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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)
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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
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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
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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
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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.
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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
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Compliance Approvals
• Sponsored Projects Services• Information Technology (CIO Approval)• Business Affairs Office• Printing & Mailing• Design & Editing Services• Marketing and Brand Management• (See Approvals List)
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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
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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?
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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.
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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.
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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?
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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
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Wrapping it Up
• What remaining questions do you have?
• Evaluations
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