materiality rule
as provided in the Restatement (Second) of Contracts §§ 237, 241
(1981). Alternatively, G4S contends that, even if recovery on
the contract is disallowed, it should be able to pursue an
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equitable recovery under the doctrine of quantum meruit. G4S
argues that MTPC, and not G4S, was responsible for the delays in
construction and the $10 million in increased costs G4S assumed.
MTPC cross-appealed from the dismissal of its claim of fraud
against G4S.
We conclude that complete and strict performance is still
required for all construction contract terms relating to the
design and construction itself. We also conclude, however, that
ordinary contract principles, including the traditional
Massachusetts materiality rule, apply for breaches of other
provisions, such as the one at issue governing payment
certifications. We hold that G4S's numerous false
certifications and intentional subcontractor payment delays
constitute a material breach of the contract and, standing
alone, preclude recovery for breach of contract.
Summary judgment was not, however, properly granted on
G4S's quantum meruit theory of recovery. A party seeking to
recover under quantum meruit must prove both substantial
performance and good faith. Substantial performance is not at
issue here, as the project was completed as specified, albeit
delayed. The issue is whether a party that has intentionally
committed a breach of a provision in the contract can still have
acted in good faith for quantum meruit purposes and whether
there has been a windfall for the other party. Overruling an
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older line of cases, we now hold that good faith applies to the
contract as a whole, and that the intentional commission of
breaches of individual contract provisions must be considered in
the over-all context, including the value of the uncompensated
work, the damage caused by the breach, the total performance of
both parties, and the balancing of equities to accomplish a just
result. Here, there are material disputed facts regarding which
party caused the delays, whether G4S performed $10 million of
uncompensated work, and whether there is any causal connection
between the intentional misrepresentations regarding payments to
subcontractors and the damages assessed against G4S. We thus
reverse the award of summary judgment on the quantum meruit
claim for further fact finding.
We further conclude that the dismissal of MTPC's fraud
claim against G4S was error. The undisputed facts establish
fraudulent certifications. The motion judge dismissed the count
as duplicative, concluding that the fraudulent certifications
provided the basis for damages under all the different claims
presented and recovery under the fraud claim would be far less
than the amount MTPC was allowed to retain for breach of
contract. Where separate recoveries are based on the same act
and injury, duplicative recovery is precluded. Here, however,
further fact finding is required to discern whether there could
be factually separable and distinguishable acts resulting in
5
separable quantifiable injuries. We therefore reverse the
allowance of summary judgment on the fraud claim.1
1. Background. MTPC is a State development agency created
and organized under G. L. c. 40J. In 2010, MTPC received
funding from both the Commonwealth and the Federal government to
build a 1,200-mile fiber optic network connecting 123
communities in western and north central Massachusetts to high-
speed Internet (project). An approximately $89.7 million
construction project, it connects "[o]ver 1,100+ public safety
entities, schools, libraries, medical facilities, and town
halls[,] . . . serve[s] as a backbone for over 400,000
households and businesses over a geographic area covering over
one-third of Massachusetts, with more than one million
residents[,] . . . [and] [p]rovides necessary broadband
infrastructure to foster economic growth, improve health care
and education, and strengthen public safety." Of the $89.7
million project, $45.4 million was funded by the American
Recovery and Reinvestment Act of 2009, 111th Cong., Pub. L. No.
111-5, 123 Stat. 115 (2009) (Recovery Act). In the wake of the
"Great Recession," the funds were to be used "in a manner that
1 We acknowledge the amicus briefs submitted by Associated
Builders and Contractors, Massachusetts Chapter; Associated
General Contractors of Massachusetts; Associated Subcontractors
of Massachusetts, Inc.; Construction Industries of
Massachusetts, Inc.; and Utility Contractors' Association of New
England, Inc.; and by the Attorney General.
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maximize[d] job creation and economic benefit" and was intended
to "provide a one-time injection of funds for the purpose of
stimulating the American economy."
Time was of the essence with respect to the dates for
substantial completion and final completion of the project.2
According to the initial procurement documents, the Recovery Act
award placed "significant time constraints on the construction
of the Project." The design-builder thus was contractually
2 The contract provided that "substantial completion" was
"the date on which either (a) the Work required by the
Contract Documents has been completed except for Work
having a Contract Price of less than one per cent (1%) of
the then adjusted total Contract Price, or (b) the Network,
or an agreed upon segment of the Network, is sufficiently
complete and connected to the Internet that Owner can use
it for its intended purposes except for minor incomplete or
unsatisfactory Work items that do not materially impair the
usefulness of the Work required by the Contract Documents.
To meet these conditions, all fiber optic cable and all
equipment must have been installed and tested successfully
and passed pre- and post-construction testing and ready to
begin the conditional Network acceptance testing period,
and all operating manuals, warranties, and as-built
documents pertaining to that portion of the Work have been
delivered to the Owner."
