Beware of county contract liability

Tuesday, March 14, 2017 8:00 am

By Mike Rainwater
Risk Management Legal Counsel

“It is ... well settled that the law in effect at the time a contract is made forms a part of the contract as if it had been expressed in the contract.” See Woodend v. Southland Racing Corp., 337 Ark. 380, 384, 989 S.W.2d 505 (1999), citing Mahurin v. Oaklawn Jockey Club, 299 Ark. 13, 771 S.W.2d 19 (1989). “[I]mplementing legislation vests the exclusive power to contract for the county in the county judge.” Ark. AG Op. No. 2007-009. County contracts must be approved by and signed by the county judge. As a general principle the county judge is the contracting authority for the county, but he or she must use that authority only after all the other required procedures have been followed. AG Opinion No. 2003-012.

County “Purchase” Contracts: A county “purchase” contract is controlled by the County Purchasing Procedures. Ark. Code Ann. 14-22-112 is a part of the County Purchasing Procedures. Ark. Code Ann. 14-22-112 requires any county purchase contract to be “approved by the county court, and no contract shall be binding on any county until the court shall have issued its order of approval.” The Attorney General has said: “[I]n the wake of Amendment 55, the reference to the “county court” should be to the “county judge.” Ark. AG Op. No. 2007-009.

“Money to Be Paid Out of the Treasury” Contracts: Ark. Code Ann. 14-14-1102(b)(2)(C)(ii) is about “money ... paid out of the treasury,” and it says: “The county judge shall have the authority to enter into necessary contracts or other agreements to obligate county funds and to approve expenditure of county funds appropriated therefore in the manner provided by law.” A contract obligating (or allegedly obligating) the county to “pay money out of the treasury” is not a valid contract unless and until it has been “enter[ed] into” or “approved” by the county judge.

“In the Manner Provided by Law”: Ark. Code Ann. 14-14-1102(b)(2)(C)(ii) (caps added for emphasis) makes it clear that “[t]he county judge shall have the authority to enter into necessary contracts or other agreements to obligate county funds and to approve expenditure of county funds appropriated therefore IN THE MANNER PROVIDED BY LAW.” Before executing any county contract, the county judge must ascertain that it has been done in the manner provided by law. Many types of county contracts have unique laws that apply to only that particular type of contract.

Computer Contract Dispute Example: An example of how the county can get stuck with having to buy its way out is the computer services contract is set forth in the Government Service Automation, Inc. v. Faulkner County, 929 F. Supp. 338, 341 (E.D. Ark. 1995) case. The GSA contract had an “opt out” provision (that was needed to comply with Ark. Const. art. 12, § 4), the “Funding Out Provision,” which said: “The continuation of this agreement ... shall be subject to the approval of the annual cost of this agreement by the County’s Quorum Court as an approved item of the county’s Annual Budget. Should this agreement fail to be approved as an item in the annual County budget, the County will notify GSA in writing and the operation of this agreement shall fully terminate within sixty (60) days ... Provided however, that the County shall not during the state term of this Agreement enter into any agreement or arrangement under the terms of which funds subject to the County’s control would be expended to provide the County services provided under this agreement without paying to GSA all funds due under the terms of this agreement for its full stated term.” The county switched vendors and got sued for breach of this part of the agreement and ended up paying money to get loose from the contract it said had been breached by GSA in the first place. See AG Op. No. 2008-161. The county judge (the contracting officer for the county) should choose the computer services vendor carefully and not sign any computer services contract without prior legal review regarding the hidden cost of later getting out of that contract if it becomes necessary or desirable.

The Law Cuts Both Ways: Contracts are binding on both parties, according to the terms of the contract and according to the requirements of the law (which requirements are incorporated into the various contracts). If the required procedures were not followed, then a purported contract would appear to be void and unenforceable. On the other hand, a contract cannot be canceled or terminated in a manner that is contrary to its terms or contrary to the law applicable particular to that type of contract. So, likewise, the decision to abandon a county contract before it expires according to its terms must be approved by and made by the county judge.

Conclusion: Arkansas law has different complicated procedures for different kinds of county contracts. Since there is generally no “general liability” protection for breach-of-contract liability, as there is for torts and civil rights violations, much care should be given to any decision to contract or to terminate an existing contract. So you can know for sure the rules that will apply to both contracting and to ending the relationship with an existing vendor, legal counsel is appropriate and advised.

Mike Rainwater, a regular contributor to County Lines and lead attorney for AAC Risk Management, is principal shareholder of Rainwater, Holt, and Sexton, P.A., a state-wide personal injury and disability law firm. Mr. Rainwater has been a lawyer for over 30 years, is a former deputy prosecuting attorney, and has defended city and county officials for over 25 years.

Rainwater, Hold & Sexton Injury Lawyers 800-434-4800

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