Business Contracts Office
Crafting the Agreement
Reviewing the Business Issues
The Principal Issue:
The most important aspect of contract development is ensuring that there is a clear understanding of the two parties’ commitments. Although traditional “legal terms” are undoubtedly significant, an unambiguous and enforceable contract must always begin with a clear description of services.
Appropriate Statement of Services (SOS):
- Does the SOS accurately define what you want? If you want LCD Projectors installed, will the contractor connect the projectors to already existing connections, or will the contractor be required to run lines or make structural modifications to complete the installation?
- Will the SOS allow for legitimate evaluation of the result? Consider a contract for help desk services in which the contractor was required to supply a specific amount of personnel, with specific training, during pre-established hours. Although these types of specifications are useful, will you really be able to evaluate the contractor’s performance? In addition to these requirements, it may be beneficial to add stipulations such as specific response times, task completion standards, up-time percents, and customer evaluation ratings.
Payment Schedules & Requirements
If the contractor asks for certain payment requirements or timetables, make sure your department can meet these requirements.
You may want a network software license with unlimited users because you want the users to be capable of accessing it both remotely and across campus. Many network licenses, however, only allow use on UTSA-controlled computers, thus defeating the purpose of remote access. Some network licenses may also limit use to faculty/staff, while some licenses may only allow student use if it is controlled and supervised by faculty.
Length of contract term
Suppose a vendor proposes an inviting fee schedule on a five-year database service agreement. Although the fee schedule may be appealing, a five-year agreement may not be the most beneficial arrangement due to ever-changing technology. Long-term costs and efficiency may make a two-year agreement with three option years much more preferable (even if this option calls for more up-front costs) than a five-year agreement with a lower fee schedule.
Watch out for the little words. The meaning of a sentence can drastically change just by using the word “or” instead of the word “and.” “Or” gives a choice in obligations while “and” connects multiple ideas and phrases. Similarly, be careful of the words “any”, “all”, and “each.” For instance, you may want a network installer to have 99% up-time on every one of the ten network lines that the installer is connecting. If you state that any or all of installer’s network lines shall be operable 99% of the time, the installer may be in compliance if any one its ten lines are running. It is much more preferable to require that each one of the installer’s lines be operable 99% of the time.
Finalizing the Requirements
Assistance from Distribution Services
Both the Purchasing and Contracting Offices will assist in drafting and finalizing the Statement of Services (SOS) and other business issues.
Defining Business Risks
It is important to identify the business risks in each contract in order to allow the department to determine the acceptability of these risks. A vendor may supply a warranty that provides replacement remedies in cases of defects, but allows no capability for refunds. A department may find this limited warranty acceptable, but may take issue with a termination provision that allows the vendor to terminate the contract for convenience on 30-days notice.
Minimizing the Risks
Contracting will work with the department to minimize the risks and ensure that the departmental needs are met. In the above “termination for convenience” example, we may be able to eliminate the clause. If not, we should at least be able to extend the notification period or include some type of vendor transition schedule.
As the “owner” of the contract, the department is ultimately the expert, and the area responsible for, defining the appropriate business issues and accepting the business risks. The Contracts Office will assist the department in reviewing and analyzing the risks, but only the department maintains the expertise to make the final decision.
Minimizing Potential Conflict
Understanding the Commitment
Although it has been mentioned above, it bears repeating that the Principal Issue is ensuring that there is a clear understanding of the two parties’ commitments. The primary element of an enforceable contract is the presence of mutuality of assent, or “a meeting of the minds.” This meeting of the minds cannot occur unless the obligations of the parties are clear and unambiguous. When a conflict occurs in a contract, the conflict is generally not related to typical “legal terms.” Contractual conflict generally occurs because of differing interpretations of service or business-related requirements. Consequently, the most important aspect of contract development is ensuring that there is a clear understanding of the two parties’ commitments. Although traditional “legal terms” are undoubtedly significant, an unambiguous and enforceable contract must always begin with a clear description of services.
Evaluating the result is an essential element in the contract process. It is critical that the contract language allows the department to determine whether the contractor adequately provided the necessary services. The contract should be developed with the following goals in mind:
- Establishing objective measures of performance (did you get what you wanted?)
- Generating methods to resolve disputes without affecting progress; and
- Developing means of recourse and remedies, if all else fails.
- Ensuring UTSA can meet its contractual obligations.
UTSA Conformity to Contractual Obligations: It is imperative that UTSA meet its own contractual obligations. Although this issue is sometimes overlooked by contract administrators, there are many times when a vendor’s performance is dependent upon the University first meeting its obligations. This is yet another reason that the department must be completely comfortable with the terms of the agreement.
Requirements for Additional Expertise & Approvals
Depending upon the nature of the contract, the Contracts Office may request a review and/or approval from any effected departments or University experts (i.e. O.I.T., Risk Management, Legal Affairs, Auxiliary Svcs., Environmental Safety, Facilities, etc.).
Note however , that as the “owner” of the contract, the department’s contract administrator (end-user) is ultimately responsible for taking reasonable measures to ensure all departmental approvals are secured.
Utilizing Alternate Contract Methods
Purchase Orders vs. Formal Contracts:
Although a purchase order is, in fact, a contract, there are times when a purchase order is not sufficient, and a signed formal contract is needed to complete the procurement process. In determining the need for a formal contract rather than a purchase order, several issues must be reviewed. In general, the formal contract process is somewhat less efficient than the procedures used when issuing standard purchase orders. Purchase orders incorporate previously approved terms and conditions, while terms of a formal contract are specifically negotiated for each applicable project. Because purchase order terms are not specifically negotiated for a particular service, purchase orders may not protect the University from potential risks in the same manner as a formal contract. Not only are terms and conditions of contracts much more specific than those found in purchase orders, a contract requires both parties to formally sign off that they agree and understand the terms and conditions.
In determining the need for a formal contract as opposed to a purchase order, factors such as overall risk, complexity, contractual value, and efficiency must be weighed. To view the guidelines practiced by the Purchasing Office on circumstances necessitating contracts, see Circumstances Necessitating Formal Contracts (PDF)
Incorporating Contractual Terms into POs, Bids, and RFPs:
On many occasions, the Contracts Office may be able to work with the Purchasing Office in incorporating specific applicable terms into Purchasing’s bid, RFP, and/or Purchase order documents. Depending upon the circumstances, this technique may satisfy the requirements for mutual signatures and allow for incorporation of any specific applicable terms, while still maintaining the efficiency of the purchase order process.