Vendor Service Contracts: Processes and Procedures (AM 541) Initiating, Processing, & Establishing Vendor Contracts Robert Lee Dickens - Contracts Manager Richard “Rancher” Wollney Jr. - Contracts Specialist Agenda What is a Contract? Categorizing University Contracts Initial Development and Submission Formal Review of Contract Terms Time Lines, High-Risks Agreements, and Special Procedure Contracts Finalizing and Executing the Agreement Contract Administration 2 What is a Contract? Contract Law 101 Determining the Initial Step Everything you wanted to know about contract law that we can squeeze into 30 minutes. 3 What is a Contract? A contract is an agreement between two parties that creates an obligation to perform (or not perform) a particular duty. A legally enforceable contract requires: 1. An Offer (I’ll mow your lawn this weekend, if you pay me $30) 2. An Acceptance (You’ve got a deal) 3. Consideration (The value received and given – the money and the lawn mowed) 4 Establishing Offer and Acceptance: “A Meeting of the Minds” A legally recognized offer and an acceptance creates a “meeting of the minds’, or mutual assent, between the parties. Mutual Assent requires the presence of the following factors: 1. Both parties must exhibit a “contractual intent” [words spoken in jest or frustration will lack the requisite intent]; 2. The terms of the offer must be clear and definite; 3. The acceptance must be clearly communicated. 5 The Requirement for Clear and Definite Terms Required Clarity: For terms to be legally valid, a reasonable person must be capable of readily understanding them. Four primary areas in determining definite terms: 1. the parties; 2. time for performance (term or service schedule); 3. the price; and 4. the subject matter or scope of service. 6 Consideration: The Importance of the “Bargained Exchange.” Consideration must be mutual. Both parties must receive something of value. Involvement of money is not required. Contracts vs. Gifts 7 What Authority Defines a Contract? Sources of Contract Law Common Law – Court made case law governing contracts (primary law for service contracts) Uniform Commercial Code (UCC) – [Tex. Bus.& Comm.Code] – governs sales of tangible goods and secured transactions (not services). http://tlo2.tlc.state.tx.us/status.bc.toc.htm Specific Statutes – http://www.capitol.state.tx.us 8 Categorizing University Contracts Types of University Contracts  Affiliation and  Prof. Service Agreements International Program Agreements  Athletic-Specific, or Student-Specific Contracts (nonprocurement in nature).  Interagency Cooperation Agreements (IAC) & Inter-local Agreements  Museum and Exhibit Agreements (for individuals not organized as a business)  Procurement Contracts; Vendor Services  Sponsored Research Contracts and Sponsored Projects  University-Provided Services See Categorizing Contracts 10 Classifying a Procurement Contract University payment is not a defining factor. [Many procurement contracts actually involve a vendor payment to UTSA.] Generally defined as: A formal agreement with a business entity to secure a particular service that is subject to compliance with competitive purchasing requirements or purchasing policies. Competitive requirements can be dictated by: 1. 2. 3. 4. Statutory provisions; UT System polices; Best Value Procedures; and Appropriate business relations. See “Procurement Contracts Defined”. 11 Initial Evaluation, Development, and Submission Initial Contract Evaluation and Development Determining the Need for an Agreement: 1. Vendor-Originated 2. UT Determination: The risk of the project may necessitate a formal agreement; or UT Policies may require it. Using Sample Agreements 13 Routing and Submission of Contractual Projects Where to Route: Regardless of value or cost, route Procurement Contracts through the Purchasing Office. Electronic Purchase Requests (PB4 – Point) – Establishes approval authorities – Authorizes implementation – Approves funding Keep in mind that contracts for vendor goods and services are the final stage of a proper procurement and must never precede the purchasing procedures. 14 Required Submission Documentation Appropriately weighing the risks of the project with the most efficient processing methods requires a clear understanding of the project. Upon submission, include the following information: 1. A clear description of the requested service; and 2. Details related to the purpose and benefit of the requested service; Remember, an enforceable contract requires clear and definite terms! 15 Required Submission Documentation If it is already known that a vendor will be requesting that its agreement be signed, the following information should also be included: 1. A short explanation (1-3 sentences) of the extenuating circumstances that require a vendor’s contract; and 2. An electronic version of the agreement in modifiable Word format. 16 Purchasing Office Assistance Routing to Assigned Buyer: The electronic purchase request (PB4) will automatically route to your department’s assigned buyer in the Purchasing Office. 17 Purchasing Requirements The Purchasing Office Buyer will work with the Contracts Office and your Department to: 1. Determine the most efficient methods for project completion; 2. Ensure compliance with UT purchasing Regulations and Best Value Polices; and 3. Accurately define the Statement of Services (SOW) or Scope of Work. 18 Reviewing the Business Issues Developing an Appropriate Statement of Services (SOS): 1. Does the SOS accurately define what you want? 2. Will the SOS allow for legitimate evaluation of the result? 3. Talk it through with an unaffected party. See Crafting the Agreement for more information. 19 Reviewing the Business Issues Payment schedules: [Ensure terms are acceptable and that the department has the ability to comply.] Service limitations: [i.e. A network license limited to UTSA-controlled computers, when what is really required is a network license that allows remote access.] Length of contract terms: [Changing technology may make a two-year agreement for database services with three option years more preferable than a five-year agreement with less monetary costs.] 20 Finalizing the Needs Assistance from Purchasing and Distribution Services Defining Business Risks Minimizing the Risks Departmental Ownership 21 Understanding the Commitment The Principle Issue: Ensure there is a clear understanding of the two parties’ commitment. Ensuring Enforceability: 1. Establish objective measures of performance (did you get what you wanted?) 