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Contracting Challenges and Negotiation Principles

This presentation explores the contracting challenges faced by organizations, including indemnity provisions, confidentiality provisions, social security numbers, limitation of liability provisions, choice of law/venue provision, criminal background checks, and delegation of authority to execute contracts.

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Contracting Challenges and Negotiation Principles

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  1. Contracting Challenges and Negotiation Principles Presented by: Dana L. Hollingsworth The University of Texas System Office of General Counsel September 29, 2005

  2. Contracting Challenges • Indemnity Provisions • Confidentiality Provisions • Social Security Numbers • Limitation of Liability Provision • Choice of Law/Venue Provision • Criminal Background Checks • Delegation of Authority to Execute Contracts

  3. Indemnity Provisions • Definition: insurance or other security against possible loss or damage • Provides Breach-of-Contract Claim in addition to Common Law Cause of Action • May Cover Claims that are Excluded by Insurance Policy or are otherwise Not Covered by Insurance • May Expand Scope of Indemnifying Party’s Liability (i.e., liability for acts of unrelated third parties)

  4. Indemnity Provisions • Who? • Limit indemnity to losses caused by indemnifying party, its agents, or its employees • What? • Limit indemnity to losses caused by negligence and willful misconduct of indemnifying party, its agents, or its employees • When? • Limit indemnity to losses incurred during performance of indemnifying party’s contractual duties

  5. When UT Gives an Indemnity: • Always qualify the indemnity with the phrase “to the extent authorized by the laws and Constitution of the State of Texas” (ref. AG Opinion MW-475) • Never indemnify Contractor for its own negligence or the negligence of its employees, agents, or subcontractors

  6. Confidentiality Provisions • UT Institutions must comply with the Texas Public Information Act (Ch. 552, Gov. Code) • Always qualify confidentiality provisions with the phrase “subject to the Texas Public Information Act and other applicable law”

  7. Confidentiality Provisions • General Rule = All Information is Public • Exceptions to the General Rule • Information Confidential by Law • Information Confidential by Judicial Decision • Certain Personal Information • Information Relating to Competition or Bidding • Certain Law Enforcement Records • Information within Attorney-Client Privilege

  8. Confidentiality Provisions • Determination regarding whether an exception applies is fact specific • Texas Attorney General’s Office (not the UT institution) makes the determination regarding whether an exception applies

  9. Social Security Numbers • Business Procedures Memorandum (BPM) 66: Protecting the Confidentiality of Social Security Numbers • Provides requirements and guidelines for the protection of the confidentiality of social security numbers • Does not prohibit or restrict the collection, use, and maintenance of social security numbers as required by applicable law • Best Practice = Do not include Social Security Numbers in UT contracts

  10. Social Security Numbers • Section 3.2 of BPM 66 requires compliance with the following: • Each time a UT institution requests that an individual disclose his or her social security number, the institution shall provide the notice required by Section 7 of the Federal Privacy Act of 1974 (5 U.S.C. § 552a), that requires the institution to inform the individual whether the disclosure is mandatory or voluntary, by what statutory or other authority the number is solicited, and what uses will be made of the number • The notice shall use the applicable text from Appendix 3 of BPM 66 or such other text as may be approved by the SSN Coordinator or the Office of General Counsel

  11. Social Security Numbers • Appendix 3 of BPM 66 includes: • Disclosure for the employment process • Disclosure for the student application process • General mandatory disclosure • General voluntary disclosure

  12. Social Security Numbers • General mandatory disclosure: Disclosure of your Social Security Number (“SSN”) is required of you in order for The University of Texas at _________ to __[state intended use of SSN]_________, as mandated by  [Federal] [State] law.  Further disclosure of your SSN is governed by the Public Information Act (Chapter 552 of the Texas Government Code) and other applicable law.

  13. Limitation of Liability Provision • Typical Limitation of Liability provision: Contractor shall not be liable under any circumstances for any special, indirect, incidental, consequential or other damages resulting from any loss of use of the Software or any loss of revenues or profits related to the Software.

  14. Limitation of Liability Provision • Make every effort to delete limitation of liability provisions • If the provision is not deleted • Qualify the limitation with the phrase “to the extent authorized by the laws and Constitution of the State of Texas” • Make the limitation mutual

  15. Limitations of Liability Provision • Example of properly qualified, mutual limitation of liability provision To the extent authorized by the laws and Constitution of the State of Texas, Contractor shall not be liable under any circumstances for any special, indirect, incidental, consequential or other damages resulting from either any loss of use of the Software or any loss of revenues or profits related to the Software. Customer shall not be liable under any circumstances for any special, indirect, incidental, consequential or other damages resulting from Customer’s performance under this Agreement or any related agreements.

  16. Choice of Law/Venue • Best Practice = include a choice of law/venue provision in every contract that: • Specifies Texas law as the law that will govern the contract • Specifies the Texas county in which the UT institution is located or Travis County as the proper location for venue

  17. Choice of Law/Venue Venue; Governing Law. Travis County, Texas, shall be the proper place of venue for suit on or in respect of the Agreement. The Agreement and all of the rights and obligations of the parties hereto and all of the terms and conditions hereof shall be construed, interpreted and applied in accordance with and governed by and enforced under the laws of the State of Texas.

