Warren J. DeLuca Assistant General Counsel Business Law & IP Practice Group

The Texas A&M University System Office of General Counsel Contracts Training November 8, 2012 Warren J. DeLuca Assistant General Counsel Business Law & IP Practice Group

The Texas A&M University System Office of General Counsel Business Law & Intellectual Property Practice Steve GarrettManaging Counsel Cyndi SchoenIntake & Assignment Backup Caroline LawsonIntake & Assignment Andrea Pereira Gina Joseph Katherine Knight Steve Garrett Scott Kelly Warren DeLuca Nick Chremos Practice Areas Trademarks Outside Counsel Professional Services Consulting Performance Agreements Construction Agreements Service Contracts Equipment Purchase Vending Purchasing Assets & Sales Practice Areas HSC Health Services Study Abroad Student/Faculty Exchanges Foreign Affiliations Academic Affiliations Financial Services Collections Bankruptcy Practice Areas Collections IP – Infringement IP – Counseling Waivers Indemnification Legal Risk Analysis Policy Sponsored Research New Corporations Practice Areas Real Estate Facility Use Agreements Residency Housing Gift Agreements Foundation Endowments University License Agreements Utilities Practice Areas Athletics Policy Media Employment Personnel Issues Financial Services HIPAA Compliance Practice Areas Material Transfer Agreements Nondisclosure Agreements IP - Counseling Blackboard Insurance Issues Inter-Agency Contracts Intra-System Contracts IP - Licensing Educational Services Software Purchase Sponsored Research Practice Areas Office of Technology Commercialization IP - Infringement IP – Licensing

Authority to Contract • No one may bind the university in a contract unless that authority has been delegated to them • Check your university’s delegation of authority specifying those officers who are authorized to execute contracts on the university’s behalf • Delegation of authority specifies the type of contract and $ limitation • Those who contract with agents of the State are responsible for ascertaining the limitations of the agent’s authority and cannot recover from the State to the extent the agent exceeds his or her authority • An individual executing a contract on behalf of the university without authority may be personally liable for damages arising when the university rejects the unauthorized contract

System Policy 25.07 – Required Board Approval • Generally, if the contract has stated or implied consideration of $500,000 or more, or a primary term longer than five years, it must be approved by the Board of Regents • Exceptions: • Sponsored research contracts/grants • Contracts transferring rights in technology or products protectable by patent or as a plant variety • Contracts processed through state contract or bid process in accordance with System requirements • Athletic events/contests contracts • Contracts and grants to perform research, educational, and/or service activities consistent with the university’s mission…

System Policy 25.07 – Required OGC Review • All contracts must be submitted to OGC for review as to form and legal sufficiency, except: • Unaltered form contracts approved by OGC within the last 3 years • Contracts involving a stated or implied consideration of $50,000 or less, if reviewed by the university in accordance with guidelines recommended by OGC and approved by the chancellor

Approved Forms • OGC has approved several forms • Use standard form for first draft • May save time and effort • Start with a “clean” form every time if possible • Forms need to be re-approved every three years

Drafting Tips • Whether a contract term is acceptable depends on: • Purpose of the agreement • Context • Legal authority • Risk tolerance • Don’t include language that you don’t understand – fancy words not required! • If in doubt, contact OGC for further advice

Drafting Tips • Ambiguity vs. vagueness • Ambiguous: Word, phrase, or provision can be interpreted to mean two or more different things • Vague: Lack of specificity, may be appropriate in certain circumstances – “reasonable” time, etc.

Contract Checklist • Spelling, formatting, grammar, punctuation, and general appearance of document are professional and accurate • All exhibits, attachments, appendices, schedules, etc. attached?

A contract by any other name is still a contract • Purchase Order • Memorandum of Understanding • Letter of Intent • Letter of Understanding • Letter Agreement • Release/Waiver

Nonbinding “Agreements” • Often called “Memorandum of Understanding” or “Letter of Intent” • If you don’t intend it to be binding, say so! • Use “soft” verbs which don’t create specific obligations: • “Collaborate” • “Investigate/identify opportunities” • “Discuss”

Introduction • A contract should identify the parties to the contract using their correct legal name: • “This Agreement is entered into as of the [Day, Month, Year], between Texas A&M University-Corpus Christi (“TAMUCC”), a member of The Texas A&M University System, an agency of the State of Texas, and [Full Corporate Name] (“[Short Name]”), a [Type of Entity]”

Introduction • Contracting party’s full legal name? • Verify full legal name • Be consistent • Same name in the signature block • Include any relevant background information at the beginning (recitals), not in the body of the contract • Define key terms

Scope of Work • Description of services to be performed, items to be delivered, etc. • Clear and understandable description of the subject of the contract • If a proposal or similar document is attached as the statement of work, make sure that it is consistent with the body of the contract

Contractor Responsibilities • Clearly list the rights and duties of each party • Each party’s responsibilities identified in understandable wording • Use the active voice to the extent possible: “Contractor shall provide the services…” not “The services shall be provided…”

Term/Termination • Date contract is to begin? • This may or may not be the date the contract is signed • Date contract ends? • The date the contract will end unless terminated earlier (usually must be five years or less) • Procedure for renewal clearly identified and understood? • Beware of automatic renewal or “evergreen” clauses • Procedure for termination clearly identified and understood? • Termination for breach should be identified • Termination for convenience?

