Drafting Contracts

1. Drafting Contracts Language and Layout Contract Administration Office of the Vice President for Finance and Administration Barry C. Nelson, Ph.D.

2. What’s the current state of contract drafting?

3. Time What are the costs of deficient drafting? • Money • Loss of anticipated benefit • Disputes

4. Learning by osmosis What are the causes of deficient drafting? • Law as voodoo • Everyone’s a great writer • You can’t stop the machinery

5. What’s the difference between good drafting and deficient drafting? Smoking gun versus the cumulative effect of countless small changes

6. How to distinguish good drafting from bad drafting • How to put that knowledge to use The Goals of this Seminar

7. Be consistent • Use standard English • There’s no such thing as a “personal drafting style,” only efficient and less efficient drafting The Four Principles! • “Tested” contract language isn’t an obstacle to clear and efficient drafting

8. Policies and Regulations on Contracts • SPRM 01.04: Items requiring action by the Board of Regents • SPRM 25.07: Contract Administration • SPRM 25.07.01: Contract Administration and Delegations of Authority 

9. TAMUS Policy 25.07 TAMUS Policy 25.07 governs contracting and provides for the levels of approval required for different types of contracts.

10. TAMUS Regulation 25.07.01 TAMUS Regulation 25.07.01 lists contract administration procedures and delegations.

11. The Front of the Contract The Introductory Clause The Title Recitals Cover Sheet, Table of Contents, and Index of Defined Terms

12. The Layout of the Body of the Contract Arranging Provisions The Format Cross-References

13. The Back of the Contract The Signature Blocks The Concluding Clause Attachments

14. Contract Review Checklist Description of goods/services to be received by component? Clear and understandable description of the subject of the contract. Limit use of highly technical terms when possible.

15. Contract Review Checklist Contractor’s name, address, phone, fax? Verify current information. Use legal name.

16. Contract Review Checklist Contact person(s) for contractor, name, address, phone, fax, email address? Verify current information.

17. Contract Review Checklist Date contract is to begin? This may or may not be the date the contract is signed.

18. Contract Review Checklist Date contract ends? This refers to date the contract would normally end unless terminated earlier for any reason.

19. Contract Review Checklist Other important dates (deadlines, mileposts, reports due, etc.)? Dates should be clearly identified. Use full dates (ex: “June 3, 2004”) whenever possible. NOTE: in many foreign countries dates expressed in numerals use the Day/Month/Year format (e.g., June 3, 2004 would be written as 3/6/04 rather than 6/3/04).

20. Contract Review Checklist Procedure for renewal clearly identified and understood? Caution when using an “evergreen” clause.

21. Contract Review Checklist Procedure for termination clearly identified and understood? Termination for cause and termination at will should be identified.

22. Contract Review Checklist Verify highest level of approval within TAMUS needed from contract? Use current HSC President’s Delegation of Authority internal policy to identify highest level.

23. Contract Review Checklist All exhibits, attachments, appendices, schedules, etc. attached? Office of General Counsel normally will not approve an agreement until all of these documents have been provided for review.

24. Contract Review Checklist Title and authority of person signing for contractor? Should be an officer or authorized agent of contractor.

25. Contract Review Checklist If contract can be terminated at will (for no cause or without cause), verify that this is what component wants in the contract This may cause problems for component and should be clearly understood prior to signature.

26. Contract Review Checklist Clear description of amounts of money or other consideration for contract Partial payments should be stated with due dates; amount tied to other amounts (e.g., royalties, percentages) should be stated in clear terms.

27. Contract Review Checklist All payments are in U.S. dollars? If any part of the contract is performed or payable outside the U.S.

28. Contract Review Checklist Method for providing notice of default and opportunity to cure? Normally written notice and reasonable time to cure.

29. Contract Review Checklist Rights, obligations, duties of every party clearly listed? Each party’s responsibilities identified in understandable wording.

30. Contract Review Checklist Time and place for performance? If performance extends over a period of time, include due dates if necessary.

31. Contract Review Checklist Indemnification, liquidated damages, attorney’s fees, waiver of contractor’s liability, waiver of statutes of limitations clauses These types of clauses are not allowable for TAMHSC components because of state constitutional restrictions. AFTER attempting to have these deleted, if contractor refuses to comply, the following wording must be inserted before the wording: “To the extent permitted by the laws and constitution of the State of Texas,”.

32. Contract Review Checklist Governed by laws of the State of Texas? TAMHSC components may not agree to be governed by the laws of another state.

33. Contract Review Checklist Venue for suits in county where component’s CEO has main office State law (Sec. 85.18, Tex. Educ. Code) mandates this venue: it is not negotiable.

34. Contract Review Checklist If insurance is required, types and levels of coverage listed? The TAMHSC Risk Manager, Matt Walton, should be consulted if there are questions about the levels of coverage and/or carriers.

35. Contract Review Checklist Confidentiality Provisions? TAMHSC cannot agree to keep information confidential if it is subject to public disclosure under the Texas Public Information Act (Ch. 552, Texas Government Code).

36. Contract Review Checklist Act of God or force majeure clause? Provides relief if performance impaired by unexpected events including weather and civil disturbances.

37. Contract Review Checklist Assignment by either party must be approved in advance in writing Written pre-approval of assignments is preferred but not mandatory.

38. Contract Review Checklist Mandatory Alternative Dispute Resolution clause (Ch. 2260) included? Not required for contracts with other agencies of the State of Texas or the U.S. Government.

39. Alternative Dispute Resolution Clause Ch. 2260, Texas Government Code Most contracts entered into by state agencies must include language about the dispute resolution process used by the agencies.

40. Contract Review Checklist Spelling, formatting, grammar, punctuation, and general appearance of document are professional and accurate

41. Contract Review Review by the Drafter • Is this document going to work? • Is this document serving the TAMHSC component’s objectives effectively, efficiently, and without the need to resort to litigation?

42. Contract Review Review for Content • Substantively, does it cover everything that it needs to cover? • Does it satisfy all the legal requirements? • Does it contain fatal ambiguities? • Does it contain potential loopholes that a hostile reader could exploit?

43. Contract Review Review for Content • Is it internally consistent? • Are the rights, duties, and other legal consequences clearly and unequivocally stated? • Are the objectives of the document properly conceptualized? • Does the document identify the correct parties in their proper capacities (use of legal name)?

44. Contract Review Review for Content • Are the dates correct? • Are all currency amounts correct and complete? • Do the provisions clearly state mandatory duties? Who does what to or for whom or what, when? • Does the document contain representations and warranties in favor of the contractor?

45. Contract Review Review for Content • Will the document provide sufficient guidance to govern the relationship? • Will it provide sufficient guidance to a court interpreting the document?

46. Contract Review Review for Style and Usage If a reasonable reader thinks a provision is unclear, then that provision is, by definition, unclear. Do not argue. Revise it.

47. Contract Review Review by Other Party: Comments • Beneficial to all parties or to the document and the deal • Matters of style of opposing party and that do no harm to the document or TAMHSC component position • Harmful to either component’s position or the smooth operation of the document • Valid points for future renegotiations

48. Contract Review Proofread the Document After all the corrections and revisions have been made as a result of the review process, it is still not final until it has been proofread one final time. The case of the misplaced comma

49. Contract Review The Comma Dispute Contract language at issue: “Subject to the termination provisions of this agreement, this agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party.”