Business Law amp IP Practice Group 1 Contracts Training November 8 2012 The Texas AampM University System Office of General Counsel The Texas AampM University System Office of General Counsel ID: 738343
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Warren J. DeLuca
Assistant General Counsel
Business Law & IP Practice Group
1
Contracts Training
November 8, 2012
The Texas A&M University System
Office of General CounselSlide2
The Texas A&M University
System
Office of General Counsel
Business Law & Intellectual Property Practice
Steve Garrett
Managing Counsel
Caroline Lawson
Intake & Assignment
Cyndi Schoen
Intake & 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 CounselProfessional Services ConsultingPerformance AgreementsConstruction AgreementsService ContractsEquipment PurchaseVendingPurchasing Assets & Sales
Practice Areas
Collections
IP – Infringement
IP – Counseling
Waivers IndemnificationLegal Risk AnalysisPolicySponsored ResearchNew Corporations
Practice AreasAthleticsPolicyMediaEmploymentPersonnel IssuesFinancial ServicesHIPAA Compliance
Practice AreasMaterial Transfer AgreementsNondisclosure AgreementsIP - CounselingBlackboardInsurance IssuesInter-Agency ContractsIntra-System ContractsIP - LicensingEducational ServicesSoftware PurchaseSponsored Research
Practice AreasOffice of Technology CommercializationIP - InfringementIP – 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 behalfDelegation of authority specifies the type of contract and $ limitationThose 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 contractSlide4
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 RegentsExceptions:
Sponsored research contracts/grants
Contracts transferring rights in technology or products protectable by patent or as a plant variety Contracts processed through state contract or bid process in accordance with System requirements Athletic events/contests contractsContracts and grants to perform research, educational, and/or service activities consistent with the university’s mission…Slide5
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:
Unaltered form contracts approved by OGC within the last 3 years
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 chancellorSlide6
Approved Forms
OGC has approved several formsUse standard form for first draft May save time and effortStart with a “clean” form every time if possible
Forms need to be re-approved every three years
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Drafting TipsWhether a contract term is acceptable depends on:
Purpose of the agreementContext
Legal authorityRisk toleranceDon’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.Slide9
Contract ChecklistSpelling, formatting, grammar, punctuation, and general appearance of document are professional and
accurateAll exhibits, attachments, appendices, schedules, etc. attached?
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A contract by any other name is still
a contractPurchase Order
Memorandum of UnderstandingLetter of IntentLetter of UnderstandingLetter AgreementRelease/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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IntroductionA contract should identify the parties to the contract using their correct legal name:
“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]
”12Slide13
Introduction
Contracting party’s full legal name?
Verify full legal nameBe consistent
Same name in the signature block Include any relevant background information at the beginning (recitals), not in the body of the contractDefine key terms
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Scope of Work
14Description of services
to be performed, items to be delivered, etc.Clear and understandable description of the subject of the
contractIf a proposal or similar document is attached as the statement of work, make sure that it is consistent with the body of the contractSlide15
Contractor ResponsibilitiesClearly list the rights and duties of each party
Each party’s responsibilities identified in understandable wordingUse the active voice to the extent possible: “Contractor shall provide the services…” not “The services shall be provided…”
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Term/TerminationDate contract is to begin?
This may or may not be the date the contract is signedDate contract ends?
The date the contract will end unless terminated earlier (usually must be five years or less)Procedure for renewal clearly identified and understood?
Beware of automatic renewal or “evergreen” clausesProcedure for termination clearly identified and understood?Termination for breach should be identified
Termination for convenience?16Slide17
Consideration/Price
Clear description of amounts of money or other consideration for contract?Place, time and method of payment should be clear; amounts tied to other amounts (percentages, etc.) should be stated in clear termsAll payments should be in U.S. Dollars
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Alternative Dispute Resolution
(ADR)Chapter 2260 of the Government Code
Applies to all written contracts between a unit of state government and a contractor for goods or services or certain construction projectsDescribes
a procedure that a contractor must follow for breach of contract claims against the StateGives 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 mediateIf 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 ProcessThe
ADR process does not apply to contracts:Between the university and the federal government or agency, another state,
or another countryBetween the university and another Texas state agency
Other 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 Why? The process is a means for a contractor to
resolve a dispute with an agency that has “sovereign immunity”Exception: CounterclaimsWhat if the other side refuses to accept the ADR clause?
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 arbitrationException: 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 ResolutionSlide24
IndemnityIndemnity 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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IndemnityThe 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?
IndemnitySlide28
When giving a qualified indemnity:
Who?Limit to losses caused only by the university and its employees, not its “agents”
What?Limit to losses caused by (1) negligence and (2) willful misconduct
When?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 InterestsThe 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 contractJurisdiction 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 lawsuitThe 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 consultedBeware: Some foreign countries retain formalistic contract requirements
Contract must be read aloud from beginning to end by a notaryContract 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 decisionDon’t agree to submit to the jurisdiction of any court – it could be viewed as a waiver of sovereign immunityCan usually be worded to avoid this
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Venue
Venue is the particular place where a lawsuit may be brought and heardSection 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 compromiseThe risks of going silent:A court will decide which
jurisdiction, venue, or law applies to a dispute under the contractThe university may incur additional costs, delay, and other difficulties
The university may need to hire local counselIf 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 LawsIt is recommended to include a clause providing that the contracting party will
comply with all applicable federal, state, and local laws, ordinances, rules and regulationsConsider including a reference to a particular law that is known to apply to the specific contract such as:
FERPA, export controls, etc. 38Slide39
Relationship of the PartiesState 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:
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 FundingThe following clause is recommended for contracts in which the university is paying money, especially if they span biennia:
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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AuditsThe 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: 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 eventA natural or unavoidable catastrophe that interrupts the expected course of
eventsConsider: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 consentEven if consent is granted, the State is immune from liability unless waivedGenerally, the courts
say that the State waives immunity from liability when it enters into a contract with another party
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Sovereign ImmunityStill 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 suedSpecific resolution by the Legislature
If the State brings suitWaiver by conduct
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Sovereign ImmunityDon’t assume sovereign immunity will protect
the universityThe Legislature could (and sometimes does) grant permission to sueImmunity may best be used as a tool to facilitate settlementsImmunity 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 publicThe university is a
governmental body“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
informationThe 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 obtainedTrade
secrets obtained from a person, if made confidential by lawTechnological 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 informationThe 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 carePreferred: 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’ CompensationThe 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 accidentThe A&M System is self-insured for most property insurance
claimsContact System Office of Risk Management and Safety with any insurance questions
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InsuranceThe following clause is recommended as a replacement for clauses requiring the university to maintain insurance:
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.52Slide53
Limitation of Liability and/or DamagesCan 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 agreementThe university may agree to a liquidated damages clause as long as: The amount stipulated in the contract is a reasonable forecast of fair compensation for the harm caused by the breach
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 WarrantiesAssurances 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-WaiverA catch-all provision:
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 ThoughtsRemember this is only general guidance
Look at specific facts and circumstances of each contractIdentify which terms present greatest riskIf you can’t understand a term, don’t hesitate to ask that it be rewrittenIf in doubt, seek further legal counsel and contact OGC
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Thank you!
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