Warren J. DeLucaAssistant General Counsel

Business Law & IP Practice Group

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Contracts TrainingNovember 8, 2012

The Texas A&M University System

Office of General Counsel

The Texas A&M University SystemOffice of General CounselBusiness Law & Intellectual Property Practice

Steve GarrettManaging Counsel

Caroline LawsonIntake & Assignment

Cyndi SchoenIntake & Assignment Backup

Andrea Pereira Gina Joseph Katherine Knight Steve Garrett Scott Kelly Warren DeLuca Nick Chremos

Practice Areas

HSC

Health Services

Study Abroad Student/Faculty

Exchanges

Foreign Affiliations

Academic Affiliations

Financial Services

Collections

Bankruptcy

Practice Areas

Real Estate

Facility Use Agreements

Residency Housing

Gift Agreements

Foundation Endowments

University License Agreements

Utilities

Practice Areas

Trademarks

Outside Counsel

Professional Services Consulting

Performance Agreements

Construction Agreements

Service Contracts

Equipment Purchase

Vending

Purchasing Assets & Sales

Practice Areas

Collections

IP – Infringement

IP – Counseling

Waivers Indemnification

Legal Risk Analysis

Policy

Sponsored Research

New Corporations

Practice Areas

Athletics

Policy

Media

Employment

Personnel Issues

Financial Services

HIPAA Compliance

Practice Areas

Material Transfer Agreements

Nondisclosure Agreements

IP - Counseling

Blackboard

Insurance Issues

Inter-Agency Contracts

Intra-System Contracts

IP - Licensing

Educational Services

Software Purchase

Sponsored Research

Practice Areas

Office of Technology Commercialization

IP - Infringement

IP – Licensing

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Authority to Contract

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• No one may bind the university in a contract unless that authority has been delegated to them

• Check your university’s delegation of authority specifying those officers who are authorized to execute contracts on the university’s behalf

• Delegation of authority specifies the type of contract and $ limitation

• Those who contract with agents of the State are responsible for ascertaining the limitations of the agent’s authority and cannot recover from the State to the extent the agent exceeds his or her authority

• An individual executing a contract on behalf of the university without authority may be personally liable for damages arising when the university rejects the unauthorized contract

System Policy 25.07 – Required Board Approval

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• Generally, if the contract has stated or implied consideration of $500,000 or more, or a primary term longer than five years, it must be approved by the Board of Regents

• Exceptions:

o Sponsored research contracts/grants

o Contracts transferring rights in technology or products protectable by patent or as a plant variety

o Contracts processed through state contract or bid process in accordance with System requirements

o Athletic events/contests contracts

o Contracts and grants to perform research, educational, and/or service activities consistent with the university’s mission…

System Policy 25.07 – Required OGC Review

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• All contracts must be submitted to OGC for review as to form and legal sufficiency, except:

o Unaltered form contracts approved by OGC within the last 3 years

o Contracts involving a stated or implied consideration of $50,000 or less, if reviewed by the university in accordance with guidelines recommended by OGC and approved by the chancellor

Approved Forms

• OGC has approved several forms– Use standard form for first draft – May save time and effort– Start with a “clean” form every time if possible– Forms need to be re-approved every three

years

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Drafting Tips

• Whether a contract term is acceptable depends on:o Purpose of the agreemento Contexto Legal authorityo Risk tolerance

• Don’t include language that you don’t understand – fancy words not required!

• If in doubt, contact OGC for further advice

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Drafting Tips

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• Ambiguity vs. vagueness

• Ambiguous: Word, phrase, or provision can be interpreted to mean two or more different things

• Vague: Lack of specificity, may be appropriate in certain circumstances – “reasonable” time, etc.

Contract Checklist

• Spelling, formatting, grammar, punctuation, and general appearance of document are professional and accurate

• All exhibits, attachments, appendices, schedules, etc. attached?