"Final Completion" was
"the date on which the Network, and all equipment and fiber
supplied by or made available to the Design-Builder for
installation in the Network, all Work is successfully
completed, has been handed over to and accepted by Owner,
no Work items required by the Contract Documents remain
incomplete or unsatisfactory, and Owner has received and
accepted all documentation and Project close-out
deliverables required under the Contract Documents."
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obligated to meet mandatory milestones: complete fifty-five per
cent of the value of the work by June 30, 2012; achieve
substantial completion by April 15, 2013; and achieve final
completion by June 30, 2013.
MTPC put the project out to public bid, and a design-build
contract with G4S was executed on June 30, 2011. After
adjustments, the total contract value was $45.5 million. G4S
agreed to the mandatory milestones and acknowledged that if "any
Date for a Mandatory Milestone, after adjustment for any
extensions of time . . . is not attained as a result of any
failure of [G4S] to perform, then [G4S] shall pay [MTPC], as
part of compensatory delay damages . . . for each Day . . . that
achievement of the Mandatory Milestone" is not met as damages
are "difficult to determine and specify accurately."3
Damages for failure to attain substantial completion by
April 15, 2013, was $7,500 per day and escalated to $9,500 per
day after June 30, 2013. Failure to attain final completion by
June 30, 2013, was $3,000 per day; daily rates additive for any
periods of overlap. The contract, however, also contemplated a
remedy should there be excused delays to the project. Articles
8.2.1 and 8.2.2 provided that, "[i]f [G4S] is delayed in the
3 The contract provided that "[t]he compensatory delay
damages . . . shall be [MTPC's] sole remedy for any failure of
[G4S] to meet the above dates."
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performance of the Work due to acts, omissions, conditions,
events, or circumstances beyond its control and due to no fault
of its own, . . . the Contract Time(s) for performance shall be
reasonably extended by Change Order . . . [and G4S] shall also
be entitled to an appropriate adjustment of the Contract Price."
MTPC's contract with G4S set forth additional provisions,
at issue here. They included (1) procedures for obtaining a
change order to adjust the contract price and time in the event
of delay to the work; (2) MTPC's right to stop and suspend the
work and terminate G4S for cause should G4S, among other
reasons, fail to "timely pay, without cause . . .
subcontractors"; (3) MTPC's obligation to facilitate timely and
efficient performance of the work, submit conduit and pole
attachment applications for licenses and leases, and perform any
"Make-Ready work" necessary to permit G4S to perform its
construction and installation work; and (4) G4S's right to,
within ten working days of awareness of excused work delay,
request an equitable adjustment to the contract price or an
equitable extension of time for the reasonable costs of excused
delays or differing site conditions.
Following the June 30, 2011, execution of the design-build
contract and the subsequent notice to proceed, G4S commenced the
work. On September 21, 2012, MTPC notified G4S of nonconforming
9
work and requested corrective action.4 On December 10, 2012,
MTPC notified G4S a second time of nonconforming work and gave
notice that G4S had failed to cure the prior nonconforming work.5
At various times, change orders were executed throughout the
performance of the work. The dates to achieve substantial and
final completion of the project were adjusted to July 31, 2013,
and October 31, 2013, respectively. The parties reserved their
respective rights, stating that "[n]othing in . . . Change
Order[s] shall be taken as a waiver of any rights or defense of
[MTPC] and [G4S] with respect to any other request for change,
equitable adjustment or other claim."
On March 7, 2014, over seven months past the contractual
substantial completion date, substantial completion of the
4 Among other things, the notice of nonconforming work that
Massachusetts Technology Park Corporation (MTPC) sent to G4S
Technology LLC (G4S) alleged that G4S had been performing work
with insufficiently skilled labor, resulting in poor
workmanship; that G4S failed to follow industry standards with
the installation of certain project parts; and that G4S's work
generally suffered from a lack of planning, poor leadership, and
poor quality. The notice acknowledges that G4S had made
improvements over time, but it stated that more corrective
action on behalf of G4S was needed. The notice requested a
conference between G4S and MTPC as well as a plan of action to
resolve the issues.
5 MTPC sent G4S a second notice. This notice alleged that
G4S failed to take corrective action in accordance with the plan
laid out by the parties following the first notice. The notice
also restated several of the issues MTPC had with G4S, including
a general lack of planning, poor performance, and poor
leadership.
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network was achieved. On March 21, 2014, G4S submitted a
request for equitable adjustment (REA) seeking additional
compensation and an extension of time for the dates of
substantial completion and final completion. On April 1, 2014,
MTPC responded to G4S's REA and asserted that G4S was not
entitled to additional time or money and that G4S was the reason
for the delay.6 On August 15, 2014, MTPC issued a "Notice of
Withholding" to G4S claiming damages in the amount of
approximately $4 million resulting from the delays and failure
to perform required tasks.7
On September 10, 2014, G4S submitted an amended REA to MTPC
for approximately $10 million. G4S asserted that, because of
MTPC's "failure to timely complete the necessary predecessor
Make-Ready work," G4S incurred substantial additional time and
6 Neither G4S's March 21, 2014, request for equitable
adjustment nor MTPC's April 1, 2014, letter was in the submitted
record.
