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CONTRACTING BASICS

CONTRACTING BASICS. Overview of issues involved in preparing and executing contracts at Texas State Rev. November 16, 2010. CONTRACTING BASICS TOPICS. What is a Contract? When Is A Contract Created? Who Can Sign A Contract? Who Is Authorized To Sign For Texas State?

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CONTRACTING BASICS

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  1. CONTRACTING BASICS Overview of issues involved in preparing and executing contracts at Texas State Rev. November 16, 2010

  2. CONTRACTING BASICS TOPICS • What is a Contract? • When Is A Contract Created? • Who Can Sign A Contract? • Who Is Authorized To Sign For Texas State? • University Contracting Policies and Procedures

  3. CONTRACTING BASICS TOPICS (Cont’d) • Essential Contract Terms and Conditions • Terms & Conditions To Consider • Other Critical Contract Issues • What Is Difference Between A PO & Contract? • Contracting Resources • Questions or Clarifications?

  4. WHAT IS A CONTRACT? • Texas courts define a contract as a promise or a set of promises to which the law attaches legal obligation. i • The law regards the performance of these promises as a duty and provides a remedy for the breach of this duty. ii i C & H Transportation Company v. Wright, 396 S. W. 2d 443, 446 (Civ App.-Tyler 1965, ref. n.r.e.). iiFoster v. Wagner, 343 S. W. 2d 914, 927 (Civ.App.-El Paso 1961, ref. n.r.e.).

  5. WHAT IS A CONTRACT (Cont’d)? The essential elements necessary to form a binding contract are usually described as:i • An Offer (to do or not to do something) • An Acceptance (in strict compliance with the terms of the offer) • Legal Purpose/Objective • Mutuality of Obligation (e.g. “meeting of the minds”) • Consideration (may be monetary or non-monetary) • Competent Parties (i.e. cannot be insane, drunk or a minor, etc.) i See Buxani v. Nussbaum, 940 S. W. 2d 350, 352 (Tex App.-San Antonio 1997, no writ); and Hallmark v Hand, 885 S.W.2d 471, 476 (Tex.App.-El Paso 1994, writ denied): see also McCulley Fine Arts Gallery, Inc. v “X” Partners, 860 S.W.2d 473, 477 (Tex. App. - El Paso, 1993, no writ).

  6. WHAT IS A CONTRACT (Cont’d)? • Common Types of Contracts: • Purchase Orders • Personal Services • Construction • Price or Purchase Agreements • Consultant or Professional Services • Temporary Employment • Maintenance and Repair • Lease or Rental of Space or Equipment • Intellectual Property Rights

  7. WHEN IS A CONTRACT CREATED? Upon the signing of the contract by all of the contracting parties (e.g. “execution of contract”): • Original signatures by those authorized to sign a contract are the usually accepted norm; however an oral contract may be binding except for certain types of contracts. i • Faxed signatures or emails should always be followed up with original signatures. iAG Opinion JC-0132 (1999).

  8. WHEN IS A CONTRACT CREATED (Cont’d)? • There may be instances where time considerations or situations (e.g. emergencies) dictate the need to accept a faxed signature as “evidence” of acceptance of the contract terms. • It is possible that an email, or a chain of emails, that make it clear a party accepts the terms of a contract can be enforceable.

  9. WHEN IS A CONTRACT CREATED (Cont’d)? • Creating “quasi-contracts” or entering into oral contracts in lieu of executing a written contract should be avoided. • If problems arise it may require legal action to determine whether or not a contract exists and is enforceable. • Virtual or electronic signatures and contracts have recently been defined in law and are still being tested in courts. i iTEXAS BUSINESS & COMMERCE CODE § 43.017. “ACCEPTANCE AND DISTRIBUTION OF ELECTRONIC RECORDS BY GOVERNMENTAL AGENCIES”

  10. WHO CAN SIGN A CONTRACT? • Only persons having actual authority to act on behalf of the State can bind the State in a contract. i • One should not indulge in presumptions or rely on the implied authority of an officer or agency of the State to contract. ii iAG Opinion JC-0132 (1999). iiState v. Ragland Clinic=Hosp., 138 Tex. 393, 159 S.W. 2d 105 (1942).; State ex rel. Dept. of Criminal Justice v. VitaPro Foods, Inc. 8 S.W.3d 316, 322 (Tex. 1999). Rehearing overruled.