Consideration/Price • Clear description of amounts of money or other consideration for contract? • Place, time and method of payment should be clear; amounts tied to other amounts (percentages, etc.) should be stated in clear terms • All payments should be in U.S. Dollars

Alternative Dispute Resolution (ADR) • Chapter 2260 of the Government Code • Applies to all written contracts between a unit of state government and a contractor for goods or services or certain construction projects • Describes a procedure that a contractor must follow for breach of contract claims against the State • Gives the contractor a process for resolving a claim that may otherwise be barred by sovereign immunity

Chapter 2260 ADR Process • Notice of the claim, attempt to negotiate or mediate • If unsuccessful, the contractor can request a hearing before a state administrative hearing officer • If the contractor is not satisfied with the results of the hearing, it can seek approval of the Legislature to sue

Chapter 2260 ADR Process • The ADR process does not apply to contracts: • Between the university and the federal government or agency, another state, or another country • Between the university and another Texas state agency • Other exceptions may apply

Required Contract Clause • Contractor shall use the dispute resolution process provided in Chapter 2260, Texas Government Code, and the related rules adopted by the Texas Attorney General to attempt to resolve any claim for breach of contract made by Contractor that cannot be resolved in the ordinary course of business. Contractor shall submit written notice of a claim of breach of contract under this chapter to [designated University official], who shall examine Contractor’s claim and any counterclaim and negotiate with Contractor in an effort to resolve the claim.

Chapter 2260 ADR Process • The ADR process does not apply to claims by the university against the contractor • Why? The process is a means for a contractor to resolve a dispute with an agency that has “sovereign immunity” • Exception: Counterclaims • What if the other side refuses to accept the ADR clause? • They should understand that under Texas law the ADR process is a mandatory prerequisite to suing the university, whether it’s in the contract or not

Alternative Dispute Resolution • The university may agree to other non-binding ADR methods such as mediation, but not to binding arbitration • Exception: The university may agree to arbitration with foreign entities where: • The likelihood of getting the other party into a U.S. court is remote (no presence in U.S.) • The arbitration rules appear fair (such as UNCITRAL: United Nations Commission on International Trade Law)

Indemnity • Indemnity is an assurance by one party to compensate for the damage caused by another • The indemnifying party is responsible for paying the losses or damages incurred by the other that result from certain specified circumstances

Indemnity • The Texas Constitution says that only the Legislature may create a “debt” on behalf of the State of Texas • An agreement by the university to indemnify is considered a debt because it creates liability or potential liability for the university • Such an agreement, unless qualified, would be invalid because it exceeds the authority granted to the university

When giving an indemnity: Always limit “to the extent authorized by the laws of the State of Texas”

Indemnity To what extent is the university “authorized by the laws of the State of Texas” to indemnify? • None. Always advise the other party that this is the A&M System’s interpretation of the law.

When giving a qualified indemnity: Who? • Limit to losses caused only by the university and its employees, not its “agents” What? • Limit to losses caused by (1) negligence and (2) willful misconduct When? • Limit to losses incurred during performance of duties and obligations under the contract

When giving a qualified indemnity: Never indemnify a party for the party’s own negligence or misconduct or the negligence or misconduct of a third party

Sample indemnity a sponsor might request • University shall indemnify, defend, and hold harmless Company, its directors, officers, and employees from any third party claims related to University’s performance under this contract.

Acceptable Redraft To the extent authorized by the laws of the State of Texas, University shall indemnify, defend, and hold harmless, Company, its directors, officers, and employees from any third party claims related to University’s negligent performance under this contract.

Security Interests • The university may not agree to grant a security interest in property without the approval of the Texas Bond Review Board • Often in equipment lease-to-own agreements

Governing Law • The governing law is the law which will be used to determine the rights of the parties under the contract • Jurisdiction and/or venue do not have to be the same as the governing law – a court in one state may apply the law of another when appropriate in a particular lawsuit • The university may agree that the law of another state will determine the rights under the contract, but that is not recommended

Governing Law • If a contract is governed by laws of a foreign country, local counsel may need to 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

Jurisdiction • Jurisdiction is the power or authority of a court to hear a particular case and render a decision • Don’t agree to submit to the jurisdiction of any court – it could be viewed as a waiver of sovereign immunity • Can usually be worded to avoid this

Venue • Venue is the particular place where a lawsuit may be brought and heard • Section 85.18 of the Texas Education Code: • Venue for a suit filed against the university must be in the county in which the primary office of the university’s chief executive officer is located • The university cannot agree to another venue for suits against it in Texas state court • This does not apply to suits in federal court or to suits filed by the university

“Going Silent” • Not specifying a jurisdiction, venue, and/or governing law (a/k/a “going silent”) in the contract is a common compromise • The risks of going silent: • A court will decide which jurisdiction, venue, or law applies to a dispute under the contract • The university may incur additional costs, delay, and other difficulties • The university may need to hire local counsel • If 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

Compliance with Laws • It is recommended to include a clause providing that the contracting party will comply with all applicable federal, state, and local laws, ordinances, rules and regulations • Consider including a reference to a particular law that is known to apply to the specific contract such as: • FERPA, export controls, etc.