7 In accordance with the August 15, 2014, notice of
withholding, MTPC withheld approximately $2 million, based on
the liquidated damage rate of $9,500 per day for 219 days, on
account of G4S's failure to achieve substantial completion of
the project by July 31, 2013, the date established for
substantial completion. Additionally, MTPC withheld $864,000,
based on the liquidated damages rate of $3,000 per day for 288
days, on account of G4S's failure to achieve final completion by
October 31, 2013, the date established for final completion.
Lastly, MTPC withheld the additional sum of approximately $1.3
million for reimbursements due and extra cost and expenses
incurred on account of G4S's failure to perform or complete
required tasks.
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costs in completing the project. It explained, "The failure of
[MTPC] to timely complete the predecessor activities to G4S
installation work resulted in the work often being performed
with different crew configurations, out-of-sequence, in smaller
non-contiguous distances, utilizing premium time/extended work
days, and often in different climatic conditions than what was
contemplated under the baseline schedule." The amended REA
referenced provisions in the contract that permitted G4S to
recover increased costs due to circumstances that were no fault
of the design-builder. G4S also stated that it had filed the
necessary change orders required by article 8.2.1 and that the
parties had reserved their rights regarding those change orders.8
Contending that MTPC's failure was thus the "root cause of
delays and impacts to the Project," G4S also requested another
adjustment to the dates to achieve substantial and final
completion of the project. The response, if any, to the REA, is
not in the submitted record.
On January 20, 2015, MTPC issued a Certificate of Final
Completion of the Work, over one year after the contractual
final completion date. On February 11, 2015, MTPC issued a
recalculated and updated "Notice of Withholding" of
approximately $4 million, to account for subsequent delays,
7 The change orders referenced in G4S's amended REA were not
in the submitted record.
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costs, and expenses.
G4S brought an action in the Superior Court against MTPC
for breach of contract, breach of warranty, and quantum meruit.
G4S asserted that MTPC's withholding of $4 million was improper
and contended that MTPC wrongfully denied its $10 million REA.
MTPC, in turn, brought counterclaims against G4S alleging fraud
and violations of G. L. c. 93A. By the start of litigation,
MTPC had paid G4S approximately $41 million of the original $45
million total contract value.
During discovery, evidence revealed that, unbeknownst to
MTPC, G4S engaged in a pattern of submitting inaccurate
"progress payment releases" (certifications) when sending its
applications for payment.9 As previously explained, the contract
expressly stated that subcontractors were to be paid on time and
that a failure to do so, without cause, was grounds for
terminating the contract with G4S. G4S certified to MTPC that
it had timely paid its subcontractors, but this was not true.
9 Through the "progress payment releases" (certifications),
G4S represented and warranted that
"all subcontractors, suppliers and equipment providers of
the undersigned have been paid in full all amounts due to
them up to the date of this Certification, and that the
sums received in payment for the Amount Requested shall be
used to forthwith pay in full all amounts due to such
subcontractors, suppliers and equipment providers up to the
date hereof."
13
Spanning more than one year, G4S, a publicly traded company,
repeatedly and continuously delayed payments to its
subcontractors until after its fiscal quarters closed, so it
could show a more favorable cash flow in its quarterly reports.10
In sum, G4S received $38.6 million in progress payments
through sixty false certifications. The work had been
performed, but the subcontractors had not been paid prior to the
certifications.
The delayed payments did not go unnoticed by the
subcontractors. At various times, subcontractors strongly
objected and threatened to shut down work or remove crews from
the project if G4S continued to withhold payments, even as G4S
was getting paid by MTPC.11 Despite such protests, there was no
10G4S's contract manager, who was responsible for paying
subcontractors, acknowledged in contemporaneous electronic mail
(e-mail) messages as well as in her later deposition that there
remained past due invoices for significant sums that were
outstanding at the time the certifications were executed. The
certifications were nevertheless submitted to MTPC. One
internal e-mail message from a G4S project manager criticized
this practice stating, "How can we tell sub[contractors] that
they aren't getting paid so our books look better? There's
something wrong with that."
11For example, in an e-mail message to G4S, one
subcontractor wrote, "I think it is extremely unfair that you
are not honoring our contract. . . . The issue that bothers me
the most is that you are not making payment [in order] to better
your books but don't care about the books of the companies that
support you." Another subcontractor wrote to G4S that they were
owed $358,275, which presented a "significant problem" for the
subcontractor as it sought to pay its work crews.
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indication from the submitted record that any of the
subcontractors demanded direct payment of balances due from
MTPC, as was the subcontractors' statutory right under G. L.
c. 30, § 39F,12 nor did they shut down work or remove crews.
MTPC moved for summary judgment, and in March, 2016, the
judge granted summary judgment to MTPC as to G4S's complaint.