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A contract by any other name is still a contract

• Purchase Order• Memorandum of Understanding• Letter of Intent• Letter of Understanding• Letter Agreement• Release/Waiver

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Nonbinding “Agreements”

• Often called “Memorandum of Understanding” or “Letter of Intent”

• If you don’t intend it to be binding, say so!• Use “soft” verbs which don’t create specific

obligations: – “Collaborate”– “Investigate/identify opportunities”– “Discuss”

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Introduction

• A contract should identify the parties to the contract using their correct legal name:

o “This Agreement is entered into as of the [Day, Month, Year], between Texas A&M University-Corpus Christi (“TAMUCC”), a member of The Texas A&M University System, an agency of the State of Texas, and [Full Corporate Name] (“[Short Name]”), a [Type of Entity]”

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Introduction

• Contracting party’s full legal name?o Verify full legal nameo Be consistento Same name in the signature block

• Include any relevant background information at the beginning (recitals), not in the body of the contract

• Define key terms

Scope of Work

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• Description of services to be performed, items to be delivered, etc.

o Clear and understandable description of the subject of the contract

o If a proposal or similar document is attached as the statement of work, make sure that it is consistent with the body of the contract

Contractor Responsibilities

• Clearly list the rights and duties of each party

o Each party’s responsibilities identified in understandable wording

oUse the active voice to the extent possible: “Contractor shall provide the services…” not “The services shall be provided…”

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Term/Termination

• Date contract is to begin?o This may or may not be the date the contract is signed

• Date contract ends?o The date the contract will end unless terminated earlier (usually

must be five years or less)• Procedure for renewal clearly identified and understood?

o Beware of automatic renewal or “evergreen” clauses• Procedure for termination clearly identified and understood?

o Termination for breach should be identifiedo Termination for convenience?

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Consideration/Price

• Clear description of amounts of money or other consideration for contract?o Place, time and method of

payment should be clear; amounts tied to other amounts (percentages, etc.) should be stated in clear terms

o All payments should be in U.S. Dollars

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Alternative Dispute Resolution (ADR)

• Chapter 2260 of the Government Codeo Applies to all written contracts between a unit of state

government and a contractor for goods or services or certain construction projects

o Describes a procedure that a contractor must follow for breach of contract claims against the State

o Gives the contractor a process for resolving a claim that may otherwise be barred by sovereign immunity

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Chapter 2260 ADR Process

• Notice of the claim, attempt to negotiate or mediate

• If unsuccessful, the contractor can request a hearing before a state administrative hearing officer

• If the contractor is not satisfied with the results of the hearing, it can seek approval of the Legislature to sue

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Chapter 2260 ADR Process

• The ADR process does not apply to contracts:o Between the university and the federal

government or agency, another state, or another country

o Between the university and another Texas state agency

oOther exceptions may apply

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Required Contract Clause

• Contractor shall use the dispute resolution process provided in Chapter 2260, Texas Government Code, and the related rules adopted by the Texas Attorney General to attempt to resolve any claim for breach of contract made by Contractor that cannot be resolved in the ordinary course of business. Contractor shall submit written notice of a claim of breach of contract under this chapter to [designated University official], who shall examine Contractor’s claim and any counterclaim and negotiate with Contractor in an effort to resolve the claim.

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Chapter 2260 ADR Process

• The ADR process does not apply to claims by the university against the contractor o Why? The process is a means for a contractor to

resolve a dispute with an agency that has “sovereign immunity”

o Exception: Counterclaims

• What if the other side refuses to accept the ADR clause?o They should understand that under Texas law the

ADR process is a mandatory prerequisite to suing the university, whether it’s in the contract or not

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• The university may agree to other non-binding ADR methods such as mediation, but not to binding arbitration

• Exception: The university may agree to arbitration with foreign entities where:– The likelihood of getting the other party into a U.S.

court is remote (no presence in U.S.)– The arbitration rules appear fair (such as UNCITRAL:

United Nations Commission on International Trade Law)

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Alternative Dispute Resolution

Indemnity

• Indemnity is an assurance by one party to compensate for the damage caused by another

• The indemnifying party is responsible for paying the losses or damages incurred by the other that result from certain specified circumstances

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Indemnity

• The Texas Constitution says that only the Legislature may create a “debt” on behalf of the State of Texas

• An agreement by the university to indemnify is considered a debt because it creates liability or potential liability for the university

• Such an agreement, unless qualified, would be invalid because it exceeds the authority granted to the university

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When giving an indemnity:

Always limit “to the extent authorized by the laws of the State of Texas”

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• None. Always advise the other party that this is the A&M System’s interpretation of the law.

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To what extent is the university “authorized by the laws of the State of Texas” to indemnify?

Indemnity

When giving a qualified indemnity:

Who?o Limit to losses caused only by the university and its

employees, not its “agents”

What?o Limit to losses caused by (1) negligence and (2) willful

misconduct

When?o Limit to losses incurred during performance of duties

and obligations under the contract

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When giving a qualified indemnity:

Never indemnify a party for the party’s own negligence or misconduct or the negligence or misconduct of a third party

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Sample indemnity a sponsor might request

• University shall indemnify, defend, and hold harmless Company, its directors, officers, and employees from any third party claims related to University’s performance under this contract.