  11. WHO CAN SIGN A CONTRACT (Cont’d)? An individual executing a contract on behalf of a State agency, without the authority to do so, may be personally liable for damages flowing from repudiation of the contract. i i See Thomas, Richardson, Runden & Company, Inc. v. State of Texas, 683 S.W.2d 100 (Tex. App. - Tyler 1985 writ ref d n.r.e.)

  12. WHO IS AUTHORIZED TO SIGN FOR TEXAS STATE? • University President; • Division Cabinet Officers; and, • Employees delegated specific contracting approval authority in accordance with UPPS 03.04.02 “Contracting Authority to Commit the University“. • If unsure, check with University Attorney’s Office which maintains list of authorized Texas State signers.

  13. UNIVERSITY CONTRACTING POLICIES AND PROCEDURES • UPPS’S: • UPPS 03.04.01 “Contracted Services, Including Consultants, Speakers, and Other” • UPPS 03.04.02 “Contracting Authority” • UPPS 03.04.04“Processing, Approving and Executing Contracts, Purchases and Agreements” • UPPS 03.04.07 “Interagency or Interlocal Cooperation Contracts” • UPPS 03.04.08 “Administration and Management of Major Contracts for Goods and Services” • FSS/PPS’S: • 08.01.01 “Facilities Leases”

  14. ESSENTIAL CONTRACT TERMS AND CONDITIONS • Applicable Law (Texas Law Must Prevail) • Limits of Liability (Only To The Extent Allowed By Texas Laws and Constitution) • Payment Terms (Prompt Payment Act) • Dispute Resolution (Alternative Dispute Resolution Process) • Other State Mandates (HUB Subcontracting Plan Requirements, Disclosures and Affirmations, etc.)

  15. TERMS & CONDITIONS TO CONSIDER • Insurance requirements • Indemnification • Deliverable schedules • Progress billing • Shipping and delivery • Communication plans

  16. TERMS & CONDITIONS TO CONSIDER (Cont’d) • “Force Majeure” (i.e. “Acts of God”): • What is it; • When does it apply; and, • For how long? • Pre-defined remedies for non- or sub-standard performance: • Liquidated damages; • Performance bonds; and, • Termination.

  17. TERMS & CONDITIONS TO CONSIDER (Cont’d) • Right of contract assignment • Right to audit • Behavior of contractor’s and subcontractor’s employees • Warranties • Transfer or replacement of Contractor’s key personnel

  18. TERMS & CONDITIONS TO CONSIDER (Cont’d) • Contract renewal options • Right to “piggyback” on contract by others • Confidentiality • Acceptance • Price Adjustments • “Funding Out” clause • Network Hardware and Software Certifications

  19. OTHER CRITICAL CONTRACT ISSUES • Review of Debarred or excluded Vendor’s lists: • Federal • State • State Comptroller holds: • Franchise Tax • Indebtedness to State

  20. OTHER CRITICAL CONTRACT ISSUES (Cont’d) • Contract change management plan and process • Environmental health and safety • Intellectual property rights • Contractor/subcontractor travel and expense reimbursements • Independent contractor or employee determination

  21. OTHER CRITICAL CONTRACT ISSUES (Cont’d) • Access to secure areas/information • Control of keys • Site clean-up • Waste disposal • Surplus • On-site Contractor coordination • Owner supplied resources • Liquidated damages

  22. OTHER CRITICAL CONTRACT ISSUES (Cont’d) • Nepotism disclosure • Conflict of interest • “Open Records” or public disclosure • Press Releases • Recruitment or hiring of Owner’s employees • Right of offset • Contractor background checks

  23. OTHER CRITICAL CONTRACT ISSUES (Cont’d) Contract Risk Identification, Assessment and Management Considerations: • Address; • Avoid; • Shift; • Eliminate; or, • Mitigate

  24. OTHER CRITICAL CONTRACT ISSUES (Cont’d) Constitutional and statutory limitations on the authority of the University to enter into certain terms and conditions including, but not limited to: • Liens on University’s property; • Waivers, disclaimers and limitations; • Granting control of litigation or settlement to another party; • Liability for acts or omissions of third parties; • Payment of attorneys’ fees; dispute resolution; indemnities; and, • Confidentiality.

