FUNDAMENTALS OF CONTRACT NEGOTIATION NCURA Region VI/VII Spring Meeting Park City, UT April 24, 2007.

FUNDAMENTALS OF CONTRACT NEGOTIATION

NCURA

Region VI/VII Spring Meeting

Park City, UT

April 24, 2007

Today’s session will address the basic issues affecting contract negotiation: types of agreements, terms and conditions, and negotiation strategies. The focus, however, will be on troublesome clauses, the remedies acceptable to most universities and the different issues posed by federal and non-federal contracts.

Brent Brown, J.D., University of UtahRandy Draper, University of Colorado at BoulderWinnie Ennenga, Northern Arizona University

LEARNING OUTCOMES

• To understand the difference between a grant and a contract; types of contracts; funding mechanisms

• To understand the basic contracting process

• To be able to identify the key parts of federal and non-federal contracts

• To be able to identify and offer alternatives for troublesome clauses

DEFINITIONSGrant

– Purpose is to transfer money, property,services, or anything of value to recipient inorder to accomplish a public purpose – No substantial involvement is anticipatedbetween sponsor and recipient duringperformance of activity– Often called an “assistance mechanism”

DEFINITIONS

Cooperative Agreement

• principal purpose is to transfer funds to recipient to accomplish a public purpose

• substantial involvement is anticipated between sponsor and recipient during performance of activity

DEFINITIONS

Contract

• principal purpose is to acquire property or services for direct benefit or use of the sponsor

• sponsor determines that procurement contract is appropriate

• often called a “procurement mechanism”

SO . . . What is a Contract?

A document that describes a relationship between two parties, such as a buyer and seller, that is defined by an agreement about their respective rights and responsibilities

BEWARE, contracts are:

More difficult to negotiateMore difficult to administerHave more rules and are less flexible

TYPES OF CONTRACTS

The Contract Masquerade• Memorandum of Understanding• Teaming Agreement• Agreements with funds: e.g. grants with terms

and conditions, contracts, purchase orders, Intergovernmental Agreements

• Other agreements: e.g. Material Transfer Agreement, non-disclosure agreements, data transfer agreements.

FUNDING MECHANISMS

Fixed-Price

Cost Reimbursement

Time and Materials

Incentive Contracts

CONTRACTING: SHIFTING ROLES

Government

Prime Contractor

University

Subcontractor

Second Tier Sub Second Tier Sub

PLAYERS, ROLES, RESPONSIBILITIES

Proposal Negotiation Award Mgt.

PI PI Post-Award PI

Dept Staff Dept Staff SPA OCG

Pre-Award Post-Award President SPA

TTO TTO

Legal

CONTRACTS: PROCESS• Solicitation and Amendments (RFP)• Pre-Bid Conference• Prime Proposal• Subcontract Proposal• Exceptions Letter• Proposal Review (Technical and Cost Proposals)• Verification/Negotiation• Best and Final Offer• More Negotiation???• Acceptance

FEDERAL CONTRACTSRequest for Proposal

– Specific instructions for technical and cost proposals

– Includes a sample contract or “schedule” with expected terms and conditions

– Institutional endorsement of the proposal is considered an official offer, which may not be able to be changed once the proposal is submitted.

– Some RFP’s may be converted into a contract with only the buyers signature.

FEDERAL CONTRACTS: RFP

Part I• Section A: Cover Page• Section B: Supplies/Services & Prices/Costs• Section C: Descriptions, Specifications, Scope of

Work• Section D: Packaging and Marking• Section E: Inspection and Acceptance• Section F: Deliveries or Performance• Section G: Contract Administration Data• Section H: Special Contract Requirements

FEDERAL CONTRACTS: RFP

Part II– Section I: Contract Clauses

Part III– Section J: List of Attachments

PART IV– Section K: Representations/Certifications– Section L: Instructions, Attachments– Section M: Evaluation Factors for Award

PROPOSAL PREPARATION

• Dissect the Solicitation Document• Attend to Amendments• Assign Responsibilities: Technical, Cost,

Management• Coordinate with Subcontractors• Write to the Evaluation Criteria• Meet Regularly During Proposal Development• Arrange for a Pre-submission Review• Do Not Lose Your Focus• Prepare the Terms and Conditions Letter

PROPOSAL PREPARATION

The Exceptions Letter:

• The exceptions letter documents the University’s concerns with the proposed terms and conditions. If these issues are not specified when submitting the proposal, then they may not be eligible for negotiation after the award is made.