The judge concluded that G4S intentionally committed a breach of
the contract and thus, without complete and strict performance
of all of the contract's terms, could not recover on the
contract. The judge, relying on an older line of cases that we
overrule today, also concluded that G4S could not recover under
a theory of quantum meruit because an intentional violation of a
contract provision was inconsistent with a finding of good faith
and barred all such recovery unless the violation was deemed "so
trifling as to fall within the rule de minimis." See Andre, 305
Mass. at 516. G4S's payment delays and false certifications
were inconsistent with the good faith requirement. In January,
2017, in a subsequent decision, the judge dismissed MTPC's
counterclaims of fraud and G. L. c. 93A. The judge reasoned
12General Laws c. 30, § 39F (d), provides: "If, within
seventy days after the subcontractor has substantially completed
the subcontract work, the subcontractor has not received from
the general contractor the balance due under the subcontract
. . . , the subcontractor may demand direct payment of that
balance from the awarding authority."
15
that permitting additional compensation to MTPC under a theory
of fraud would be improperly duplicative because the underlying
conduct forming the basis of MTPC's fraud claim was the same as
the contract claim. The judge also noted that MTPC, as a public
entity acting pursuant to a legislative mandate, was not acting
in a business context and therefore was not engaged in trade or
commerce for the purposes of G. L. c. 93A. G4S appealed from
the Superior Court decision, and we granted its application for
direct appellate review.
2. Discussion. "Our review of a motion judge's decision
on summary judgment is de novo, because we examine the same
record and decide the same questions of law." Kiribati Seafood
Co. v. Dechert LLP, 478 Mass. 111, 116 (2017). "The standard of
review of a grant of summary judgment is whether, viewing the
evidence in the light most favorable to the nonmoving party, all
material facts have been established and the moving party is
entitled to judgment as a matter of law" (citation omitted).
Casseus v. Eastern Bus Co., 478 Mass. 786, 792 (2018). Here, we
affirm the decision to grant summary judgment on the contract
claim, but conclude that there are material disputed facts
precluding summary judgment on the quantum meruit and fraud
claims.
a. Complete and strict performance of all construction
contract terms. "The law has long been settled in this
16
Commonwealth, in relation to building contracts, that a
contractor cannot recover on the contract itself without showing
complete and strict performance of all its terms . . . ."
Andre, 305 Mass. at 516. See Peabody N.E., Inc. v. Marshfield,
426 Mass. 436, 441 (1998); United States Steel v. M. DeMatteo
Constr. Co., 315 F.3d 43, 50 (1st Cir. 2002). G4S claims that
the complete and strict performance requirement is outdated and
asks us to adopt instead the "materiality rule" set forth in
Restatement (Second) of Contracts, supra at §§ 237, 241.13 We
13Restatement (Second) of Contracts § 237 (1981) provides:
"[I]t is a condition of each party's remaining duties to render
performances to be exchanged under an exchange of promises that
there be no uncured material failure by the other party to
render any such performance due at an earlier time."
Section 241 presents five factors to consider whether a
failure is material:
"In determining whether a failure to render or to offer
performance is material, the following circumstances are
significant:
"(a) the extent to which the injured party will be
deprived of the benefit which he reasonably expected;
"(b) the extent to which the injured party can be
adequately compensated for the part of that benefit of
which he will be deprived;
"(c) the extent to which the party failing to perform
or to offer to perform will suffer forfeiture;
"(d) the likelihood that the party failing to perform
or to offer to perform will cure his failure, taking
account of all the circumstances including any reasonable
assurances;
17
decline this invitation. We do, however, interpret the complete
and strict performance requirements in construction contracts as
being limited to the design and construction itself, as
explained infra. All of our previous holdings imposing complete
and strict performance have concerned breaches of the actual
design and construction of the project.
Our construction law cases have emphasized the importance
and need for strict compliance with construction law contracts
to ensure that the construction itself is done safely and
correctly according to design specifications. See, e.g., Russo
v. Charles I. Hosmer, Inc., 312 Mass. 231, 233-234 (1942)
(failure to follow design requirements in guard rails posed
public safety problems). This is particularly true as defects
are difficult to identify and expensive to fix in a finished
project. See id. at 233 (deviation from number of steel rods
cast in concrete to provide support for highway guard rail
unknown to owner); Bowen v. Kimbell, 203 Mass. 364, 368 (1909)
(cost to cure deviation from building specification after
building's construction disproportionately high). Thus, we have
not tolerated any breaches that relate to whether the
"(e) the extent to which the behavior of the party
failing to perform or to offer to perform comports with
standards of good faith and fair dealing."
18
construction was completed according to design specifications.
See Peabody N.E., Inc., 426 Mass. at 437, 441 (failure to
substantially complete construction of septage and grease waste
facility by terms of agreement not complete and strict
performance); J.A. Sullivan Corp. v. Commonwealth, 397 Mass.
