Modifications of Contracts

1. Modifications of Contracts Part 2 – Assignment of Contracts Office of State Controller, Central Contracts Unit (CCU) July 20, 2011

2. What is an Assignment? • An “assignment” is the act of transferring to another all or part of one’s property, interest or rights. • There are many types of assignments, including, but not limited to: • Assignment of collateral (assignment of property as collateral security for a loan) • Assignment of income (assignor transfers property that generates income to another (for example, rental payments))

3. What is an Assignment? • Assignment of accounts (assignor transfers right to assignee to collect funds and apply towards payment of assignor’s debt) • Assignment of lease (Lessee transfers entire unexpired remainder of term from lease)

4. What is an Assignment? • Unless a contract prohibits assignment, assignment will generally be permitted. • Based upon the common law freedom of assignment. • An assignment cannot effect the duties of the other party to the contract or reduce the possibility of the other party receiving full performance of the same quality.

5. Effect of Assignment • An assignment only transfers the rights/benefits from the original party to an assignee. • The obligations remain with the original party. • You need an assumption of duties/obligations by the assignee to transfer obligations and even then it can be a partial or a complete transfer. • An assignment and a novation are not the same!

6. Novation Agreements • A Novation Agreement replaces one party with another and releases the original party from liability. To be valid, a novation requires: • all parties to agree to the novation, and • a previously valid contract, and • the extinguishment of the obligations in the previous contract, and • a new, enforceable contract.

7. Novation Agreements • Because its obligations under the previous contract are extinguished, the original party is no longer held responsible for future performance. • Only the new party can be held liable for performance issues. • Because State contracts may be procured based (partially or wholly) upon the attributes of the original contractor, the OSC/CCU does not recommend the use of Novation Agreements which completely extinguish any further obligation on the party of the original contractor.

8. Novation/Assignment in OSC templates • Novation Agreements are high risk contracts and must be sent to the OSC for approval with no guarantee of their acceptance. • In addition, the OSC Personal Services and Grant templates provide that contracts/grants cannot be assigned without the prior, written consent of the State or they are void.

9. Effect of Assignment in OSC templates • To transfer obligations from the original party to the assignee, the other party to the original contract (Ex. State of Colorado) must consent to the transfer. • The OSC/CCU has a “Consent to Assignment” template so that the State may consent to transfer of the original party’s rights under the contract to the assignee and the assignee may consent to the assumption of duties under the contract.

10. Consent to Assignment Template • CCU’s “Consent to Assignment” template is found in State Controller Policy, Modifications of Contracts – Tools and Forms at: http://www.colorado.gov/dpa/dfp/sco/contracts/contractpolicies.htm • Office of the State Architect/Real Estate Program has its own assignment template, “Amendment for Non-Disturbance”, which can be found at: http://www.colorado.gov/cs/Satellite/DPA-EO/DEO/1251570153230

11. Consent to Assignment Template • Do you have to use the Consent to Assignment template to transfer a contract? • The CCU prefers that you use the template. • You can transfer a contract and make other changes through a contract amendment; however, you must include all of the same concepts as are in the Consent to Assignment and the original party, the assignee and the State must sign the contract amendment. • Typically, this execution requirement may cause the assignee to want to execute a separate document including any other changes to the contract.

12. When do you need an assignment? • When there is a merger or acquisition and the original Contractor is not the surviving entity. • Ask - Is its FEIN different? • The original Contractor’s assets (including the contract) have been sold by the court in bankruptcy. • This applies only if the agency/IHE has not already terminated the contract for breach. • Use a contract amendment if: • the original Contractor is the surviving entity, • there is only a name change.

13. When to use a consent to assignment Consents to Assignment: • are bilateral documents requiring the same reviews, approvals and signatures as the original contracts they modify. • can be used any time prior to termination or expiration of the original contract in place of other modification tools. A terminated or expired contract cannot be amended!

14. Other Requirements • CMS/COFRS - You may need new entries in CMS and COFRS if the assignee/new contractor is not already in those systems. • Encumbrance requirements – • You need to deduct all funds related to the original party/assignor. • You need a new encumbrance related to the transfer to the assignee.

15. Consent to Assignment header Box 1 Box 2 Box 3 • Box 1 identifies the consent to assignment number. If this is the first assignment, enter “Assignment # 1.” • Box 2 is used to cross reference the consent to assignment to the original contract. Enter CMS/CLIN # and, if necessary to properly identify the original contract, enter your specific routing #. • Box 3 should contain the CMS # for this consent to assignment. Enter CMS # and, if necessary to properly identify this assignment, enter your specific routing #.

16. Section 1 - Parties • Enter the complete name of the original Contractor and the new Contractor as they are registered with the Colorado Secretary of State. The original Contractor’s name should match its name on the original contract. The new Contractor’s name should match on the contract, in COFRS and in CMS. • If the names do not match in all places, you need to determine why and, if necessary, correct the appropriate information.

17. Section 1 - Continued • If the original contract has no CMS/CLIN or routing number, you must amend the first sentence as follows: “This Consent to Assignment to the Original Contract dated _________ between Insert Contractor's Full Legal Name (“Assignor”), and the STATE OF COLORADO (“State”) acting by and through the Insert Name of Agency/IHE, Insert Division Name or delete if not applicable, (“Insert acronym or abbreviated name for the Agency/IHE, Division, etc.”) (“Contract”) is entered into by and between Contractor, the State Insert new Contractor's Full Legal Name (“Assignee”).”

