Municipal Laws

Pre-Audit Certificates and Oral Municipal Contracts

N.C.G.S. 160A-16 requires that “[a]ll contracts made by or on behalf of a city shall be in writing”.  However, that law also permits the express ratification of municipal contracts not made in writing. 

N.C.G.S. 159-28(a), part of the North Carolina Local Government Budget and Fiscal Control Act and the State’s “pre-audit requirement” law, provides:  “If an obligation is evidenced by a contract or agreement requiring the payment of money or by a purchase order for supplies and materials, the contract, agreement, or purchase order shall include on its face a certificate stating that the instrument has been preaudited to assure compliance with this subsection.”

For our purposes, we’re focused on the bolded language, yes, but also on the fact that the bolded language appears to apply “[i]f an obligation is evidenced by a contract”.  So, then, what if an agreement is not “evidenced by a contract” — in other words, it is an oral agreement — but the oral agreement has been expressly ratified pursuant to N.C.G.S. 160A-16 such that it is valid?  According to a recent pronouncement by the Court of Appeals, that unwritten though expressly ratified agreement may nonetheless require “on its face a certificate stating that the instrument has been preaudited.” 

In Executive Medical Transportation, Inc. v. Jones County Department of Social Services, the Court determined that a pre-audit certificate is required for an “oral contract” between a County and private company in which the latter “agreed to provide transportation services to residents of Jones County”.  On that  basis, the Court reversed the trial court’s refusal to dismiss the private company’s breach of contract claim.  In other words, the oral services contract was invalid for lack of a “pre-audit certificate”. 

Professor Kara Millonzi of the UNC School of Government gives her always interesting and insighful take on these issues here.  We highly recommend review.

Mike Thelen practices in Womble, Carlyle’s Real Estate Litigation practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Categories: Municipal Laws

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