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Acceptable Redraft

To the extent authorized by the laws of the State of Texas, University shall indemnify, defend, and hold harmless, Company, its directors, officers, and employees from any third party claims related to University’s negligent performance under this contract.

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Security Interests

• The university may not agree to grant a security interest in property without the approval of the Texas Bond Review Board

• Often in equipment lease-to-own agreements

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Governing Law

• The governing law is the law which will be used to determine the rights of the parties under the contract

• Jurisdiction and/or venue do not have to be the same as the governing law – a court in one state may apply the law of another when appropriate in a particular lawsuit

• The university may agree that the law of another state will determine the rights under the contract, but that is not recommended

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Governing Law

• If a contract is governed by laws of a foreign country, local counsel may need to be consulted

• Beware: Some foreign countries retain formalistic contract requirements– Contract must be read aloud from beginning to

end by a notary– Contract must be bound by a ribbon which is

affixed to both the cover page and the back page with a wax seal

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Jurisdiction

• Jurisdiction is the power or authority of a court to hear a particular case and render a decision

• Don’t agree to submit to the jurisdiction of any court – it could be viewed as a waiver of sovereign immunity

• Can usually be worded to avoid this

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Venue

• Venue is the particular place where a lawsuit may be brought and heard

• Section 85.18 of the Texas Education Code:– Venue for a suit filed against the university must be in

the county in which the primary office of the university’s chief executive officer is located

– The university cannot agree to another venue for suits against it in Texas state court

– This does not apply to suits in federal court or to suits filed by the university

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“Going Silent”

• Not specifying a jurisdiction, venue, and/or governing law (a/k/a “going silent”) in the contract is a common compromise

• The risks of going silent: A court will decide which jurisdiction, venue, or law applies to

a dispute under the contract The university may incur additional costs, delay, and other

difficulties The university may need to hire local counsel If the court finds that Texas law does not apply, the outcome

of the dispute may not be the same as the result would have been under Texas law

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Compliance with Laws

• It is recommended to include a clause providing that the contracting party will comply with all applicable federal, state, and local laws, ordinances, rules and regulations

• Consider including a reference to a particular law that is known to apply to the specific contract such as:o FERPA, export controls, etc.

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Relationship of the Parties

• State agencies may not enter into partnerships or joint ventures, because those involve sharing of losses

• Avoid referring to the university as a “partner”

• The following clause is recommended in most contracts:

o The parties are independent contractors, and neither party is the agent of the other. This Agreement does not establish a partnership, joint venture, joint enterprise, or similar relationship. Contractor is liable for its own debts, obligations, acts, and omissions, including the payment of all required withholding, Social Security and other taxes or benefits of its employees.

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Loss of Funding

• The following clause is recommended for contracts in which the university is paying money, especially if they span biennia:  o Performance by University under this Agreement may be

dependent upon the appropriation and allotment of funds by the Texas State Legislature (“Legislature”). If the Legislature fails to appropriate or allot the necessary funds then University may issue written notice to Contractor and terminate this Agreement without further duty or obligation. Contractor acknowledges that appropriation of funds is beyond the control of University.

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Audits

• The Texas State Auditor may audit purchases of goods or services by an institution of higher education

• The following clause is recommended for contracts to purchase goods or services: o Contractor understands that acceptance of funds under this

Agreement constitutes acceptance of the authority of the Texas State Auditor’s Office, or any successor agency (collectively, “Auditor”), to conduct an audit or investigation in connection with those funds under Section 51.9335(c) of the Texas Education Code. Contractor shall cooperate with the Auditor in the conduct of the audit or investigation, including without limitation providing all records requested.

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Force Majeure(Fr. greater force)

• An unexpected or uncontrollable event• A natural or unavoidable catastrophe that interrupts

the expected course of events• Consider:

– Should payment of money be excluded?– Are the listed events “uncontrollable?”– Adding additional time for performance?

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Sovereign Immunity

• Protects the State from lawsuits without the consent of the State– “The King can do no wrong.”

• Sovereign Immunity is based on two principles– The State is immune from being sued without its

consent– Even if consent is granted, the State is immune from

liability unless waived• Generally, the courts say that the State

waives immunity from liability when it enters into a contract with another party

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Sovereign Immunity

• Still immune from suit – the Legislature must waive immunity from suit in order for a private party to sue the State for breach of contract – How can immunity from suit be waived?