  18. Choice of Law/Venue • OGC does not recommend expressly agreeing to the law of another state or nation as the law that will govern the contract • Likewise, OGC does not recommend expressly agreeing to venue in a another county, state, or nation

  19. Choice of Law/Venue If a UT institution excludes the choice of law/venue provision from the contract (“going silent”) then: • a court will decide which law applies to a dispute under the contract • the UT institution may incur additional costs, delay, and other difficulties • the UT institution may need to hire local counsel • in the event 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

  20. Choice of Law/Venue • If a contract is governed by laws of a jurisdiction outside the United States, local counsel should be consulted • Beware: Some foreign countries retain formalistic contract requirements • Contract must be read aloud from beginning to end by a notary • Contract must be bound by a ribbon which is affixed to both the cover page and the back page with a wax seal

  21. Criminal Background Checks • BPM 29 Criminal Background Checks for Security-Sensitive Positions

  22. Criminal Background Checks • According to Section 3.2.2 of BPM 29, a UT institutionshould not automatically disqualify from employment all individuals with conviction records. The institution’s procedures should provide that, in the event the investigation reveals criminal convictions or other relevant information, the hiring official will determine on a case-by-case basis whether the individual is qualified based on factors such as: • Specific duties of the position; • Number of offenses; • Nature of each offense; • Length of time intervening between the offense and the employment decision; • Employment history; • Efforts at rehabilitation; and • Accuracy of the information that the individual provided on the employment application.

  23. Criminal Background Checks • When contracting for security-sensitive services, UT institutions should consider requiring that • the contractor perform background checks on its employees and agents, as well as the employees of subcontractors • the contractor notify the institution of felony convictions • UT institutions should analyze convictions in accordance with Section 3.2.2 of BPM 29 to determine if the conviction poses an unacceptable business risk

  24. Delegation of Authority to Execute Contracts • Legal Authority for Delegation • Sections 65.31 and 65.34, Education Code • Series 10501 of the Regents’ Rules and Regulations

  25. Delegation of Authority to Execute Contracts • Two Types of Delegates • Primary Delegates receive authority to sign contracts directly from the Board • Primary delegates may further delegate their authority to sign contracts in writing unless otherwise specified in the Rules • Primary delegates must permanently maintain, or cause to be maintained, evidence of all such delegations • Secondary Delegates receive authority to sign contracts from a primary delegate (not from the Board) • Secondary delegates may not further delegate their authority to sign contracts

  26. Delegation of Authority to Execute Contracts • Primary delegates must maintain, or cause to be maintained, necessary and proper records of all contracts, agreements and documents executed and delivered pursuant to his or her delegated authority in accordance with any applicable record retention schedule or policy adopted by the Board or the U.T. institution (Section 6.1, Series 10501 of the Regents’ Rules)

  27. Delegation of Authority to Execute Contracts • Delegates executing documents on behalf of the Board are responsible for assuring that they have authority to act on behalf of the Board and that such authority is exercised in compliance with applicable conditions and restrictions (Section 5.7, Series 10501 of the Regents’ Rules)

  28. Negotiation Principles • Negotiation Definition • Role of Negotiation in Texas Procurement Process • Negotiator’s Challenge • Roles Negotiators Play • Preparing for Negotiation • Tools of Persuasion • Negotiation Tips • Negotiation Resources

  29. Negotiation Definition The exchange of information and ideas with the intent to change the relationship of the parties

  30. Role of Negotiation in Texas Procurement • Texas law permits negotiation in the following procurement situations: • Catalogue Purchase through an Information Systems Vendor • Emergency Purchase • Sole Source Purchase • Competitive Sealed Proposal Purchase • Texas law does not permit negotiation when the procurement is based on competitive bids

  31. Negotiator’s Challenge To create a process likely to produce a mutually acceptable balance of interests

  32. Roles Negotiators Play • Competitive Sportsman • Objective = Winning • Defender • Objective = Protecting Against Loss • Problem-Solver • Objective = Working Together to Find a Solution

  33. Negotiation Preparation • Rule of Thumb: 4 hours of preparation for every 1 hour of negotiation (4:1) • The party that is most prepared is typically the most successful

  34. Negotiation Preparation • Know the alternatives to negotiation • Your alternatives • Ways to improve your alternatives • Their alternatives • Ways to test and, if appropriate, worsen their alternatives

  35. Negotiation Preparation • Look beyond the “position” of a party to that party’s underlying interest or need • Ours • Theirs • Others • Learn to invent many options for mutual gain, before committing to any one option

  36. Negotiation Preparation • Search for standards of legitimacy by which to evaluate the options • Make clear, careful commitments at the end of the process • Maintain clear, effective two-way communication • Focus on: What will they hear? • Not: What do we intend?

  37. Negotiation Preparation • Build a good working relationship • Trusting Them: • Assess risk/reward • Absent good reason, deal independently of trust • Being Trustworthy Ourselves: • Being trustworthy is an investment in our relationship power • A reputation for reliability is powerful • Building trust is more difficult that losing it • Do not react in kind without thinking

  38. Persuasion Tools • Logic – use of facts and proof by reasoning • Power – use of direct or implied threat • Emotion – use of feelings • Bargaining – use of trading • Compromise – acceptance of a different, often lesser, position

  39. Negotiation Tips • Before you start negotiating, understand why you are there • Make sure you are negotiating with the decision maker • If you want people to listen to you, you must listen to them • Use confidence-building measures to get the negotiation going (resolve easy issues first)

  40. Negotiation Tips • Look at the situation from the other party’s point of view • Do not let a deadline force you into a bad decision • Don’t agree to something if it is not fair

  41. Negotiation Resources • The Fine Art of Negotiating (1995) by Steven P. Cohen • Texas Negotiations (2000), Texas Building and Procurement Commission Training Presentation, William D. Agee & Associates, Inc. and Lallatin & Associates • Negotiation Workshop, Harvard Law School, Program of Instruction for Lawyers • Getting to YES: Negotiating Agreement Without Giving In [Second Edition], Roger Fisher, William Ury, and Bruce Patton (1991) • Getting Together: Building Relationships As We Negotiate, Roger Fisher and Scott Brown (1989)

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