789, 790 (1986) (failure to complete itemized list of finish
work, corrections, repairs, and services for construction of
public college building not complete and strict performance);
Albre Marble & Tile Co. v. Governman, 353 Mass. 546, 549-550
(1968) (failure to ensure satisfactory surfaces before tile
installation not complete and strict performance); Russo, supra
(failure to install highway guard rail in accordance with terms
specifying number of steel rods not complete and strict
performance); Andre, 305 Mass. at 516-517 (failure to comply
with plans and specifications of house construction not complete
and strict performance); Bowen, supra (failure to use correct
ratio as provided in specifications for making plaster not
complete and strict performance); Hayward v. Leonard, 7 Pick.
181, 185 (1828) (failure to build house to specifications not
complete and strict performance).
In the instant case, design and construction provisions
that would require strict and complete performance would
include, for example, the following:
"The fiber optic cable and infrastructure system shall be
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designed and installed for a minimum life expectancy of 30
years[.]"
"All fiber strands and buffer tubes shall be color coded
with highly distinguishable, vibrant colors[.]"
"The fiber cable shall have a circular cross section so
that aerial installation can be done with standard sheaves
and tensioning equipment[.]"
"The . . .Fiber Optic Network will consist of a core fiber
backbone with extensions to two (2) major . . . regional
network centers located at One Summer Street in Boston, MA
and One Federal Street in Springfield, MA."
We recognize, however, that construction contracts can be
thousands of pages long, containing all types of different
provisions.14 We have not considered in our cases the
consequences of breaches of construction contract provisions
that are subsidiary to or supportive of the design and
construction, but do not directly involve the design and
construction itself. We clarify today that the complete and
14Here, the 1,400-page contract between MTPC and G4S
provided many provisions unrelated to the actual construction
work. Examples of such provisions include (1) G4S was to submit
printed copies of required manuals in "heavy-duty, commercial-
quality, durable, 3-ring, vinyl covered, loose-leaf binders, in
thickness necessary to accommodate contents, sized to receive 8-
1/2" by 11" paper. The binder spine shall provide a clear
plastic sleeve to hold labels identifying the contents"; (2) G4S
was to ensure that the Recovery and Reinvestment Act of 2009
logo emblem was at least six inches or larger in diameter and
ensure clear space surrounding the logo equal to one-half of the
logo's radius; and (3) G4S was required to provide, for MTPC
field inspectors, offices with a "minimum of 200 square feet of
usable space with . . . a [d]esk, desk chair, visitor chair and
plan table[,] . . . [p]ortable radio with contractor frequencies
and charger[,] . . . [and] [w]eekly office cleaning services."
20
strict performance requirements in construction contracts apply
only to the design and construction work itself. Other
provisions should be analyzed pursuant to ordinary contract
principles, including the materiality standard applied under
Massachusetts contract law. See EventMonitor, Inc. v. Leness,
473 Mass. 540, 546 (2016), quoting Anthony's Pier Four, Inc. v.
HBC Assocs., 411 Mass. 451, 470 (1991); Buchholz v. Green Bros.,
272 Mass. 49, 52 (1930), S.C., 290 Mass. 350 (1935).15
The question then becomes what is the legal status of the
contractual violations here. The construction contract at issue
was to "design, furnish, build and equip a complete fiber optic
network system . . . for a fully implemented, functional and
tested system" in accordance with the project construction
schedule. The "Work" was defined broadly as comprising
"all Design-Builder's design, construction and other
services required by the Contract Documents, including
procuring and furnishing all materials, equipment, services
and labor specified by or reasonably inferable from the
Contract Documents, to develop, install, and test the
Network, and including the submission and delivery of all
documents and other things as required or reasonably
inferable from the Contract Documents."
The contractual violations at issue did not concern the actual
15We decline to adopt the materiality standard of the
Restatement (Second) as argued by G4S. We recognize, however,
that many of the different elements of the Restatement
materiality standard are considered in either our contract or
our quantum meruit analysis.
21
design and construction of the project. Instead, they were
about the timing of payments to subcontractors and the
documentation concerning those payments.16 G4S delayed payments
and filed false certifications to allow it, a public company, to
report inflated revenues for its quarterly reports. We thus
analyze these violations under a materiality standard, not
complete and strict performance.
In the Commonwealth, a material breach of a contract occurs
when the breach concerns an "essential and inducing feature of
the contract." See EventMonitor, Inc., 473 Mass. at 546,
quoting Anthony's Pier Four, Inc., 411 Mass. at 470. Essential
and inducing features of a contract are provisions that are "so
serious and so intimately connected with the substance of the
contract[]" that a failure to uphold the provision would justify
16Contract terms defining payment or reporting requirements
may have an impact on construction but they are not design and
construction contract terms analyzed pursuant to the complete
and strict performance requirement. Rather they are analyzed
according to the materiality standard. For example, payment
delays or disputes may cause subcontractors to stop or slow down
work by temporarily pulling crews or reducing the number of
workers. That would result in delays in the construction, but
even delays in the construction are different from the design
and construction itself. If, however a subcontractor, having
not received timely payments, installs an insufficient amount of
highway guard rails, uses plastering of inferior quality, or
does not complete the project, such breaches would be analyzed
under complete and strict performance. See Peabody N.E., Inc.
v. Marshfield, 426 Mass. 436, 441 (1998); Russo v. Charles I.