  25. OTHER CRITICAL CONTRACT ISSUES (Cont’d) NOTE: Any Exceptions To Texas State’s Terms & Conditions, Or Additional Terms Or Conditions Proposed By A Vendor, Should Always Be Reviewed By The University Attorney, Or The Contract Compliance Office, To Make Sure The University’s Best Interests Are Protected and Maintained.

  26. WHAT IS DIFFERENCE BETWEEN A PO & CONTRACT? • A Contract is a mutual agreement between contracting parties that contains the essential elements of a contract • A PO is normally only considered an offer to purchase something when issued; it becomes a contract when the Vendor : • issues an acknowledgement accepting the PO’s T’s & C’s without changes; or, • ships the goods or provides services in accordance with the PO.

  27. WHAT IS DIFFERENCE BETWEEN A PO & CONTRACT (Cont’d)? • PO’s are normally used to purchase goods. • Contracts are normally used to purchase services. • Make sure a contract is executed when needed (i.e. reduce risk exposure, identify responsibilities, define performance standards, remedies and expectations, etc.).

  28. WHAT IS DIFFERENCE BETWEEN A PO & CONTRACT (Cont’d)? • Texas State does use PO’s to purchase some services without executing a separate contract. • If used without a contract, need to determine University’s risk exposure. • May need to add additional terms & conditions to the PO’s standard T’s & C’s boilerplate to address identified risks or other contract issues.

  29. WHAT IS DIFFERENCE BETWEEN A PO & CONTRACT (Cont’d)? • Purchases of goods are governed by the Uniform Commercial Code (UCC) (e.g. “Law of Merchants”) as adopted by the State of Texas. • If a PO is used and issues arise that are not addressed in the PO’s T’s & C’s, or the Seller’s and Buyer’s T&C’s conflict (i.e. "Battle of the forms”), if taken to litigation the UCC will normally apply.

  30. WHAT IS DIFFERENCE BETWEEN A PO & CONTRACT (Cont’d)? • Services are governed by the contract’s T’s & C’s (e.g. “within the 4 corners of the document”) which have been previously mutually agreed upon by the contracting parties. • If a contract is used to purchase services and issues arise, previous court cases and rulings (e.g. Common Law) will normally apply if taken to litigation.

  31. WHAT IS DIFFERENCE BETWEEN A PO & CONTRACT (Cont’d)? • PO’s are usually of a short term (e.g. usually less than one year) or of a one-time nature. • Contracts may be of a long term (i.e. more than one year) and may include multiple renewal options.

  32. WHAT IS DIFFERENCE BETWEEN A PO & CONTRACT (Cont’d)? • PO T’s & C’s are generally written to modify parts of the UCC that tend to favor the Vendor over the Buyer. • Contract T’s & C’s are usually much more detailed including setting out scope of work, communication and change management plans, deliverables, contingencies and performance standards and remedies, etc.,.

  33. WHAT IS DIFFERENCE BETWEEN A PO & CONTRACT (Cont’d)? • At Texas State a PO is also used to commit or encumber funds to pay for purchases. • It is strongly recommended that a requisition be created and a PO be issued referring to the contract in order to commit funds to pay for the contracted goods or services within the current fiscal year.

  34. CONTRACTING RESOURCES • Texas Procurement and Support Services (TPASS) Division of the State Comptroller's Office “Contract Management Guide” • Department of Information Resources (DIR) “Project Delivery Framework”

  35. QUESTIONS OR CLARIFICATIONS? Contact Rob Moerke Director of Contract Compliance: • Telephone – 512.245.2550 • E-mail – rm01@txstate.edu • URL – http://www.fss.txstate.edu/FinancialServices/departments/contract.html

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