Contracting 101 Introduces basic elements, potential pitfalls and essential contract drafting techniques

1. Contracting 101Introduces basic elements, potential pitfalls and essential contract drafting techniques Presenter: Greg Shabram, Contracts Manager

2. Goal and Objectives • Goal: Provide departments information necessary to support expanded contracting responsibilities • Present key concepts and learning activities that will help demonstrate contracting best practices.

3. Scenario 1 • A UO Department meets with the owner of a large plot of land. • They agree that UO Department can place research instruments on the land and in exchange UO will build a fence. • UO Department and the land owner shake hands.

4. Scenario 2 • UO Department sends a letter to Bethel School District containing the terms of a proposed arrangement. • UO Department signs the letter and requests that the School District also sign the letter if the terms are acceptable. • Bethel School District signs the letter and returns it to the Department

5. Scenario 3 • UO Dept creates a PO with the standard terms and conditions for ten hand radios • What is the agreement if they call in the order and file the PO in their file cabinet? • What is the agreement if send PO to the vendor?

6. Scenario Similarities What were the common factors that made all 3 scenarios contracts?

7. A Contract Is… • An agreement by each party to undertake certain responsibilities • Offer

8. A Contract Is… • An agreement by each party to undertake certain responsibilities • Offer • Acceptance

9. A Contract Is… • An agreement by each party to undertake certain responsibilities • Offer • Acceptance • Payment or Something Gained

10. Scenario 4Automation Software Purchase • Written agreement to customize software to automate paperwork processing. • Statement of work contains no specific deliverables. • Agreement does not include a maximum not to exceed dollar amount. • Agreement does not list milestones for work progress. • The only remedy for breach is termination.

11. The Purpose of Contracts… • Help you assure agreement is reached • Are both sides on the same page?

12. The Purpose of Contracts… • Help you assure agreement is reached • Are both sides on the same page? • Help you manage risk • Who is at risk? • Are we at risk? • Are we able to absorb the risk?

13. The Purpose of Contracts… • Help you assure agreement is reached • Are both sides on the same page? • Help you manage risk • Who is at risk? • Are we at risk? • Are we able to absorb the risk? • Help you ensure fiscal responsibility • Is the action fiscally appropriate? • Is the money available?

14. Real Life ExampleMissing a Key Purpose • Oregon DMV Software Purchase Contract • A five year project took eight years • Budget grew from $50M to $123M(146% increase) • Public outcry killed project • No provisions for remedies • Resulted in DOJ legal sufficiency review

15. Fraud Triangle

16. Factors Contributing to FraudOccurring (2010 ACFE Report) • Lack of internal controls • Override of existing controls • Lack of management review

17. Segregation of Duties • Department Purchasing Profile • Examples of Duties: • Commit Funds • Approve Purchases • Receive Goods/Services • Process Invoice Payment • Approve Invoices • Management Review

18. Authority to Commit Department Funds (to allow for the use budget funds) vs. Contracting Authority (enter into a written or oral contract)

19. Level 1 vs. Level 2 Contracting Authority

20. Contracts Included in Delegated Level 1 Authority • Direct purchases of goods & trade services up to $5000 • Online / phone order • No written contract/signature • Pay invoice • Purchase Orders up to $5000 • Banquet Event Orders pursuant to a PCS-approved Hotel/Catering Agreement which do not modify any of the terms of the underlying agreement.

21. Contracts Not Included in Delegated Level 1 Authority • All purchases greater than $5000 (requires written contract or PO). • All purchases of personal services • All rental of space (hotel, hostel, office space, etc). • BEO with additional terms & conditions or changes in total dollar amounts

22. Contracts Included in Delegated Level 2 Authority Approved UO contract templates • Purchase Orders • Facility Use Agreements • Personal Services Contracts • Banquet Event Orders under existing agreements approved by PCS

23. Contracts Excluded fromDelegated Level 2 Authority • Purchases or Contracts in excess of $25,000 • Contract templates with any change to approved template terms and conditions • UO Custom Contracts • Vendor Contracts • BEO with additional terms & conditions

24. University Purchasing & Contracting Responsibilities • Programmatic Review • Does purchase relate to business purpose or meet the objectives of university’s and department’s mission? • Budgetary Review • Are funds available for purchase? • Compliance Review • Purchase meets all applicable laws, regulations, policies, and procedural requirements and that the purchase or contract is completed using good business practices.

25. Responsibilities of Contracting Authority • Act within OUS Code of Ethics • Apply best value principles • Obtain all relevant approvals • Establish and apply internal controls • Collect documentation to support purchases and contract awards • Ensure reconciliations are performed and documented

26. Compliance Approvals • Sponsored Projects Services • Information Technology (CIO Approval) • Business Affairs Office • Printing & Mailing • Design & Editing Services • Marketing and Brand Management • (See Approvals List)

27. Legal Review As of January 1, 2012: • Custom Software Contracts > $250,000 • Settlement or Release Agreements • Faculty or Student Exchange Agreements • Technology Transfer Agreements involving UO obtaining an equity interest • Purchase or sale of real property • Employments Contracts >$300,000/yr • Any solicitation resulting in one of the above agreements • Any document submitted to the State Bd Performed by UO General Counsel

28. Example • Dept XYZ wants to hire a developer to customize software package to be used campus-wide for $400,000 ($200K for software; $200K for services). • What does the department need to do the complete this purchase and ensure compliance with UO policies?

