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 Utah Randy Draper, University of Colorado at Boulder Winnie 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 DEFINITIONS Grant – Purpose is to transfer money, property, services, or anything of value to recipient in order to accomplish a public purpose – No substantial involvement is anticipated between sponsor and recipient during performance 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 negotiate More difficult to administer Have 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 PI PI Dept Staff Dept Staff Pre-Award Post-Award TTO Legal Award Mgt. Post-Award SPA President PI OCG SPA TTO 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 CONTRACTS Request 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 Provisions Documentation and Reporting Ownership of Equipment Audit Legal: Indemnification/Insurance Choice of Law Arbitration Termination Management: Key Personnel/Approval of Staff Technical Direction & Changes Deliverables: Inspection and Acceptance Academic: Publication Confidentiality and Non-Disclosure Publicity/Disclosure of Sponsorship Restricted, Proprietary, and Classified Research Rights in Data Intellectual 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 NonDisclosure potential problems? • How are Confidentiality and NonDisclosure 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.