Knowledgebase-Extending Contract Terms


Information Product

Title:Extending Contract Terms
Summary:MTAS was asked whether a city can renew their contract with a solid waste disposal company without having to open it up to competitive bidding.
Original Author:Pullen, Mark
Co-Author:
Product Create Date:05/26/94
Last Reviewed on::06/26/2017
Subject:Contracts; Purchasing--Bids proposals and specifications; Solid waste--Contracts
Type:Legal Opinion
Legal Opinion:

Reference Documents:

Text of Document: May 26, 1994

Recently you approached me with a rather interesting question. It seems that your contract with the firm handling your city's solid waste disposal is about to expire. You have been happy with their service and want to know if you can renew their contract without having to open it up to competitive bidding. The answer is a definite I think so.

The current contract between the city and disposal company specifies that the company "will be the exclusive provider of such services during the terms of this Agreement, including any extensions thereof." (emphasis added) The controlling case in this situation is Browning-Ferris Industries v. City of Oak Ridge, 644 S.W.2d 400 (Tenn. App. 1982). The City of Oak Ridge had an ordinance similar to the Municipal Purchasing Act mandating competitive bids on public contracts. The city put out a RFP for solid waste disposal and reserved the right to reject all bids, which it later did. The city then entered into negotiations with the hauler it had been using. Another hauler filed suit claiming this procedure violated the ordinance.

The city defended by claiming that it merely extended the contract with the previous hauler through a clause which allowed negotiations for an extension. The Court of Appeals refused to buy this argument. It pointed out that:

Courts have, however, drawn a distinction between a provision in a public contract giving the governmental entity a right to extend the duration of a contract under identical terms and a provision which merely authorizes further negotiations.

The Court then cited with approval two cases from the State of Washington, Miller v. State, 440 P.2d 840 (Wash. 1968), and Savage v. State, 453 P.2d 613 (Wash. 1969), to illustrate the point. In Miller the state used a negotiation clause to extend the duration of a contract. The Washington Supreme Court held that this was improper since the contract was expired and not being let out pursuant to an option but instead was subject to competitive bidding. Savage is the exact opposite. The contract in question is that case allowed the state the option to extend the contract for one year periods up to three additional years. The Court ruled this was proper since new, successive contracts were not being created but instead one single contract was being extended at the option of the state for the same terms. The Court stressed that the renewal must clearly be an option and not a clause for future negotiations.

I believe the Savage fact pattern fits the situation you have. The language of the contract clearly infers that same agreement is to stay in force and simply be extended if the parties so agree. I also believe that an extension of this contract would fit neatly within the legislative rationale for the Municipal Purchasing Act:

Public bidding statutes are intended to promote public interest by aiding governments in procuring best work or materials for lowest practical price, providing bidders with a fair forum for competing for government contracts, and protecting the public from it's officials self-dealing, extravagance, and favoritism. Computer Shoppe, Inc. v. State, 780 S.W.2d 729 (Tenn.App. 1989).

Since the city is pleased with the service it is receiving I see no reason for it not to extend the present contract.

Very truly yours,

MUNICIPAL TECHNICAL ADVISORY SERVICE

Mark Pullen
Legal Consultant

Please remember that these legal opinions were written based on the facts of a given city at a certain time. The laws referenced in any opinion may have changed or may not be applicable to your city or circumstances.

Always consult with your city attorney or an MTAS consultant before taking any action based on information contained in this database.