How municipal by-laws impact contracting

As a contractor you should be aware that most municipalities contain a provision along the lines of Section 4 of the Ottawa Purchasing By-law number 50 of 2000, which states: “The procedures prescribed in this by-law shall be followed to make a contract award or to make a recommendation of a contract award to Council.”

Clause 3(a) of the Regional Municipality of Niagara Purchasing By-law number 56-2009 is along the same lines: “The policies and procedures in this By-law, including all of the purposes, goals and objectives of Section 1 hereof, shall be followed for the Purchase of all Goods and/or Services by the Corporation or any of its officers, servants and employees.”

This wording raises the question of whether a provision in a municipal by-law can prejudice the rights acquired by a bona fide person contracting with a municipal employee in good faith, and without actual knowledge of some contravention of the by-law.

When the province or the federal government enacts legislation governing the contracting process by those levels of government respectively, the law of contract is deemed to be amended to the extent that is inconsistent with the legislation so enacted. The provincial and federal parliaments are sovereign within their respective fields of legislative competence. In contrast, while autonomous, municipalities are not sovereign entities they have no inherent legislative jurisdiction to amend the law of contract.

The legislative powers of a municipality are necessarily constrained to those that have been vested in it by way of delegation from the provincial government.

Despite these distinctions between provincial and federal legislation and municipal by-laws as delegated legislation, the better view appears to be that municipal purchasing by-laws can nevertheless have a prejudicial effect even upon a bona fide contracting party, at least when the by-law in question is in effect before the purported contract is entered into by the municipality. The reason is that it is a basic proposition of municipal law that a municipality can act only by or under the authority of a by-law.

The indoor management rule does not apply to a municipal corporation, because the business and affairs of a municipality are required to be conducted openly, the law imposes an obligation upon contractual parties dealing with a municipality to confirm purported authority of the agent with whom they are dealing. From these propositions it would appear to follow that contracts that are not properly authorized by the municipality are void.

As mentioned briefly above, purchasing procedures are a supplemental regime, of rules governing municipal procurement. I have discussed them here in order to explain the role that they play in fleshing out the core procurement by-law of a municipality. Such procedures tend to be administrative rules adopted by senior management within a municipality, which are intended to supplement the purchasing policies or by-law. The procedures spell out the details as to how the policy is to be interpreted, applied, and otherwise given effect.

In practice, purchasing procedures are normally written by the senior members of the purchasing department the manager and the analyst. It is best to ensure that they are drafted in a user friendly way. They must be clearly laid out, follow a logical order, and be readily understandable. They should set out the best practices to be followed in carrying out purchasing duties.

The goal in drafting procedures should be to assist members of staff in compliance with government policy. To be of any real use, procedures must be made readily available. Many municipalities now make them available to both suppliers and all members of staff who are engaged in any aspect of procurement.

Stephen Bauld, Canada’s leading expert on government procurement, is president and CEO of Purchasing Consultants International Inc. He is also the co-author of the Municipal Procurement Handbook, published by LexisNexis Canada. He can be reached at stephenbauld@bell.blackberry.net.