29. Examples • Department XYZ wants to hire a speaker for an open lecture for $900. • Department XYZ wants to pay the University of Florida for some research materials they are selling.

30. Statement of Work • Basic Components: • Work elements of tasks • Milestones (tasks that support the deliverables, and when they are due) • Timeline/timeframe for performance of services • Detailed description of services (requirements, assumptions, purpose, benefits) • Clearly defined UO responsibilities and contractor roles • Fees for services and expense reimbursements • Payment Schedule (fixed, time and material, per unit rate, rate schedule)

31. Statement of Work • Additional items to consider: • Write in a way that one can easily understand the transaction and know what is expected to happen • Clearly define the tasks, specifications for deliverables, key dates and deadline expectations (both from the Contractor and University) • Use active voice and consistent terms • Do not include contractor qualifications • Do not use words that are by their nature uncertain • (e.g. should, expect, anticipate, assist, contribute) • Do not include details about the competitive process

32. Statement of Work Applies to all contracts including: • Personal Service Contracts (PSC) • Purchase Orders • Equipment Leases • Real Property Leases • Facility Use Agreements

33. SOW Scenario • Hiring a consultant to provide a 3 day team building workshop. • Topics to be covered include motivation, trust, stress management and communication. • Workshop includes participation in activities and games that promise to be fun and to unite the group. • Training materials provided. • Consultant fees are $300/day for 4 hour sessions. 50% deposit with remainder due at workshop completion. • Paying consultant travel & expenses up to set amount. • Consultant fees include a follow up meeting in 6 months to evaluate team progress.

34. Ready to Award a Contract…Now What? Due Diligence: READ THE CONTRACT Crucial Contractual Items • Money – amount of the contract and payment terms • Term and termination • Statement of Work • Other document references • Use official legal names • Insurance

35. Ready to Award a Contract…Now What? Due Diligence: READ THE CONTRACT Crucial Contractual Items • Money – amount of the contract and payment terms • Term and termination • Statement of Work • Other document references • Use official legal names • Insurance Common Issues • Indemnity • Attorney Fees • Governing law • Control of defense • Late fees • Confidentiality

36. Example • A faculty member within Dept. XYZ wants to hire a consultant to provide a series of one-hour lectures. • Please identify what you need to make sure this contract meets its purposes and responsibilities are met.

37. Executed Contract Now What?

38. Contract Administration • Delivering the fully signed copy of the contract to the Contractor.

39. Contract Administration • Delivering the fully signed copy of the contract to the Contractor. • Maintain a contract file which includes all pertinent information regarding the purchase.

40. Contract Administration • Delivering the fully signed copy of the contract to the Contractor. • Maintain a contract file which includes all pertinent information regarding the purchase. • Ensuring that services/goods received under contract conform with language of the contract.

41. Contract Administration • Delivering the fully signed copy of the contract to the Contractor. • Maintain a contract file which includes all pertinent information regarding the purchase. • Ensuring that services/goods received under contract conform with language of the contract. • Track Important Dates – e.g. deliverables, expiration, amendments

42. Contract Administration • Delivering the fully signed copy of the contract to the Contractor. • Maintain a contract file which includes all pertinent information regarding the purchase. • Ensuring that services/goods received under contract conform with language of the contract. • Track Important Dates – e.g. deliverables, expiration, amendments • Payment is within contract terms • PCS is always available for questions or concerns.

43. Contract Administration Examples • PSC for design, editing and printing of a catalog for parents (assume printing waiver completed) • SOW includes all work to be completed in vendor’s studio • Four months later, for same project, vendor submits invoice for printer rental used to print the parent catalog • What are the issues?

44. Expired Contracts & Amendments • Contract Renewals • Must be done before end of contract term and according to the renewal terms laid out in the contract.

45. Expired Contracts & Amendments • Contract Renewals • Must be done before end of contract term and according to the renewal terms laid out in the contract. • End of contract term • Contract ceases to exist… it is DEAD • Contract cannot be reinstated by amendment alone

46. Expired Contracts & Amendments • Contract Renewals • Must be done before end of contract term and according to the renewal terms laid out in the contract. • End of contract term • Contract ceases to exist… it is DEAD • Contract cannot be reinstated by amendment alone • Contract amendments • Explanation of how the contract is being revised • Implementation instructions • Useful only if you have a complete copy of the contract • Party’s name change does not require an amendment

47. Additional Tasks • Matching invoices to deliverables • Notes on purchase results/vendor satisfaction

48. Wrapping it Up • What remaining questions do you have? • Evaluations