Municipal operations consist of many ongoing programs. They include the delivery of continuous services, such as fire, ambulance and policing, and tend to lend themselves to longer term projects.
However, historically, the terms of municipal elected officials have been both fixed and short. Since there are obvious political disadvantages in having one municipal council saddled with many long-term contracts entered into by its predecessors, there has been a strong preference in municipal contracting for contracts of relatively short duration.
This practice is unfortunate, because there are significant opportunities for cost-saving in many longer-term types of arrangement. Fortunately, the trend is now in the other direction. Nevertheless, many municipalities prefer not to let out contracts for longer than a single council term and thus in many cases procurement contracts will be set up on a three-year cycle.
Therefore, one will often find service contracts for plumbing, electrical, grass-cutting, snow-plowing, to name but a few, are set up on a three-year basis. Contracts dependent on provincial (or federal) funding are often entered on a single year basis, in view of section 11.3(2) of the financial Administration Act (and its federal equivalent) which provides:
- Every agreement providing for payment of money by the Crown is deemed to contain a provision stating the payment of by the Crown of moneys that come due under the agreement shall be subject to, a) an appropriation to which that payment can be charged being available in the fiscal year in which the payment becomes due; or (b) the payment having been charged to an appropriation for a previous fiscal year.
To control the quality of service that is provided, longer term contracts require a built-in method of performance monitoring. Frequently, such contracts will be set up to provide for a formal annual review during each year of the contract at which time the municipality will have the option to decline whether to continue the contract for a future year or terminate it based on the performance record.
In legal terms, care must be taken in drafting contractual provisions of this sort, otherwise the process will not work at all. It is highly advisable to make clear in the document the annual review process does not allow the contractor up to a year to get things right.
Even if the language of the document is correct, a municipality would be wise to document any deficient work over the course of each year and notify the contractor of any perceived deficiency well in advance of the formal meeting. A failure to demand that deficient work be rectified may colour a court’s perception of any subsequent effort by the municipality to terminate the contract.
Unless the contractor was told at the time what it was doing wrong, and what it needed to do to perform at an acceptable level, any effort to terminate the contract at the review stage is likely to come across as little more than an effort by the municipality to shed itself of an expensive contract.
Subject to the foregoing concerns, the annual review process should be incorporated into every long-term service contract. There should be both rewards for top performers and potential penalties for poor performance. Indeed, the preferable approach is for contracts to provide for an ongoing comparative review against other sources of supply.
Paradoxically, proper service review and performance appraisal is rare in municipal contracting. The tendency is to complain if necessary, but not necessarily to complain. Such an approach is of limited value from a forensic perspective, should the dispute ever proceed to litigation.
Anecdote-based testimony not supported by correspondence or other systematically accumulated record is rarely persuasive. Unless proper steps were taken to bring deficiencies in performance to the supplier’s notice, any complaint raised in litigation tends to be an after-the -fact attempt to justify a refusal to pay.