Hosmer, Inc., 312 Mass. 231, 233-234 (1942); Bowen v. Kimbell,
203 Mass. 364, 368 (1909).
22
the other party walking away from the contract and no longer
being bound by it. See Buchholz, 272 Mass. at 52 (failure to
make monthly payments as agreed to in contract material breach
because payments "essential and inducing feature").
There can be little doubt that paying subcontractors on
time was an essential and inducing feature of the contract
between MTPC and G4S. See Buchholz, 272 Mass. at 52 (in
contract to paint and maintain signs, payment of wage "essential
and inducing feature"). The "[p]rompt payment of subcontractors
on public works is a consistent legislative purpose." Manganaro
Drywall, Inc. v. White Constr. Co., 372 Mass. 661, 664 (1977).
This is particularly true here, where a significant portion of
the project funding came from the Recovery Act, the purpose of
which was to "maximize[] job creation and economic benefit" and
"provide a one-time injection of funds for the purpose of
stimulating the American economy."
The contract itself also stressed the importance of timely
payments to subcontractors. As provided in article 10.2 of the
contract's general conditions, MTPC could walk away from the
contract and no longer be bound by its terms if G4S failed to
timely pay subcontractors. G4S's repeated instances of
intentionally failing to timely pay subcontractors in accordance
with the agreed-upon contract was therefore a material breach of
the contract, barring G4S from recovering breach of contract
23
damages. See Buchholz, 272 Mass. at 55.17
G4S not only delayed the payments but also falsely
certified that it had made the payments, thereby magnifying and
multiplying the number of material breaches. The contract here
independently required proper certification of payments. Those
provisions were intentionally violated. Intentional
misrepresentations to the government for financial gain are
significant breaches of contract in and of themselves and can be
serious civil and criminal offenses.18 In the words of Justice
Holmes, contractors "must turn square corners when they deal
with the Government." Rock Island, Ark. & Louisiana R.R. v.
United States, 254 U.S. 141, 143 (1920). G4S did the opposite,
cutting those corners for improper purposes. In sum, the
delayed payments and the false certifications here were material
17G4S argues that the subcontractors were eventually paid
and thus the breach was cured. Given the importance of timely
payment, we do not consider the delayed payments a cure for the
contractual violation. They do, however, have an impact on the
equities and the quantum meruit analysis.
18We note that persons or corporations who make a
fraudulent claim for payment to a State government entity are
subject to civil penalties under the Massachusetts False Claims
Act, G. L. c. 12, §§ 5A-5O. When any funding for a public
contract is provided by the Federal government, civil and
criminal sanctions may also be pursued under the civil or
criminal False Claims Act. See 31 U.S.C. §§ 3729-3733 (civil);
18 U.S.C. § 287 (1986) (criminal). Additionally, the Division
of Capital Asset Management and Maintenance may suspend or debar
persons who wilfully supply materially false information while
performing a public contract. G. L. c. 29, § 29F.
24
breaches of the contract precluding recovery on G4S's contract
claim.
b. Recovery under quantum meruit. G4S contends that even
if it is not entitled to pursue its contract claim, it should be
allowed to recover under a quantum meruit theory. We conclude
that there are genuine issues of material fact in dispute on the
quantum meruit claim. To recover under quantum meruit in a
construction case, a contractor must prove both substantial
performance of the contract and an endeavor in good faith to
perform the work fully. J.A. Sullivan Corp., 397 Mass. at 796;
Albre Marble & Tile Co., 353 Mass. at 550; Andre, 305 Mass. at
516. "The underlying basis for [recovery under quantum meruit]
is derived from principles of equity and fairness, to prevent
unjust enrichment of one party . . . at the expense of another
. . . ." Malonis v. Harrington, 442 Mass. 692, 697 (2004).
Although "clean hands" are important in determining equitable
relief, we also have recognized that this is not an absolute
proposition, as the purpose of the doctrine is to allow courts
to produce a just result. Walsh v. Atlantic Research Assocs.,
321 Mass. 57, 62 (1947). The proper focus is on the value of
the benefit conferred. In a construction contract, "[t]he
amount of recovery on a claim based in quantum meruit is the
fair and reasonable value of material and labor supplied to the
benefiting party." J.A. Sullivan Corp., supra at 797. "It is
25
not the policy of our law to award damages which would put [the
nonbreaching party] in a better position than if the [breaching
party] had carried out [its] contract." Ficara v. Belleau, 331
Mass. 80, 82 (1954). The nonbreaching party is "entitled to be
made whole and no more." Id. See J.A. Sullivan Corp., supra at
794 (principle of equity and fairness cautions against
"produc[ing] a windfall").
