Contracts Karen Fitzthum, CPPO, CPPB Washington State Chapter NIGP September 2009.
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Transcript of Contracts Karen Fitzthum, CPPO, CPPB Washington State Chapter NIGP September 2009.
ContractsContracts
Karen Fitzthum, CPPO, CPPBKaren Fitzthum, CPPO, CPPB
Washington State Chapter NIGPWashington State Chapter NIGP
September 2009September 2009
PresenterPresenter
Karen Fitzthum, CPPO, CPPBKaren Fitzthum, CPPO, CPPB Supervisor, Goods and Services, Supervisor, Goods and Services,
King CountyKing County Washington State Chapter NIGP Washington State Chapter NIGP
PresidentPresident Procurement and Contract Procurement and Contract
Services Public Disclosure Services Public Disclosure OfficerOfficer
Who I am not – Who I am not – Your LawyerYour Lawyer
This course is intended to This course is intended to provide a working knowledge of provide a working knowledge of contracts and how that relates contracts and how that relates to the public bidding process to the public bidding process and contract formation for and contract formation for procurement professionals procurement professionals working in Washington State working in Washington State agencies. This course does not agencies. This course does not provide legal advice.provide legal advice.
HousekeepingHousekeeping
BreaksBreaks RestroomsRestrooms Moving aroundMoving around RefreshmentsRefreshments LunchLunch ScheduleSchedule
Who are You?Who are You?
Volunteer accountant neededVolunteer accountant needed Name and certificationsName and certifications Your current agencyYour current agency Number of years in procurementNumber of years in procurement
Today’s ObjectiveToday’s Objective
To provide procurement To provide procurement professionals with knowledge professionals with knowledge and insight into the formation, and insight into the formation, performance and administration performance and administration of contracts.of contracts.
AgendaAgenda
LawsLaws FormationFormation PerformancePerformance Discussion of ClausesDiscussion of Clauses NegotiationsNegotiations Contract ModificationsContract Modifications
Sources of LawSources of Law
FederalFederal StateState Uniform Commercial Code Uniform Commercial Code Local OrdinanceLocal Ordinance Common LawCommon Law Tort LawTort Law
ApplicationApplication
UCC governs goodsUCC governs goods Common law – services, Common law – services,
intangiblesintangibles Mixed contract – predominate Mixed contract – predominate
purposepurpose Hierarchy – Federal, state, localHierarchy – Federal, state, local Tort LawTort Law
Federal LawFederal Law
Applies when grant funding is Applies when grant funding is received directly from Federal received directly from Federal agency or when a sub-recipient agency or when a sub-recipient of Federal Fundsof Federal Funds
Sources of requirements:Sources of requirements: US CodeUS Code Federal Acquisitions RegulationsFederal Acquisitions Regulations Code of Federal RegulationsCode of Federal Regulations
Uniform Commercial CodeUniform Commercial Code
Provides “gap filling terms”Provides “gap filling terms” Carries the intention of Carries the intention of
reasonableness and good faithreasonableness and good faith Governs goods – all things which Governs goods – all things which
are “moveable”are “moveable” Merchants held to be honest in Merchants held to be honest in
fact – reasonable commercial fact – reasonable commercial standardsstandards
Requires quantity – unless Requires quantity – unless output or requirements contractoutput or requirements contract
State & Local LawState & Local Law
State Agencies, Counties, Cities, State Agencies, Counties, Cities, political subdivisions have political subdivisions have different requirements for different requirements for procurementprocurement
Public WorksPublic Works All require contracts that All require contracts that
possess the correct elements to possess the correct elements to be enforceablebe enforceable
Authority (Agency)Authority (Agency)
ExpressExpress Formal appointment, ordinance, Formal appointment, ordinance,
power of attorneypower of attorney Implied or InherentImplied or Inherent
Acts to carry out express authorityActs to carry out express authority ApparentApparent
When a person has reason to When a person has reason to believe express or implied existsbelieve express or implied exists
Ratification - approval after the Ratification - approval after the fact fact
Main Elements Main Elements of a contractof a contract
OfferOffer AcceptanceAcceptance ConsiderationConsideration Legal PurposeLegal Purpose Cpmpetent PartiesCpmpetent Parties Statue of FraudStatue of Fraud
OfferOffer
Signed in writingSigned in writing Explicit assurancesExplicit assurances Open for a reasonable period Open for a reasonable period
(no more 3 months)(no more 3 months) Missing Terms – won’t fail unless Missing Terms – won’t fail unless
it’s quantity (UCC)it’s quantity (UCC) When is a PO an offer?When is a PO an offer?
