Basic Contract Law and Elements of Contracts November 18, 2013 at 9:00 am & 1:30 pm Julie Livingston & Patrick Riley

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1 Basic Contract Law and Elements of Contracts November 18, 2013 at 9:00 am & 1:30 pm Julie Livingston & Patrick Riley

2 Basic Contract Law What is a contract? Why have a contract? Essential elements for a binding contract Interpretation of contracts Breach of contract Remedies for breach of contract County Contract Objectives and Requirements Purpose of contract clearly stated Ensure contract is binding Minimize risk to county and taxpayers Expedite contract process Standardized forms and templates Use basic contract terms Additional required boilerplate terms and attachments Use of vendor contracts

3 A mutual understanding between parties regarding a particular matter Agreement between two or more persons to do/refrain from doing something specific Can be verbal or written depending on subject matter and applicable law Best practice always reduce agreements to writing

4 Establishes the parties intent as to terms and conditions of the agreement Reduces ambiguity and uncertainty as to what has been agreed upon Facilitates enforcement of the agreement (before and during any litigation) Certain contracts must be in writing by law to be enforceable Contracts for sale and purchase of real property Contracts that cannot be performed within one year of contract

5 Mutual assent or meeting of the minds of the parties Two or more parties legally capable of contracting Consideration - all parties must have some obligation or forbearance A lawful purpose (not void or prohibited by statute or case law)

Must be an offer by a party a promise to act if other party performs some act terms of performance must be definite & certain, not vague must identify essential terms with certainty to be enforceable

6 Must be an offer by a party a promise to act if other party performs some act terms of performance must be definite & certain, not vague must identify essential terms with certainty to be enforceable subject matter price to be paid time of performance work to be done certain missing terms court may infer others render contract unenforceable offer must be communicated with present intent to contract offer can be terminated by revocation, rejection, incapacity of offeree or intervening illegality of the proposed contract

7 Offer must be accepted by intended offeree only acceptance must be clear, unequivocal and unconditional must be communicated to offeror: must be accepted by time specified in offer if no specified time, then within a reasonable time an offer can be accepted, rejected or a counteroffer made acceptance must mirror exact same terms of offer any different or additional terms is a counteroffer must be meeting of minds on exact same terms at the same time silence alone is never acceptance binding contract formed when exact offer or counteroffer is accepted

8 Agreement must be freely entered into by parties cannot be under duress or coercion must not be imprisonment, threats or restraint of person s free will is no meeting of minds under those circumstances No contract exists where there is mutual mistake of contract terms Cannot be fraud in contracting (intent to deceive other party regarding terms) where a party would not have entered agreement but for fraudulent information contract may be voided if party deceived relies on fraud in entering agreement matters of opinion, value or puffery are not considered fraud

9 For meeting of minds parties must be capable of understanding what is transpiring Law deems certain groups incapable of such understanding mentally incompetent minors under the age of 18 (with certain exceptions) mentally impaired at time of contracting (under influence of drugs or alcohol)

10 Must be consideration for a binding contract Both parties must have some obligation under the agreement Some promise to do or to refrain from doing something Mutual obligations are consideration Without mutual obligations or consideration, no contract exists Concept is of a bargain or exchange of something given for something received Can be money, but need not be (promise to act or forbearance) Must be of some value, but can be nominal (e.g. ten dollars) Need not be equal in value, but if too great a disparity may void contract if consideration too one-sided contract may be deemed unconscionable if bargaining positions of parties is too unequal contract may be voidable courts will not enforce unconscionable contracts as a matter of public policy Mutual obligations need not be performed at same time one person may perform immediately and other sometime in future or both may perform in the future

11 Contracts must have lawful purpose to be enforceable, otherwise are void Contracts to commit crimes are unenforceable (gambling, buying illegal drugs) Contracts which violate law are not enforceable (discrimination) Unless prohibited by law, almost any purpose is permissible A breach of a void contract is unenforceable

12 Courts use certain rules to interpret contracts Three primary rules words are given plain and normal meanings entire contract interpreted to carry out its general purpose may always show circumstances under which contract is made Secondary rules of interpretation obvious mistakes of writing, grammar or punctuation will be corrected general words/terms overruled by more specific descriptions, terms, sections contract with two possible meanings given meaning to render it valid where terms conflict, interpret it in a way to remove conflict a contract will be construed to make it reasonable vs. unreasonable words will be construed against party using them or drafting the document where in doubt, interpretation given by the parties is best evidence of intent where conflict between printed and written words, written words govern Generally oral evidence is not admissible to interpret written contracts oral or prior negotiations not admissible to explain contract law assumes contract is intended as the final expression of rights and duties courts look to four corners of contract to interpret parties intent

13 when a party fails to perform a promise or obligation under a contract breaches can be material or not material a breach can be actual or anticipatory (e.g. letter from party stating it will not be able or intends not to perform, or facts of the matter making that apparent)

14 Money Damages Make a party whole or put in position would have been in if contract performed Damages cannot be speculative-must be actual, ascertainable and provable Restitution Restores non-breaching party to position was in before entered into contract Specific Performance a court order requiring party to perform contract obligations an extraordinary remedy used in limited circumstances Liquidated damages remedies specified in contract tailored to subject of the contract (per diem charges) Contracts should not limit any other remedies available provides flexibility to determine which remedies to pursue

15 Objectives of Contract Management Recognize, allocate and minimize risk & liability to county and taxpayers Safeguard and make best use of public funds Ensure proper and timely completion of projects Use county forms whenever possible drafted in our favor familiar with contract terms and implementation streamlines review and execution of documents expedites completion of projects

16 Developing standard form templates for different types of projects To expedite contracting process from RFP to execution To facilitate equal treatment & requirements of vendors and contractors To minimize drafting changes to contracts, limited to: Names and addresses of vendors and contractors Project title/name Scope of work or product required (may include in addendum) Price or compensation to vendor/contractor Time of performance Liquidated damages Specific insurance requirements (based on type and cost of project) Goal: have consistent terms and provisions for all contracts where possible Project specific terms to be stated in an addendum Limits focus of drafting and review to the addendum

Determine and insert correct legal name and address of contractor and county Is vendor/contractor a corporation, LLC, partnership or sole proprietor?