TROUBLESOME CLAUSES

FINANCIAL

LEGAL

MANAGEMENT

ACADEMIC

Financial: Payment ProvisionsDocumentation and ReportingOwnership of EquipmentAudit

Legal: Indemnification/InsuranceChoice of LawArbitrationTermination

Management: Key Personnel/Approval of StaffTechnical Direction & ChangesDeliverables: Inspection and Acceptance

Academic: PublicationConfidentiality and Non-DisclosurePublicity/Disclosure of SponsorshipRestricted, Proprietary, and Classified ResearchRights in DataIntellectual Property/Work for Hire/Rights in Data

PUBLICATION

• Why is Publication a potential issue?• How is a Publication problem identified in a

contract?• Compromises? Alternative language?• Are Publication restrictions ever acceptable?• Your experience . . .

PUBLICATION

• Know your Institution’s policies “inside and out”.• Understand why the right to publish is a legal,

practical, and philosophical requirement of academic research.

• Understand what types of limitations are appropriate and may be accepted by your institution.

INSURANCE/INDEMNIFICATION

• Why are insurance and indemnification potential issues?

• How is an insurance or indemnification problem identified in a contract?

• Compromises? Alternative language?• Is it ever OK to indemnify or to agree to

insure another party?• Your experience . . .

INSURANCE

Ensure that:• the insurance requirements are consistent with

standard university insurance coverage (Self Insurance)

• the nature of coverage required is appropriate• the sponsor is not named as a co-insured on the

institution's policy (Additional Insured)• warranties/guarantees

INDEMNIFICATION (Hold Harmless/Who is responsible for paying?)

• Contract language must be avoided that causes a university to be liable for the wrongful acts or failures of another party.

• Many State institutions are prohibited by statute from providing indemnification for the acts of third parties.

• The University is still responsible for the actions of agents, employees, and students.

• Read the entire contract

TERMINATION

• Why is Termination a potential issue?• How is a Termination problem identified in a

contract?• Compromises? Alternative language?• Is it ever OK to agree to a Termination clause?• Your experience . . .

TERMINATION

• Mutual Termination

• Termination for Convenience

• Termination for Default/Cause (cure notice)

• University Non-Cancelable Obligations

TERMINATION

Ensure that:

• the notification period for termination is adequate;

• the institution's costs are adequately covered in the event of termination;

• the parties agree how disputes are to be handled, particularly in the case of termination for cause.

STATE STATUTES

• Why are State Statutes potential problems?• How are State Statutes identified in a contract?• Compromises? Alternative language?• Is it ever OK to agree to another state’s

statutes?• Your experience . . .

STATE STATUTES

Nondiscrimination

Conflict of Interest

Arbitration/Dispute Resolution

Contractor’s Records

Failure of the Legislature to Appropriate

Confidentiality

Indemnification/Insurance

Governing Law

Public Records

KEY PERSONNEL

• Why is Key Personnel a potential issue?• How is a Key Personnel problem identified in a

contract?• Compromises? Alternative language?• Is it ever OK to allow the sponsor to choose the

project personnel?• Your experience . . .

KEY PERSONNEL

Ensure that:

• Only Principal Investigators are named as Key Personnel.

• The Sponsor cannot approve or veto other staff members.

TECHNICAL DIRECTION

• Why are Technical Direction and Changes potential issues?

• How are Technical Direction and Changes problems identified in a contract?

• Compromises? Alternative language?• Is it ever OK to agree to Technical

Directions or Changes?• Your experience . . .

