Contracting 101

Introduces basic elements, potential pitfalls and essential contract drafting techniques

Presenters:

Greg Shabram, Contracts Manager

Kristen Jackson, Contracts Technician 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.

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.

3

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

4

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?

5

Scenario Similarities

What were the common factors that made all 3 scenarios

contracts?

A Contract Is…

• An agreement by each party to undertake certain responsibilities• Offer

A Contract Is…

• An agreement by each party to undertake certain responsibilities

•Offer•Acceptance

A Contract Is…

• An agreement by each party to undertake certain responsibilities

•Offer•Acceptance•Payment or Something Gained

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.

10

The Purpose of Contracts…

• Help you assure agreement is reached– Are both sides on the same page?

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?

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?

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

14

Fraud Triangle

15

Factors Contributing to FraudOccurring (2010 ACFE Report)

• Lack of internal controls• Override of existing controls• Lack of management review

16

Segregation of Duties

• Department Purchasing Profile• Examples of Duties:

– Commit Funds– Approve Purchases– Receive Goods/Services– Process Invoice Payment– Approve Invoices– Management Review

17

Authority to Commit Department Funds(to allow for the use budget funds)

vs.

Contracting Authority(enter into a written or oral contract)

18

Level 1 vs. Level 2 Contracting Authority

19

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.

20

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

21

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

22

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

23

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.

24

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

25

Compliance Approvals

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

26

Legal ReviewAs 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

27

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?

28

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.

29

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)

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

Statement of Work

Applies to all contracts including:– Personal Service Contracts (PSC)– Purchase Orders– Equipment Leases– Real Property Leases– Facility Use Agreements

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.

33

Ready to Award a Contract…Now What? Due Diligence:

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

READ THE CONTRACT

Ready to Award a Contract…Now What? Due Diligence:

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

READ THE CONTRACT

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.

36

Executed

Contract

Now What?

37

Contract Administration– Delivering the fully signed copy of the contract to the

Contractor.

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.

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.

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

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.

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?

43

Expired Contracts & Amendments

• Contract Renewals– Must be done before end of contract term and according to

the renewal terms laid out in the contract.

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

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

Additional Tasks

• Matching invoices to deliverables• Notes on purchase results/vendor

satisfaction

47

Wrapping it Up

• What remaining questions do you have?

• Evaluations

48