17 Determine and insert correct legal name and address of contractor and county Is vendor/contractor a corporation, LLC, partnership or sole proprietor? If a corporation or LLC, include state of incorporation Check Secretary of State s records for good standing Check historical records also web site in transition Use Cobb County, Georgia for county name (not department s name) May use c/o department name Can use department address or 100 Cherokee Street, Marietta, Georgia 30090

18 Insert name of Project, if applicable Name should match RFP/RFQ, if applicable

19 Describe documents that comprise the contract RFP or RFQ incorporated by reference into contract Vendor/contractors response to RFP/RFQ also incorporated Any addenda or amendments to RFP/RFQ or contract Any general or special terms, conditions or specifications Any approved change orders or directives Any additional listed documents Order in which these documents govern over others if conflict

20 Include scope of work or product for the project Accurately describe exactly what is to be performed or supplied Describe this as precisely as possible See Purchasing Presentation A material term of the contract If defective, contract may be unenforceable

21 Include time for performance Clearly describe when to occur Commencement of work or services, or date of delivery of products May include substantial and final completion dates (construction)

22 Essential element of a contract If defective, contract may be unenforceable Accurately describe price for products or compensation/fees to vendor/contractor Include when, manner and timing of payment, if applicable Specific date, upon delivery, C.O.D., upon installation or placed in service, or upon percentage of completion (milestones) May include retainage pending completion (construction contracts) Percentage of total price withheld to ensure completion (10%) Include liquidated damages for failure to timely perform, if appropriate

23 Bonds are required for certain types of contracts Generally, based upon amount of contract Types: bid, performance and payment See Bonding Requirements Presentation

24 Contracts should include indemnity provision Vendor/Contractor indemnifies county for certain liability under contract Sample indemnity clause in handouts By law, county cannot indemnify vendor/contractor If insist, may include to extent permitted by law

25 Insurance requirements are very hot topic currently Cannot merely rely on certificates of insurance Not binding on insurers per Insurance Commissioner Must review policies and endorsements as well See Basic Insurance Presentation

26 Include term and termination provisions in contract, depending on type: Service agreements Uniform Price Contracts Leases Specify when contract commences and terminates Specify any automatic renewals and how they work Termination for convenience Termination for cause default

27 Must include a default clause Describes what constitutes a default Failure or refusal to perform or timely perform contract Bankruptcy or insolvency Violation of law Other failure to comply with contract Describe damages and remedies available for default Delay or liquidated damages Remedies at law - money damages Benefit of bargain difference in value Cost to complete or cure Compensatory or special damages Punitive damages Attorneys fees and court costs Equitable remedies Court order compelling specific performance Court order enjoining or restraining certain action

Every multiyear lease, purchase, or lease-purchase contract must include this provision Enables county to enter and terminate these contracts if funding becomes unavailable Absent

28 Every multiyear lease, purchase, or lease-purchase contract must include this provision Enables county to enter and terminate these contracts if funding becomes unavailable Absent this provision, no right by law to enter into these contracts or terminate for lack of funding Rationale: prevents current board from binding future board actions See sample in handouts

29 Contracts must include conflict of interest clause and affidavit Contractor certifies no conflict of interest in performing contract Contractor certifies no county/public employees have monetary interest See handouts

30 Contracts need to include boilerplate provisions Waiver Severability Amendments Other Provide for certain rights governing contract interpretation & administration Templates will include them

31 Essential to include proper signature block for parties Name of vendor/contractor must match introductory paragraph Note if being signed by a corporation, LLC, partnership or individual Contract must be signed by authorized signatories of vendor/contactor Signed by Chairman and attested to by County Clerk Signed by County Manager, if appropriate No attestation by County Clerk here Approved as to Form by County Attorney Department staff should not sign Approved as to Form See Executing Contracts Presentation

32 Contract may include one or more of following exhibits/attachments Immigration affidavits/certifications for physical services contracts over $ See Immigration Requirements Presentation Local vendor presence affidavit, if applicable Other

33 Certain types of contracts may have additional terms and requirements Federal and State grant funded contracts SPLOST contracts HUD, FAA, DOT, FEMA/GEMA, Army Corps of Engineer projects

34 On occasion, a county contract form is not available or appropriate for a project Nature of project is technical or out of the ordinary (Comcast, OnBase, Dell) If so, solicit prior review and negotiation of contract by County Attorney s Office Solicit assistance well in advance of project deadlines An addendum should be used in that instance (see sample in handout) Addendum incorporates many of county s requirements into vendors contract Ensures compliance with legal requirements Will likely need to revise addendum to fit vendors contract Generally, we encourage you to use county forms whenever possible

35 QUESTIONS/COMMENTS?

Chapter 9: Contract Formation. Copyright 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

Chapter 9: Contract Formation. Copyright 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Chapter 9: Contract Formation a Copyright part of South-Western 2009 South-Western Cengage Legal Learning. Studies Business, Introduction is a declaration that something will or will not happen in the