Contract Basics and Terms
WHAT IS A UNIVERSITY CONTRACT?
A contract is a promise the law will enforce. This includes any agreement, whether written or oral or electronic, which is intended to create a University obligation.
- An Offer = a promise to do or not do something (“I’ll cater your event in 1 month, if you pay me $1000”).
- An Acceptance = promise or performance (“I agree to pay $1000”).
- Consideration = the value or inducement to perform (The value received and given – the money and the event catered).
TYPES OF CONTRACTS
There are different types of contracts. Contracts are agreements which can have different titles:
“Click” Agreements, License, Quote/Purchase Order, Terms and Conditions, Lease, Letter of Engagement, Memorandum of Agreement(MOA), Term Sheet, Affiliation Agreement, Service Agreement, Agreement, Change Orders, Cooperative Agreements, Contract, International Agreements, Statement of Work, Memorandum of Understanding(MOU), Deal Memo, and Letter of Intent.
DETERMINING CONTRACT VALUE
Contract Value determines whether a contract may be reviewed without legal review and is also important to determining who is authorized to sign the contract.
Contract Value is determined based on the cumulative total dollar value of the contract over the entire term (including optional renewal terms). For example, assume the University hires Ms. Smith to consult on a project. The University agrees to pay Ms. Smith $7,500 annually for certain consulting services and the contract term starts August 1, 2016 and terminates July 31, 2019. The total value of the contract would be $7,500 times three (three years), or $22,500. Revenue contracts and expense contracts are treated the same for purposes of the Contract Policy. Similarly, if the contract provided for a one-year term with two optional one-year renewals, the Contract Value would be $22,500, counting all three years at the outset. If the contract provided for a one‑year term without any specific renewal options, the value would simply be $7,500.
In determining who is authorized to sign contracts and therefore bind the university, see Signature Authority.
LEGAL TERMS OF CONCERN
As a State entity and public university, Boise State contracts are subject to a number of unique legal restrictions. For example:
- Indemnification is prohibited.
- Jurisdiction and choice of law should be Idaho.
- Public records law limits our ability to maintain confidentiality in certain matters.
- Arbitration language should be stricken.
- Intellectual property policy, and other State Board policies may govern terms of your contract.
- Export control may apply.
The “parties” are the individuals who enter into an agreement. All parties to the contract must be clearly identified.
Dates or Term of the Agreement
University Contracts must contain a term. This is the date the contract “starts” or becomes effective, which is normally the date the contract is signed, and a date the contract ends, expires or terminates. For example, “This Contract is effective the date of the last signature hereto and terminates one year from the date of signature.” The University prefers a term of one year or less and disfavors contracts with a term longer than five years. If a University Contract is more than one year in term, a “Failure of Legislature to Appropriate” provision must be included in the University Contract.
Some contracts have language that makes the contract signer personally liable, meaning the vendor will view the signer as personally responsible for financial and other responsibilities outlined in the agreement. Boise State should be named in this instance, NOT an individual.
All agreements should include provisions regarding the term and termination of the contract. Boise State discourages contracts that last more than 5 years, including agreements that automatically renew with no end date.
Any agreement extending beyond one year should include language requiring advance written notice of termination, the contact for each party to receive such notice, and their address. The agreement should also provide for payment for services performed by the University up to the date of termination.
Except as otherwise required under the Idaho Public Records Law or similar language must be included with a confidentiality provision.
Choice of Law/Jurisdiction
- Governing Law – the law that governs interpretation and enforcement of the contract. (i.e. Idaho law shall govern)
- Jurisdiction – the place/court where claims will be litigated in the event of a dispute. (Ada County district court)
Contracts must be governed by the laws of the State of Idaho and venue should be Idaho courts. Idaho Code
§29-110 provides that any contract restricting any party from enforcing its rights in Idaho is void.
A contractual indemnification generally refers to an agreement to repay or protect another party for loss or damage that may occur in the future. The scope of a contractual indemnity varies widely but as a general rule. A contractual indemnity may use the word “indemnify” or “indemnify and hold harmless” but could also say the University agrees to “be responsible for” or “reimburse the other party for” a claim, loss, damage, or expense.
As a state entity, Boise State cannot indemnify or “hold harmless” another party to a contract under state law. Idaho law provides that agreeing to such an obligation may be a criminal misdemeanor and the entire contract may be void. See Idaho Code §59-1016, 59-1017
Limitation of Liability
There are various methods to contractually limit a party’s liability under a contract or for any transaction or claim arising from or relating to the contract. A party to a contract may attempt to limit liability in numerous ways in a contract: (i) the contract may exclude liability for consequential damages, (ii) the contract may disclaim one or more warranties, (iii) the contract may provide for an overall cap on one or both party’s liability, or (iv) contractual indemnification agreements may shift the burden for certain liabilities from one party to another. While there are numerous methods for negotiating these provisions to either eliminate them or mitigate the risk to the University, these provisions carefully, analyzing the potential risks and financial exposure to the University.
Watch for contracts limiting the Contractor’s liability to fees paid under the contract or to only certain types of damages:
- Cap on liability
- Liability only for direct damages
- Limitation on punitive damages
- Exclusive warranties/disclaimers of warranties
Liquidated damages are damages agreed to at the outset of the relationship in the contract itself. Liquidated damages are only allowed if they are not designed as penalties. Liquidated damages must be agreed to at the time of contract, must be a reasonable estimate of damages and the damages must have been considered at the time of contracting as a result of difficulty in establishing damages in the event of breach. Oftentimes a liquidated damages clause calls for an unreasonable amount of monetary payment if a contract is terminated. This provision could be stricken entirely, or negotiated as to the amount of the damages. Remember that the amount will only be enforced if it’s a reasonable calculation of potential damages, so it’s a good idea to document such a calculation at the time of determining liquidated damages.