AcceptanceAcceptance
Reasonable manner and Reasonable manner and medium adequatemedium adequate
Battle of forms – acceptance Battle of forms – acceptance with added terms and conditions with added terms and conditions is still acceptance UNLESS offer is still acceptance UNLESS offer precludes such changesprecludes such changes
Requirements contracts can’t be Requirements contracts can’t be unreasonably disproportionate unreasonably disproportionate to estimatesto estimates
Offer and AcceptanceOffer and Acceptance
ITB’s and RFP are not elements ITB’s and RFP are not elements of a contract – so why do we do of a contract – so why do we do it?it?
When can you negotiate? When When can you negotiate? When can’t you? Why?can’t you? Why?
ConsiderationConsideration
ProductProduct ServiceService MoneyMoney In kind performanceIn kind performance AdvocacyAdvocacy Others must have reasonable Others must have reasonable
valuevalue
Competent PartiesCompetent Parties
Agency Authority – to principal Agency Authority – to principal when agent has express, when agent has express, implied or apparent authorityimplied or apparent authority
Agents Personal Liability – when Agents Personal Liability – when principal lacks capacity or principal lacks capacity or otherwise misrepresentsotherwise misrepresents
Insane, Intoxicated, InfantInsane, Intoxicated, Infant
Legal PurposeLegal Purpose
Violation of Law – contract to Violation of Law – contract to commit crime or tort, operating commit crime or tort, operating without a licensewithout a license
Violation of Public Policy – Violation of Public Policy – restraint of trade, antitrust, restraint of trade, antitrust, price fixing, anti-competitionprice fixing, anti-competition
Statute of FraudsStatute of Frauds
Must be in writing when:Must be in writing when: Over 1 year Over 1 year Over $500 unless specialty Over $500 unless specialty
product, partly performed, product, partly performed, admission by party defendingadmission by party defending
Land or leaseLand or lease Suretyship – bonds, debtsSuretyship – bonds, debts
In 1677 Parliament passed the “Act for the In 1677 Parliament passed the “Act for the Prevention of Fraud and Perjuries” and we know Prevention of Fraud and Perjuries” and we know
this as the Statute of Fraudsthis as the Statute of Frauds
AuctionsAuctions
Rules may apply to reverse Rules may apply to reverse auctionsauctions
Bid is offer – fall of hammer Bid is offer – fall of hammer acceptanceacceptance
With reserve – auctioneer can With reserve – auctioneer can withdraw goodswithdraw goods
Without reserve – auctioneer Without reserve – auctioneer has made an irrevocable offerhas made an irrevocable offer
UnenforceableUnenforceable
Unconscionable:Unconscionable: UnfairUnfair One-sidedOne-sided OppressiveOppressive
Court discretion – strike one part Court discretion – strike one part or throw contract out – seen in or throw contract out – seen in contracts as a severability contracts as a severability clauseclause
InterpretationsInterpretations
Intentions control – language is Intentions control – language is the guiding principalthe guiding principal
Incorporation by Reference – Incorporation by Reference – referring to another documentreferring to another document
Parole Evidence Rule – final doc Parole Evidence Rule – final doc evidences intent (Order of evidences intent (Order of precedence important)precedence important)
Language IssuesLanguage Issues
Ambiguity construed against Ambiguity construed against party that drafted the documentparty that drafted the document
Eighty (800) – which rules?Eighty (800) – which rules? Definitions – why use them?Definitions – why use them? Ordinary Usage Ordinary Usage
PerformancePerformance
Full performance – both happyFull performance – both happy Substantial performance – no bad Substantial performance – no bad
faith, minor, substantial benefit faith, minor, substantial benefit received )common law)received )common law)
UCC any not performance is breachUCC any not performance is breach Excusable Non-performance – Excusable Non-performance –
cooperation withheld, Illegality after cooperation withheld, Illegality after formation, Incapacity, source of formation, Incapacity, source of supply or subject matter destroyed, supply or subject matter destroyed, failure of a presupposed conditionfailure of a presupposed condition
Non-Performance – Accord and Non-Performance – Accord and Satisfaction, Cancellation, Waiver, ReleaseSatisfaction, Cancellation, Waiver, Release