2. Create methods to resolve disputes without affecting progress. 3. Determine means of recourse and remedies, if all else fails. 22 Requirements for Additional Expertise and Approvals Review from other departments: The Contracts Office may request a review and/or approval from other affected departments and additional University experts. Departmental Ownership: As The ‘owner’ of the contract, the department should take reasonable steps to secure all departmental approvals. 23 Formal Review of the Contract Terms Legal Office Review Guidelines for review by UTSA’s Legal Office Requirements for Review by the UT System Office of General Counsel 25 Utilizing Alternate Contract Methods Purchase Order vs. Formal Contract Incorporating Contractual Terms into POs, Bids, and RFPs See Alternate Contract Methods 26 Formal Review and Analysis Refining the SOS, if necessary Matching the Terms to the SOS Negotiation – The Contracts Office will facilitate any required negotiations with the vendor’s legal office or contract officers. – The Contracts Office will maintain continuous consultation with the department, specifically in the area of business issues. 27 Major Areas within Every Contract Parties Effective Date and Terms Statement of Service (SOS) Pricing Performance Standards Warranties Remedies Risk Allocation Boilerplate Signatures See: contract components 28 Common Contractual Terms Three commonly negotiated/contentious provisions: 1. Warranties 2. Indemnification [protection against loss or liability from 3rd party claims] 3. Liability & Damages [legal responsibilities] 29 Common Contractual Terms Two common provisions specific to UTSA: 1. Confidentiality 2. University Marks 30 Constitutional & Court-Ordered Limitations & Authority Sovereign Immunity Prohibition Against Agency Debt Right to Suit 31 Statutorily Required Clauses Governing Law (Jurisdiction) and Venue Financial Standing Dispute Resolution Electronic and Information Resources Accessibility (EIR Provision) Standard Addendum See Standard Clauses 32 Use of Template Agreements Both UTSA and UT System have developed template agreements that can be utilized for various services. Use of Template Agreements: 1. provides vendors with up-front notification of the terms required for the project; and 2. assists in protecting the University through the use of standardized terms & conditions. 33 Time Lines: Minor Contracts, High-Risk Agreements, and UT System Requirements General Time Lines Standard or Template Agreements with no Substantive Changes: – typically reviewed (redrafted, if necessary) and comments relayed to the department and/or vendor within 7-10 days. Minor Contracts (approx. 1-5 pages with relatively high clarity and minor risk): – typically analyzed, redrafted, and relayed to the department and/or vendor for review within 7-10 days. 35 High-Risk Agreements Determining the Risk: Certain agreements, because of value, policies, or subject matter, can signify potential high risk to the University. Timeline: The time required to analyze, redraft, and coordinate issues (and departments) may be significant, but an initial review will generally be provided to the department and/or vendor within 3-4 weeks. 36 Required UT System Review Special Procedure Contracts – Requires review by the UT System Office of General Counsel (OGC). The Contracts Office will review the agreement locally and then forward to OGC for approval as to legal form. General Business Contracts > $500,000 – Requires review and approval by OGC. The only exceptions to this requirement are those contracts designated by UT System as Standard Contracts. 37 Required UT System Review Timelines – Special Procedure Contracts and OGC review will require additional processing time (add an estimated 60-90 days to the normal process). Board of Regents Approval – Generally speaking, all contracts with a value exceeding $1M must be approved by the Board. A summary of contracts requiring Board approval can be found at http://www.utsystem.edu/policy/policies/uts145.html 38 Finalizing and Executing the Agreement Finalizing the Agreement Final Negotiations with the Vendor Departmental Approval Required Additional Necessary Approvals 40 Executing the Agreement Who can Sign? Upon completion of negotiation, the Contracts Office will: route the Agreement to obtain appropriate signatures; and 2. distribute signed copies accordingly. 1. President-Delegated Authority: 1. 2. 3. V.P. for Business Affairs Associate V.P. for Administration Associate V.P. for Financial Affairs 41 Departmental Contract Administration Cost Benefit Analysis Required for State Funded Contracts If state appropriated funds (14 Accounts) are used, the department must maintain on file the following documentation: 1. A cost-benefit analysis for the services, or a justification of the need for the services; and 2. The relationship of the services to the staffing plan. 43 Final Stage: Departmental Contract Administration Upon completion of the procurement process and contract negotiations, the final phase of contracting is administration. Critical Nature of Administration: – Regardless of how well a contract is drafted, the contract will be ineffective if proper contract administration is not performed. 44 Ensuring Compliance: Departmental Administration A Department’s Contract Administration responsibilities include: 1. Verifying the contractor complies with the terms and conditions of the agreement; 2. Ensuring all services have been received to your specification prior to authorizing payment (or all revenue received); and 3. Ensuring the collection of renewal documentation (i.e. insurance, bonds). 45 Guide for Contract Administration Departmental Guide for Contract Administration: – To ensure compliance, departmental administrators are strongly encouraged to review the guidelines found in the Department Guide for Administration of Major Service Contracts. 46 Contacts and References Robert Lee Dickens Contracts Manager 458-4067 Richard “Rancher” Wollney Jr. Contracts Specialist 458-4069 Nora Evans Business Law Attorney - Legal Affairs 458-4703 Yolanda Miller Director, Purchasing and Distribution Services 458-4975 Lane Brinson Purchasing Manager 458-4066 http://www.utsa.edu/purchasing/contracts/ 47 What have we discussed …  Definition of a Contract  Types of University Contracts  Initial Development and Submission of Contractual Project  Overview of Contract Terms  Time Lines, High-Risks Agreements, and Special Procedure Contracts  How to finalize and execute an agreement  Contract Administration  Resource information 48 Questions 49