Procurement

Contracts 101 is a general discussion of some legal principles of contracting. The information contained at this site, and related links, is not a substitute for general counsel. Any discrepancy between the information at this site and UC Policy is not intended to alter or amend official UC policy or procedure.

Contracts 101

In its broadest sense the purpose of law is to provide order, stability, and justice. Government provides a system by which the rights of the parties under the law can be determined and enforced. Law is classified for convenience in terms of the subject matter involved. Contract law includes various laws that determine the rights and liabilities of parties taking part in business transactions. A written contract records what has been agreed upon so there is less chance of disagreement at a future date and it eliminates either party from effectively denying having made one.

Contract Basics:

In the simplest terms a contract is a binding agreement. All contracts should contain basic information necessary to understand the intent of the parties, and the contract should be clear and understandable. The following is a list of basic contract needs in order to prepare the agreement:

• Names of the contracting parties;
• Description of Services and/or Scope of Work of the Project or Product;
• Terms and Condition such as: Terms of payment, if any, Provision for early termination, Applicable Law, in addition to other Terms and Conditions not listed here.
• Indemnification, Hold Harmless and Insurance Requirements;
• Rights to Data when applicable;
• Signature lines for the persons authorized to execute the contract.

The Contracting Parties:

The legal names and status of each contracting party should be correctly stated. The official name used for the University is, “The Regents of the University of California” which is described as “a California corporation”. The name may include a specific reference to the campus and the department. For example: “The Regents of the University of California, a California corporation acting for and on behalf of the University of California, Riverside, Department of Business Contracts.”

It is not correct to use the “University of California” or some instrumentality thereof as the contracting party as the University and all its instrumentalities do business in the official name of “The Regents of the University of California”.

Description of Services and/or Scope of Work:

This section is used to describe in detail, the exact nature of the project or product that needs to be accomplished to deliver the product, service, or result with the specified features and functions. When a description or scope of work is lengthy, a separate document can be provided and will be referenced as an exhibit. Exhibits often contain important and necessary information that assist in defining the obligations or other important issues relating to the interpretation of the contract.

Terms and Conditions:

Terms of a contract need to be clearly stated and all important terms need to be included to minimize different interpretations by the parties. Contracts are written to prevent litigation caused by inadequate documentation of crucial legal points. If there is a dispute that the parties cannot resolve, a court of law will interpret the contract provisions which may result in an interpretation far different than the actual intent of the parties. General Counsel approved the use of standard University contracts with consistent terminology to increase clarity of certain legal points.

As previously mentioned clarity of the parties’ intent is a priority in drafting and negotiating contracts but equally important is the parties’ understanding of the anticipated outcome in the event of potential disputes and/or litigation. That includes knowledge of the way courts will interpret or apply the laws applicable to the contract. When a contract is subject to the laws of another state, the University is at a disadvantage in anticipating the outcome. Additional costs to the University to retain counsel, resident and licensed in the state of jurisdiction, and the costs for witnesses traveling to and from the foreign state to participate in litigation-related proceedings, may strain department resources and severely disrupt the operations of the department.

Indemnification, Hold Harmless and Insurance Requirements:

Nearly every University contract contains an indemnification clause. Indemnification is an agreement of one party to assume financial responsibility for the liability of another party. Use of indemnification provisions in commercial contracts helps minimize the University’s financial risk in business transactions.

Hold Harmless is a contract provision under which the risk of damages or loss is transferred from one party to another.

Insurance is usually required even if indemnification and/or hold harmless language is included in a contract. Insurance ensures that the indemnification provision can be enforced. An Indemnification and Hold Harmless agreement without insurance may result in the University being liable for the entire loss if the other party is negligent and does not have sufficient resources to pay for a loss if it occurs.

The Insurance and Risk Management office is responsible for reviewing all insurance and indemnification language of non-University contracts or when the other contracting party submits a formal request to modify the University’s standard language.

Rights to Data:

The very nature of our campus as a public education and research university means that new information is developed here daily. Add to that the explosive growth of modern technology for information sharing and you have intellectual property in enormous amounts, which is subject to federal laws as old as our country and as new as yesterday. As a land-grant institution, the University is responsible for publicly disseminating the results of its efforts. While not all of the intellectual property created here is commercially valuable, some is and must be prudently managed.

The University’s intellectual property policies are intended to promote the progress of science and technology, to assure that discoveries and inventions are used to benefit the public in various ways. The free and open exchange of ideas is a fundamental principle of the University environment of teaching and research. These policies establish the fundamental parameters for negotiating agreements with external parties to address rights and obligations associated with the rights to data. Title to the copyrightable material that is developed under a contract from a commercial party normally belongs to the University.

Authorized Signatures:

Several offices regularly handle University contracts depending on the subject matter. The President of the University of California has signature authority for contracting, unless that authority has been specifically delegated pursuant to the University’s Delegation of Authority-Signature Authority Policy, D-224-17. These delegations are limited to specific contract types and dollar amounts. If you do not have authority delegated under this policy, you are not authorized to enter into contractual relationships on behalf of The Regents.

The contract should be signed by an authorized representative of each party. Execution by an unauthorized individual may result in the contract being unenforceable against that party. This provision is particularly important in the case of corporations and partnerships.

Q: Why have contracts?
A: A properly drafted contract reduces the chance of misunderstandings at a future date and helps protect the rights of the parties to the business transactions. When the parties have expressed their agreement in a complete unambiguous writing, the writing is the best evidence of their intent. The written document also provides an audit trail and authorizes the use of public funds in payment of invoices for business transactions conducted on the campus.

Q: Can a Dean, Department Chair, Director, Professor, or Principal Investigator sign a Contract?
A: No. The Board of Regents has delegated to each Chancellor the authority to execute certain contracts on behalf of the Board. The Director of Materiel Management is the campus official with contracting authority for Business Contracts.

Q: Can work or services be engaged before a contract is executed?
A: No. Work may only commence once the Director of Materiel Management executes the contract. This means that services may not begin if all parties have not sign the contract. Once the contract is signed by both parties it is then fully executed and work can begin.
Working without a fully executed contract is taking a risk that may result in financial losses. Financial losses could result from failure to collect monies owed if work is performed before the contract is signed. In the event the University tries to collect monies owed, there is the risk of damaging future business relations in addition the time lost due to collection attempts.
Insurance companies and the University’s Self-Insurance Program are obligated to cover liability claims in a contract situation only if the contract is properly executed prior to a loss occurring. In the event that the other party does not have sufficient resources to pay a judgment or settlement, our campus may be held responsible for paying all or part of those costs, in addition to whatever costs are incurred by the University in defending the claim.

Q: Can the other party’s contract be signed as is?
A: In many cases contracts include "boiler-plate" language (text that is or can be reused without being changed much from the original) that provides protection only for the party that drafted the agreement, and may also include provisions that don’t apply to a particular business transaction. Contracts are often drafted by private parties that include provisions that are not acceptable when contracting with the University, as a public entity, or when language does not comply with either the Standing Orders of the Regents or University polices.

Q: Why do I have to go to the trouble of getting an agreement signed and exchanging insurance certificates?
A: If there is a claim, the absence of a contract makes determining liability difficult. It is safer to know at the outset of an arrangement what the limits of liability are rather than waiting until there is a claim.

Q: Why do changes to the fully executed contract have to be in Writing?
A: To be binding, changes must be in writing and signed by duly authorized representatives or agents of both parties. This documents the change, provides clarity and will be binding should problems arise.