In the instant case there was, without dispute, substantial
performance by the contractor. A critical and complex project
providing a fiber optic network for western and north central
Massachusetts has been completed according to its design. The
project was, however, delayed. The cause of those delays is
bitterly disputed in the record. G4S has raised a genuine issue
of material fact that MTPC is responsible for those delays due
to its failure to complete the make-ready work on time.
More complicated is the good faith requirement. The motion
judge concluded that it was undisputed that G4S did not act in
good faith given its numerous delayed payments to contractors
and false certifications. She held that intentional violation
of these contract provisions precluded a finding of good faith
fully to perform. Support for this holding and the short-
circuiting of the rest of the equitable analysis certainly
exists, in a line of older cases that the judge properly cited.
For example, in J.A. Sullivan Corp., 397 Mass. at 797, quoting
26
Andre, 305 Mass. at 516, we reiterated that "[g]enerally, '[i]n
the absence of special exculpating circumstances an intentional
departure from the precise requirements of the contract is not
consistent with good faith in the endeavor fully to perform it,
and unless such departure is so trifling as to fall within the
rule de minimis, it bars all recovery." The simplicity and
severity of this approach, which dates back to Sipley v.
Stickney, 190 Mass. 43, 46 (1906), and Homer v. Shaw, 177 Mass.
1, 5 (1900), has, however, been criticized in leading treatises
on contract law. See 8 C.M.A. McCauliff, Corbin on Contracts
§ 36.8, at 354 (J.M. Perillo ed., rev. ed. 1999); S. Williston,
Contracts § 842, at 2364 n.4 (rev. ed. 1936). This rule also
has been questioned, and even distinguished by this court, but
this older line of cases has not been overruled. See Walsh, 321
Mass. at 62 (describing Sipley doctrine as rigid rule of law
that has been criticized as "too severe"). We expressly
overrule this line of cases and rearticulate the doctrine of
quantum meruit today.
We conclude that intentional breaches, even those involving
material breaches, alone are not dispositive of the right to
equitable relief, at least when such breaches do not relate to
the construction work itself. Good faith is a requirement for
recovery under quantum meruit, but ruling in equity, this
requirement is not one that is "too rigid and unyielding for the
27
practical accomplishment of justice." J.A. Sullivan Corp., 397
Mass. at 797, quoting Morello v. Levakis, 293 Mass. 450, 453
(1936). We have emphasized that "[t]he doctrine of clean hands
is not one of absolutes and should be so applied as to
accomplish its purpose of promoting public policy and the
integrity of the courts." Walsh, 321 Mass. at 66 (allowing
recovery in quantum meruit even for plaintiff who intentionally
committed breach of employment contract provision). There is no
simple formula to apply here, but rather numerous factors to
analyze. We thus conclude that in evaluating the contractor's
good faith and right to recover under quantum meruit, we must
consider the contract performance as a whole, taking into
account both parties' actions, the different contractual
breaches and the damages they caused, and most importantly the
value of the project provided as compared to the amount paid for
that work. We must, in the end, balance the equities and
produce a just result. See id. (in quantum meruit case, court
declined to deprive plaintiff of all earnings during employment
despite bad faith material breach of employment contract). See
also Meehan v. Shaughnessy, 404 Mass. 419, 438-439 (1989)
(departing law firm partner did not forfeit accrued profits
despite intentional breach of partnership contract and fiduciary
duties because there was no causal connection between law firm's
claimed losses and breaches).
28
Here, G4S completed the project as specified, albeit with
delays. MTPC deducted $4 million, of which a significant sum
was damages for delay. Whether one party or the other or both
were responsible for the delays remains disputed on this record.
Resolution of this issue has an impact on the over-all balancing
of the equities in the instant case. If MTPC was responsible
for some or all of those delays and nevertheless withheld the
amount, MTPC's own contractual violations would need to be
considered in the equitable analysis. If those violations were
intentional, that would also be a factor in the balancing of
equities. Furthermore, G4S has introduced evidence to support
its claim that it has performed $10 million in uncompensated
work because of MTPC's failure to perform make-ready work. If
G4S's $10 million REA has merit, this represents a significant
amount of value supplied to MTPC without cost and may constitute
a windfall. See J.A. Sullivan Corp., 397 Mass. at 794; Ficara,
331 Mass. at 82. It would thus "work great hardship to deprive"
G4S of compensation for extra work conferred over the three-year
project given that the design and construction of the network
was satisfactory. See Walsh, 321 Mass. at 66.