Relationship of the Parties • State agencies may not enter into partnerships or joint ventures, because those involve sharing of losses • Avoid referring to the university as a “partner” • The following clause is recommended in most contracts: • The parties are independent contractors, and neither party is the agent of the other. This Agreement does not establish a partnership, joint venture, joint enterprise, or similar relationship. Contractor is liable for its own debts, obligations, acts, and omissions, including the payment of all required withholding, Social Security and other taxes or benefits of its employees.

Loss of Funding • The following clause is recommended for contracts in which the university is paying money, especially if they span biennia: • Performance by University under this Agreement may be dependent upon the appropriation and allotment of funds by the Texas State Legislature (“Legislature”). If the Legislature fails to appropriate or allot the necessary funds then University may issue written notice to Contractor and terminate this Agreement without further duty or obligation. Contractor acknowledges that appropriation of funds is beyond the control of University.

Audits • The Texas State Auditor may audit purchases of goods or services by an institution of higher education • The following clause is recommended for contracts to purchase goods or services: • Contractor understands that acceptance of funds under this Agreement constitutes acceptance of the authority of the Texas State Auditor’s Office, or any successor agency (collectively, “Auditor”), to conduct an audit or investigation in connection with those funds under Section 51.9335(c) of the Texas Education Code. Contractor shall cooperate with the Auditor in the conduct of the audit or investigation, including without limitation providing all records requested.

Force Majeure(Fr. greater force) • An unexpected or uncontrollable event • A natural or unavoidable catastrophe that interrupts the expected course of events • Consider: • Should payment of money be excluded? • Are the listed events “uncontrollable?” • Adding additional time for performance?

Sovereign Immunity • Protects the State from lawsuits without the consent of the State • “The King can do no wrong.” • Sovereign Immunity is based on two principles • The State is immune from being sued without its consent • Even if consent is granted, the State is immune from liability unless waived • Generally, the courts say that the State waives immunity from liability when it enters into a contract with another party

Sovereign Immunity • Still immune from suit – the Legislature must waive immunity from suit in order for a private party to sue the State for breach of contract • How can immunity from suit be waived? • Statutes that provide that an agency can sue and be sued • Specific resolution by the Legislature • If the State brings suit • Waiver by conduct

Sovereign Immunity • Don’t assume sovereign immunity will protect the university • The Legislature could (and sometimes does) grant permission to sue • Immunity may best be used as a tool to facilitate settlements • Immunity is probably not a permanent fixture in Texas

Texas Public Information Act • The Texas Public Information Act (Texas Government Code Ch. 552) provides that all “public information” held by or available to a “governmental body” is open to the public • The university is a governmental body • “Public Information” is all information collected, assembled, or maintained by a governmental body, or for the governmental body if it owns or has a right of access to the information • The Act trumps any contractual confidentiality agreement

Public Information Act exceptions that may apply • Commercial or financial information if disclosure would cause “substantial competitive harm” to the person from whom it was obtained • Trade secrets obtained from a person, if made confidential by law • Technological and scientific information developed in whole or in part at the university if the information has commercial potential

Confidentiality Clause • Make the confidentiality provision subject to the Texas Public Information Act: • Company acknowledges that University must strictly comply with the Public Information Act, Chapter 552, Texas Government Code, in responding to any request for public information related to this Agreement. This obligation supersedes any conflicting provisions of this Agreement. • If someone makes a request under the Public Information Act for what may be proprietary information, the university must make a good faith effort to notify the owner of the information • The owner of the information – not the university – should be responsible for taking action to prevent the disclosure

Other Confidentiality Considerations • One-way or two-way – is the university just promising to protect the other’s confidential information or will the university also be sharing its own confidential information? • Should be reasonable as to: • Scope of what is confidential • Require that it be marked? • Oral or visual disclosures summarized in writing? • Standard exceptions (becomes public, etc.) • Length of obligation • 2-5 years most common • Degree of care • Preferred: Same degree of care used to protect its own confidential information, but not less than a reasonable degree of care

Insurance • Workers’ Compensation • The A&M System is self-insured for Workers’ Compensation Insurance under Chapter 502 of the Texas Labor Code-provides reasonable and necessary medical coverage and indemnity payments to employees who sustain injuries or occupational disease while in the course and scope of employment

Warren J. DeLuca Assistant General Counsel Business Law & IP Practice Group