• Statutes that provide that an agency can sue and be sued

• Specific resolution by the Legislature• If the State brings suit• Waiver by conduct

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Sovereign Immunity

• Don’t assume sovereign immunity will protect the university– The Legislature could (and sometimes does)

grant permission to sue– Immunity may best be used as a tool to

facilitate settlements– Immunity is probably not a permanent fixture

in Texas

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Texas Public Information Act

• The Texas Public Information Act (Texas Government Code Ch. 552) provides that all “public information” held by or available to a “governmental body” is open to the publico The university is a governmental bodyo “Public Information” is all information collected,

assembled, or maintained by a governmental body, or for the governmental body if it owns or has a right of access to the information

o The Act trumps any contractual confidentiality agreement

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Public Information Act exceptions that may apply

• Commercial or financial information if disclosure would cause “substantial competitive harm” to the person from whom it was obtained

• Trade secrets obtained from a person, if made confidential by law

• Technological and scientific information developed in whole or in part at the university if the information has commercial potential

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Confidentiality Clause

• Make the confidentiality provision subject to the Texas Public Information Act:– Company acknowledges that University must strictly comply with the

Public Information Act, Chapter 552, Texas Government Code, in responding to any request for public information related to this Agreement. This obligation supersedes any conflicting provisions of this Agreement.

• If someone makes a request under the Public Information Act for what may be proprietary information, the university must make a good faith effort to notify the owner of the information

• The owner of the information – not the university – should be responsible for taking action to prevent the disclosure

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Other Confidentiality Considerations

• One-way or two-way – is the university just promising to protect the other’s confidential information or will the university also be sharing its own confidential information?

• Should be reasonable as to:– Scope of what is confidential

• Require that it be marked?• Oral or visual disclosures summarized in writing?• Standard exceptions (becomes public, etc.)

– Length of obligation • 2-5 years most common

– Degree of care• Preferred: Same degree of care used to protect its own confidential

information, but not less than a reasonable degree of care

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Insurance

• Workers’ Compensationo The A&M System is self-insured for Workers’

Compensation Insurance under Chapter 502 of the Texas Labor Code-provides reasonable and necessary medical coverage and indemnity payments to employees who sustain injuries or occupational disease while in the course and scope of employment

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Insurance

• The A&M System maintains an automobile liability policy with a bodily injury limit of $250,000 for each person, $500,000 for each accident and a property damage limit of $100,000 for each accident

• The A&M System is self-insured for most property insurance claims

• Contact System Office of Risk Management and Safety with any insurance questions

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Insurance

• The following clause is recommended as a replacement for clauses requiring the university to maintain insurance:o Contractor acknowledges that because the University is an agency of

the State of Texas, liability for the tortious conduct of University’s agents and employees or for injuries caused by conditions of tangible state property is provided for solely by the provisions of the Texas Tort Claims Act (Texas Civil Practice and Remedies Code, Chapters 101 and 104), and that Workers’ Compensation Insurance coverage for University employees is provided by University as mandated by the provisions of the Texas Labor Code, Chapter 502. University may, at its option, (a) obtain liability insurance protecting University and its employees and property insurance protecting University buildings and the contents, to the extent authorized by Section 51.966 of the Texas Education Code or other law, or (b) self-insure against any risk that may be incurred by University as a result of its operations under this Agreement.

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Limitation of Liability and/or Damages

• Can the university agree to waive or limit the liability or potential damages of a party, including consequential or exemplary damages?

• Should it?

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Liquidated Damages

• Clause that provides that a party will owe specific damages if it breaches the agreement

• The university may agree to a liquidated damages clause as long as:

o The amount stipulated in the contract is a reasonable forecast of fair compensation for the harm caused by the breach

o The harm caused by the breach is incapable or very difficult of accurately estimating

• Should the university agree to pay liquidated damages in most circumstances?

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Representations and Warranties

• Assurances as to facts which may be relied upon

• Represent vs. warrant?• The university should not represent or warrant

anything except:– That it has the authority to enter into the

contract (if it does)– Facts that are clearly supported and

accurately stated

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Non-Waiver

• A catch-all provision:o The University is an agency of the State of

Texas and nothing in this Agreement waives or relinquishes the University’s right to claim any exemptions, privileges, and immunities as may be provided by law.

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Final Thoughts

• Remember this is only general guidance• Look at specific facts and circumstances

of each contract• Identify which terms present greatest risk• If you can’t understand a term, don’t

hesitate to ask that it be rewritten• If in doubt, seek further legal counsel and

contact OGC

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Thank you!

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