BreachBreach
Performance duePerformance due Shipment of nonconforming goods Shipment of nonconforming goods
is a breach unless acceptedis a breach unless accepted Failure is currentFailure is current
Anticipating failureAnticipating failure Cancel and sueCancel and sue Wait for failureWait for failure Insecurity allow request for Insecurity allow request for
assurance within 30 daysassurance within 30 days Non-material – can’t stopNon-material – can’t stop
RemediesRemedies
Liquidated damagesLiquidated damages Sole Remedy – allowed when Sole Remedy – allowed when
reasonably estimatedreasonably estimated Penalty Interpretation – when too Penalty Interpretation – when too
harsh considered punitiveharsh considered punitive Compensatory DamagesCompensatory Damages
Construction – could include cost Construction – could include cost to pay another to completeto pay another to complete
Benefits of bargain – to innocent Benefits of bargain – to innocent partyparty
Contracts and DisclosureContracts and Disclosure
Contracts with a public agency Contracts with a public agency are records subject to disclosureare records subject to disclosure
Business Secrets, Proprietary Business Secrets, Proprietary Information, Confidential Information, Confidential InformationInformation
When to notify a contractor of a When to notify a contractor of a disclosure requestdisclosure request
Release of current contract Release of current contract during solicitation of new during solicitation of new contractcontract
Clauses to KnowClauses to Know
Price ChangesPrice Changes Limitation of LiabilityLimitation of Liability TerminationTermination IndemnificationIndemnification WarrantyWarranty Order of PrecedenceOrder of Precedence Audit AccessAudit Access Liquidated DamagesLiquidated Damages
Clauses in negotiationClauses in negotiation
1 Limitation of Liability1 Limitation of Liability 2 Indemnity2 Indemnity 3 Intellectual Property3 Intellectual Property 4 Payment, Late Payment, Invoices4 Payment, Late Payment, Invoices 5 Warrantee5 Warrantee 6 Price6 Price 7 Termination7 Termination 8 Confidentiality/Data Protection8 Confidentiality/Data Protection 9 Delivery/Acceptance9 Delivery/Acceptance 10 Service Levels10 Service Levels
Scope of WorkScope of Work
Ensure that deliverables within Ensure that deliverables within the scope are clearthe scope are clear
Each parties responsibilities Each parties responsibilities Timelines are enunciatedTimelines are enunciated Communication plan includedCommunication plan included Special Acceptance requirementsSpecial Acceptance requirements Optional or future work is Optional or future work is
allowable or notallowable or not
Contract ModificationsContract Modifications
BilateralBilateral When both parties are signators to When both parties are signators to
executed amendmentexecuted amendment UnilateralUnilateral
When one party extends (offer)When one party extends (offer) Second party performs Second party performs
(acceptance)(acceptance)
Contract ModificationsContract Modifications
Pricing ChangesPricing Changes Extensions for PerformanceExtensions for Performance Changes in Scope/SpecificationChanges in Scope/Specification Additional terms/conditionsAdditional terms/conditions
Contract ModificationsContract Modifications
When is a PO change order OK?When is a PO change order OK? When to do a formal When to do a formal
amendment?amendment? Authority for modifications same Authority for modifications same
as for the original executionas for the original execution
Next StepsNext Steps
Read your entire boilerplateRead your entire boilerplate Consider what questions you get Consider what questions you get
from bidders/proposers during from bidders/proposers during solicitationssolicitations
Note terms or whole clauses Note terms or whole clauses that are confusing or unclearthat are confusing or unclear
Consider what improvements Consider what improvements you can makeyou can make
Discuss any changes with your Discuss any changes with your legal advisorslegal advisors
Key points to KeepKey points to Keep
Disputes happen – that’s why Disputes happen – that’s why we write it down in a contractwe write it down in a contract
A court will decide anything A court will decide anything unclear in favor of the one that unclear in favor of the one that didn’t draft the contractdidn’t draft the contract
Whenever possible, resolve Whenever possible, resolve disputes early.disputes early.
Document, document, Document, document, documentdocument