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