18. Section 2 – Effective Date and Enforceability • Section 2 of the consent to assignment template matches the Section 2 of the CCU’s personal services contract template. • The consent to assignment is not enforceable until is it approved and executed by the State Controller or designee (the “Effective Date”). • The State is not liable for performance incurred by Assignee prior to the Effective Date.

19. Section 3 – Factual Recitals • The default provision requires Assignor and Assignee to represent to the State that “they are parties to a binding agreement assigning all of Assignor rights and obligations under the Contract to Assignee.” • If this is not the case, you will need to amend this language to reflect the facts present.

20. Section 4 – Consideration /Colorado Special Provisions • If your original contract already contains the current version of the Colorado Special Provisions, you may remove the provisions agreeing to replace such Special Provisions and remove the reference to the Special Provisions in the header. • The provision acknowledging adequate consideration for the consent to assignment is necessary and should not be removed.

21. Section 5 - Limits of Effect • The purpose of this provision is to incorporate this consent to assignment into the original contract. • In addition, it states that the original contract and all prior amendments will remain in full force and effect, except as specifically modified by this consent to assignment.

22. Section 6 – Effect of Assignment • This section specifically identifies the extent of the assignment from the original Contractor/Assignor to the new Contractor/Assignee. • Section 6(a) provides that unless limited by an attached “Assignment Agreement,” if any, the Assignee shall perform all of Assignor’s obligations under the Contract. • You must check one of the boxes to indicate if the Assignment Agreement is attached or not.

23. Section 6 - Effect of Assignment • The OSC recommends that the Assignment Agreement be attached if it exists and is available. • Because Assignment Agreements and their terms and conditions are typically tailored to the merger/acquisition between the assignor and assignee, the template provides that the Assignment Agreement should be attached rather than attempt to include standard provisions.

24. Section 6 – Effect of Assignment • Section 6(b) is the provision that differentiates the Consent to Assignment from a Novation Agreement. • It requires the Assignee to perform all duties and obligations under the Contract as if it were the original Contractor; however, if the Assignee fails to properly perform, the Assignor shall correct such performance if the State asks and if the Assignor still exists.

25. Section 7 – Start Date • Remember that the start date of a consent to assignment cannot be earlier than the date it is executed by the State Controller. • If you do not want the consent to assignment to take effect on a later date, you should remove the phrase “Month, Day, Year” from the provision.

26. Section 8 – Waiver • As of the Effective Date: • The Assignor waives all claims against the State. • The State is discharged from its obligations to the Assignor (payments, reimbursements and actions). • After the Effective Date: • All payments by the State to the Assignor shall be as if made to the Assignee. • Such payments shall discharge the State’s obligations under the Contract to the extent of the payment.

27. Section 9 – Order of Precedence • As written, except for the Special Provisions, the consent to assignment elevates the provisions of the consent to assignment over the provisions in the original contract. • As written, the consent to assignment automatically elevates the Special Provisions to the top of the order of precedence. • If your contract includes ARRA, FFATA or other federal provisions, you may need to amend this provision.

28. Section 10 – Available Funds • This provision duplicates the “Fund Availability” Colorado Special Provision. • Its primary purpose is to put all parties on notice of the limitations on the State’s financial obligations.

29. Section 11 – Consent to Assignment • In this provision, the State consents to the assignment of the Contract from the Assignor to the Assignee.

30. Signature Page • Consent to assignments require the same approvals and signatures as the original contracts they modify. • See the State Controller Policy, Signature Page – Form of, for permitted modifications to the template signature page and the State Controller Policy, Vendor Signature Authority, for requirements related to the authority of signatories. • With few exceptions, the State Controller always signs last.

31. Exhibits • Exhibits to consent to assignments must meet the same requirements as exhibits to the original contract. They must: • Include “Exhibit ___” to “Assignment CMS # ___” or use some other appropriate method of cross reference to the document to which they are attached. • Include proper page numbering. • Manual changes to exhibits must adhere to standard contracting rules (Ex. Initial changes by parties and no whiteout or stickers).

32. What if you have a Grant? • You can use the Consent to Assignment; however, you will need to maker certain modifications: • Change “Contract” to “Grant” globally. • In Section 6(c), change “Contractor” to “Grantee”.

33. What if the original contractor no longer exists? • If the original contractor no longer exists, you must determine if there is anyone that can execute the document on behalf of the original contractor. • Ex. after dissolution for a certain amount of time, there may be a board or officer retained to wind up affairs that can execute documents. • If there is no one that can execute the document on behalf of the original contractor, you will need a modified Consent to Assignment.

34. What if the original contractor no longer exists? • Although not available on the CCU website, RaLea has created Consent to Assignment templates for both Grants and Contracts without the original contractor/grantee signature requirement. • There are changes to Sections 1, 3, 6(B) and 8 of the template to remove statements from the original contractor/grantee. • Please contact the OSC (RaLea) if you require one of these modified templates.

35. Questions Office of the State Controller Central Contracts Unit 633 17th Street, Suite 1500 Denver, Colorado 80202 • RaLea Sluga, Central Contracts Unit Manager (303) 866-2127 ralea.sluga@state.co.us • Barbara Sohnen, Contract Specialist (303) 866-2862barbara.sohnen@state.co.us • Clark Bolser, Contract Specialist (303) 866-4759 clark.bolser@state.co.us