The Public Contract Code sets forth procedures that public entities must follow in the bidding, awarding, and payment of public works contracts. Through enactment of Assembly Bill 453, the Legislature added § 5110 to the Public Contract Code to deal with situations when the award of a contract is challenged. Section 5110 allows the public entity to enter into the contract pending final decision of the challenge. However, if the contract is later determined to be invalid due to a defect in the competitive bidding process and the defect is caused solely by the public entity, the public entity must pay the contractor who entered into the contract the reasonable cost of the labor, equipment, materials, and services that the contractor provided. To recover its costs, the contractor must show that (1) it had a good faith belief that the contract was valid; (2) its work is satisfactory; (3) it did not commit fraud; and (4) the contract does not otherwise violate statutory or constitutional limitations. The contractor may not, however, recover its profits.
The Legislature stated the reason for the addition of § 5110 is “to avoid unjust enrichment of the pubic entity and an unlawful taking of the contractor’s property.”
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