TECHNICAL DIRECTION

Ensure that:

• The Principal Investigator and his/her team are not under the direction or supervision of the sponsor.

• The Principal Investigator is solely responsible for the direction and management of the project and its outcomes.

The Changes Clause

• Why is inclusion of the Changes clause a potential issue?

• How is the Changes clause identified in a contract?

• Compromises? Alternative language?• Is it ever OK to agree to the Changes clause?• Your experience . . .

Changes

• Be careful of the Changes clause in federal contracts.

CONFIDENTIALITY/ DISCLOSURE

• Why are Confidentiality and Non-Disclosure potential problems?

• How are Confidentiality and Non-Disclosure clauses identified in a contract?

• Compromises? Alternative language?• Is it ever OK to agree to Confidentiality or

Non-Disclosure statutes?• Your experience . . .

CONFIDENTIALITY/ NON-DISCLOSURE

Universities normally do not provide for the confidentiality of information beyond that necessary to protect the anonymity of research participants. If confidentiality is necessary to perform the research, provisions may be included in the agreement that identify the extent to which proprietary or confidential information may be protected. Separate agreements with the faculty are discouraged.

CLASSIFIED RESEARCH

• Why is accepting Classified Research a potential issue?

• How is Classified Research or a Classified Research contract identified?

• Compromises? Alternative language?• Is it ever OK to agree to perform Classified

Research?• Your experience . . .

CLASSIFIED RESEARCH

• Many universities do not accept classified research. Understand the procedures for accepting classified research at your University.

• To the extent possible, ensure that the Principal Investigator is able to report research results, (although data that identify individuals, groups, or organizations may be kept confidential).

RIGHTS IN DATA

• Why is ownership of data a potential problem?• How are Rights in Data problems identified in a

contract?• Compromises? Alternative language?• Is it ever OK to agree to a limitation on the

University’s rights to data?• Your experience . . .

RIGHTS IN DATA

• Clearly define ownership of data.• Clearly identify proprietary or confidential

data.• Know what restrictions are acceptable to

the institution.• Identify the risk/liability for the disclosure

of proprietary or confidential information?• Beware of the Rights in Data clause in

federal contracts.

52.227-18 Rights in Data – Special Works

(d) Release and use restrictions. Except as otherwise specifically provided for in this contract, the Contractor shall not use for purposes other than the performance of this contract, nor shall the Contractor release, reproduce, distribute, or publish any data first produced in the performance of this contract, nor authorize others to do so, without written permission of the Contracting Officer.

WORK FOR HIRE/OWNERSHIP OF INTELLECTUAL PROPERTY

• Why is agreeing to a Work for Hire a potential problem?

• How are Work for Hire problems identified in a contract?

• Compromises? Alternative language?• Is it ever OK to agree to perform a Work for

Hire?• Your experience . . .

WORK FOR HIRE/OWNERSHIP OF INTELLECTUAL PROPERTY

• Do not enter agreements as “work for hire” because such agreements cede ownership of intellectual property to the sponsor. Ownership of reports and other deliverables may be given to the sponsor if the University retains ownership of the background data and information contained in such documents.

IMPORT/EXPORT LAWS

• Why are the Import/Export Laws potential problems?

• How are Import/Export problems identified in a contract?

• Compromises? Alternative language?• Is it ever OK to accept the Import/Export Laws?• Your experience . . .

IMPORT/EXPORT LAWS

• The Import/Export Laws are the law and are in effect whether or not cited in the contract.

• The application of the law is determined by the technology and the nature of the research.

• ITAR, EAR, OFAC• Maintain the University’s fundamental research

exclusion by:– Not accepting restrictions on publication or disclosure– Not accepting restrictions on personnel

NEGOTIATION OBJECTIVES

1. To achieve a framework that facilitates

the work.

2. To arrive at a mutually-acceptable agreement.

3. To set a positive tone for the on-going institution/sponsor relationship.

4. To negotiate a contract that is consistent with the institution’s policies and procedures.

Remember: a contract is a

“binding” agreement and your

institution has a legal obligation

to perform.