Contracting with an Ohio municipality definitively has its benefits. You typically know exactly what is expected up front, and full and timely payment is generally a certainty. However, there are some peculiarities with public contracts that you generally do not find when contracting with a private party. Knowing and understanding these provisions can help you in finalizing your contract and avoiding issues.
The most important thing to know is that any contract with an Ohio municipality can be voided if it was not properly approved. For contracts over a certain dollar amount formal legislative action may be required. For contracts under the specified dollar amount, legislation may not be required but typically there needs to be an approval from the city’s finance department and an approval by the city’s legal department. The dollar amount requiring legislative action varies from city to city. Under Ohio law, the burden of determining compliance with the statutory requirements rests upon those who deal with the municipality.
With limited exceptions, generally not applicable to most contracts, a city cannot grant indemnification. Most form contracts that you use probably have an indemnification provision. Some cities will require you to remove the provision from your contract. Others may have you qualify the provision to read “to the extent permitted by law…” In either event, if you seek to obtain indemnification from a municipality you will not get it.
A city is only obligated to pay amounts that have been properly budgeted. In Ohio, city’s budget for one year periods. As such, if you are going to provide goods and services that extend beyond the current calendar year, you will want to make sure that the city agrees to make a good faith effort to “appropriate” the amount necessary to pay you under your contract in the subsequent years. Depending on the amount of the contract, most cities will be willing to provide a “non-appropriation” clause “ to the contract that provides the city intends to appropriate the necessary amounts. If it does not, it will fully pay for all goods and services that it does receive and the city will provide you with advance notice of its intent not to appropriate the funds.
Finally, like most contracts, any agreement you may have with a city needs to be written in the contract. Any side agreement or understanding of terms that is not set forth in the agreement is not enforceable against the city. While you may think this is no different than any other contract, there is a significant difference. With a private contract, if the other side agrees to something and you rely on it and can show that the side agreement was in fact made, despite language in the contract to the contrary, you may have a claim under a legal theory called “promissory estoppel”. Under Ohio law, a claim of promissory estoppel is generally not recognized against a municipality. Further, you will not be able to successfully claim that the city is responsible if a city official acted beyond the scope of his or her authority because under the law, all persons dealing with the city have a duty to know what authority the city has or does not have with respect to their contract with the city.
If you have any questions about this article or your contract please contact Gerald McDonald at GMcdonald@pselaw.com or call 937-223-1130.