Another grey area of parish/town council life I'm afraid.
What do your standing orders / own policies and procedures say? If you have followed these and they were, of course, voted on then technically there isn't a problem. However, I agree with the points Mentorman makes. Parish / Town Councils should be totally transparent. These questions wouldn't need to be asked if all councils had a clear and concise policy for tendering works and how those tenders are sifted before selection.
Although it doesn't sound like you council has breached any legislation it does highlight a loop that could most certainly be tightened.