Finally, although there was not good faith and clean hands
in the context of prompt payments to subcontractors or truthful
certifications to MTPC, it is unclear from the submitted record
whether there is any causal connection between these contractual
29
violations and any damages to MTPC. It is undisputed that the
work had been done prior to the certifications. It also appears
from this record that the subcontractors, not MTPC, suffered the
consequences of the delayed payments by continuing to work
despite the payment delays. The record before us, as the motion
judge recognized, contains no evidence that the delayed payments
or false certifications had an impact on or affected the
construction, the delays in the completion of the project
resulting in the withholding of liquidated damages, or the $10
million of extra work alleged in the REA.19 See Meehan, 404
Mass. at 438-439 (no causal connection between breach and
damages claimed).
We conclude that resolution of these disputed factual
questions is necessary to determine whether equitable relief is
appropriate in the instant case. The responsibility for the
delay, the amount of extra uncompensated work, and the presence
or absence of any causal connection between the intentional
breaches and any damage to MTPC are all relevant to a just
resolution of the quantum meruit claim. If the delays were
caused by MTPC, G4S has performed and paid for $10 million in
19The lack of impact on the construction appears to be
because of the patience and accommodation of the subcontractors
that put up with, and even suffered from, G4S's misconduct,
without complaining to MTPC or demanding direct payment as was
their right.
30
extra work to complete the project, and the payment delays to
subcontractors and false certifications had no impact on the
project's construction or completion date, it would be
inequitable for MTPC to withhold compensation from G4S for the
reasonable value of its labor and materials in excess of the
amounts already paid to G4S. Meehan, 404 Mass. at 447. See
Harness Tracks Sec., Inc., v. Bay State Raceway, Inc., 374 Mass.
362, 367-368 (1978).
c. Fraud. MTPC contends that its counterclaim against G4S
for fraud was improperly dismissed. The motion judge sua sponte
dismissed MTPC's fraud claim against G4S. She relied on Szalla
v. Locke, 421 Mass. 448, 454 (1995), in which this court held:
"Where the same acts cause the same injury under more than one
theory, duplicative damage recoveries will not be permitted."
Applying Szalla, the motion judge reasoned that "the conduct
that forms the basis of MTPC's fraud claim is precisely the same
as that which caused this Court to conclude that G4S had
necessarily forfeited its affirmative claims against MTPC. As a
consequence . . . , [MTPC] no longer had to justify the $4
million it retained of the Contract balance; the upshot was that
it was effectively provided with an award that more than covered
any loss that it suffered as a result of paying G4S
prematurely."
We agree that summary judgment on the fraud claim may be
31
appropriate only under a duplicative damages analysis. However,
"where the acts complained of . . . are factually separable and
distinguishable . . . , there is no error in permitting separate
recoveries for separable injuries." Calimlim v. Foreign Car
Ctr., Inc., 392 Mass. 228, 236 (1984). "Permitting awards under
several counts where claims and injuries are factually
distinguishable, but disallowing such recovery where they are
not, will serve to avoid over or under compensation." Id.
Here, there may be separable and distinguishable acts
forming the basis of recovery under the breach of contract and
fraud claims. A fact finder could determine that the delayed
completion of the project could be the basis for the breach of
contract claim and the false certifications that subcontractors
were timely paid could be the basis for the fraud claim. MTPC
withheld $4 million as separable recovery for the breach of
contract because of the delay, using the liquidated damages
provision to calculate the amount of the withholding.20 MTPC
additionally claims that the false certifications caused it to
20The fact that the fraudulent certifications and delayed
payments to subcontractors also provide a basis for breach of
contract is not dispositive. If G4S was responsible for the
delays, an issue that cannot be decided on summary judgment,
those delays provided a much more straightforward basis for
calculating damages for breach of contract than the false
certifications.
32
pay G4S prematurely, resulting in the loss of $1.67 million,
which it asserts is another injury for which it thus is entitled
to separable recovery.21 Whether this claim has merit and
whether such calculations of damages are correct require further
fact finding, but some recovery, at least for the loss of the
time value of money, may be justified.
Whether the monetary loss for MTPC due to fraud is less
than the monetary loss due to breach of contract also should be
determined. This appears to depend on who was responsible for
the delays; G4S's recovery, if any, under quantum meruit; and
whether the losses due to fraud claimed by MTPC have been
grossly inflated. Whether the damages, if any, caused by the
false certifications are duplicative thus cannot be determined
on this record. We therefore reverse the allowance of summary
judgment on the fraud claim.
3. Conclusion. For the reasons discussed, we affirm the
summary judgment decision on the breach of contract claim and
reverse the summary judgment decision on the quantum meruit and
21MTPC and G4S also dispute the amount of loss, asserting
it to be $1.67 million and $1,757.48, respectively. MTPC
calculated $1.67 million based on lost interest accrued at the
prime rate of 3.25 per cent per annum interest from the date of
each payment until June, 2, 2014, the date of MTPC's last
payment to G4S. G4S, in turn, asserts that lost interest based
on alleged late subcontractor payments would result only in
$1,757.48 based on a thirty-day yield of 0.22 per cent interest
calculated for only the period that the payment was late.
33
fraud claims. We remand the matter to the Superior Court for
proceedings consistent with this opinion.
So ordered.