Monday, May 12, 2014

Can Expired Contracts Be Resurrected?

What happens when a contract between a public agency and a business expires?  Is a new solicitation required?  Can the contract be extended through an amendment? 

Conservative position:  The conservative position is that an expired contract is expired and may not be amended to extend it.  Once the contract expires, nothing exists, and a new solicitation for continuation of services is required.

Risks of extending an expired contract:  Some public agencies, because of the need to continue to provide services, have been known to extend expired contracts.  The following are some of the risks associated with extending an expired contract:
  • Audit risks:  If a contract has expired, there is no contract to amend or extend, and thus an auditor may argue that the public agency has not gone through the appropriate selection process for the additional or extended work.  If an agency makes the assumption that any expired contract may be amended, this would suggest, in the extreme, that an agency would never have to conduct a competitive solicitation in the future, but simply amend previously expired contracts.  Mitigating against an audit risk for extending an expired contract may be partially dependent on when the contract expired.  In other words, if the contract expired three months ago and a public agency is just now resurrecting it, that is a more difficult position to support than if the contract expired yesterday or last week.  If a public agency chooses to extend a previously expired contract, they should document the reasons why this action was necessary, instead of conducting a new solicitation.  This documentation should discuss the negative consequences to the operation of the public agency if a new solicitation was conducted and the agency was left without a service provider for a period of time.
  • Contractual risks:  If an agency choose to amend a previously expired contract, the language in the amendment is important.  Without all encompassing language, the firm an agency contracted with could at some point argue that they are not bound by the original terms of the contract since it expired.  Thus, any amendment language would need to acknowledge that the contract had expired through an administrative oversight, but that both parties have explicitly agreed that all of the terms and conditions of the original contract continue to be applicable under the amendment.
  • Protest risks:  There is a risk from other firms who may argue that they have not been provided the opportunity to publicly compete for the work that has simply been continued through an amendment to the expired contract.  Part of their argument may be that the original solicitation laid out the term of the contract and that they now have a right to compete for the continuation of the work.  A protesting firm may simply protest or they may challenge an action to extend an expired contract in court, which could end up delaying the provision of the services.
  • Publicity risks:  Audit, contractual, and protest risks all come with potential negative publicity for a public agency if the information is reported in the local media.  Public agencies should weigh carefully whether the risks of extending the contract are worth the potential negative publicity.
Practical tips:  The following practical tips can help your agency in addressing the issue of whether expired contracts can be extended.
  • Develop a policy:  Discuss and develop a policy on your agency's position on whether an expired contract can be amended.
  • Track contract expiration dates:  Develop a clear tracking system to identify early on contracts that are expiring.  This type of system will provide sufficient time to develop and solicit services under a new contract.
  • Talk with your attorney:  If your agency is faced with the situation of potentially amending an expired contract, be sure to discuss it with your attorney and seek their advice on the best course of action.
Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC

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