This two-part series recaps Kirk’s presentation, School Contracts with Vendors, Construction Companies & Architects, which was presented at the March 2023 WASDA NSA conference.
In Part 1 of the series, we focused on legal capacity to contract, negotiations, and contracting requirements in Wisconsin.
In Part 2, our focus shifts to:
- Contract clauses
- Issues, traps, & pitfalls
- Contracting methods, issues, & practices
Contract Clauses
- Forum designation clause.
- The forum designation clause provides the court and location where the parties agree to resolve any legal disputes.
- Forum clauses requiring litigation in other states are of questionable legality for Wisconsin school districts. Also, forum clauses can breed their own litigation over this very question. Even if they were treated as enforceable, the cost of litigation thousands of miles away means that the school district loses before the case is even heard.
- Choice of Laws.
- The choice of laws clause provides that a particular state’s laws will govern the contract.
- Example: “The parties agree that any disputes arising under this agreement shall be subject to and resolved under the laws of the State of South Carolina.”
- This type of clause is not recommended. Choice of laws provisions breed complex litigation and can be a loaded proposition, because the language of contract may produce a definite — but to the school district, unknown — result under the laws of another state.
- Arbitration clause.
The parties may agree to resolve legal disputes through arbitration, rather than litigation.- Strengths of arbitration include:
- Speed and finality;
- Cost (in some cases); and
- Opportunities for mediated outcomes.
- Limitations of arbitration include:
- Potential impact on immunity;
- Potential impact on insurance coverage (defense and/or liability);
- Availability of discovery;
- Availability of review; and
- Unfavorable arbitration clauses (e.g., industry-favorable arbitral selection process, time limits and defaults inconsistent with governmental decision making, dictated hearing procedures or submissions).
- Strengths of arbitration include:
- Term of the Contract and Renewal.
- Definite (and reasonable) term
- Length of term
- Capacity to cancel or terminate
- Term that is compatible with capacity to cancel or terminate
- Automatic renewal that is reasonable and does not frustrate capacity to cancel
- Term that does not create unjust enrichment
- Payment and Advance Payment.
- Payment in advance. This should correlate to contractor commitments. There is no security or “earnest money” principle in play in these situations and payment is the school district’s means of ensuring performance.
- Contractual “outs.” School district generally should have contractual “outs” if goods are not delivered or services are not performed for funds to be paid or already paid.
- Nonrefundable payments. School district should not agree that payments are nonrefundable.
- Warranties (and Disclaimer of Warranties): Warranty provisions should be examined closely and should never be trumped by oral assurances about “standard” or “boilerplate” language.
- Express or implied warranties
- Fitness for a particular purpose
- Customer’s or client’s requirements (especially where bidding has occurred)
- Compatibility with other technology, systems, or other instrumentalities currently used by the school district
- Cure or correction of defects
- Assumption of risk by school district
- Indemnification and Indemnity.
- Example: “Customer agrees to indemnify and hold vendor harmless against any claim, demand, damages, action, or cause of action of any kind or nature arising out of customer’s use of vendor’s goods or services.”
- General indemnity. General indemnity is often not acceptable because it can excuse performance, create insurance coverage issues, and make legal defense untenable (to name a few).
- Limited indemnity. In some circumstances, limited indemnity can be considered.
- Examples of Limited Indemnity clauses.
- “The school district shall not bring any claim or action against the vendor related to this agreement at any time after this agreement has been canceled by either party.”
- “The vendor shall not be liable for any consequential, punitive, or exemplary damages for any losses, damages, impairment, or other compromise to or of any school district property or systems allegedly caused by vendor’s goods, services, systems, conduct, or any other matter associated with the vendor.
- Force Majeure Clause.
A force majeure clause excuses the parties from their contractual obligations when certain unforeseen circumstances arise that make performance impossible, impracticable, or illegal. Common examples include:- Natural disasters;
- War or terrorism;
- Epidemics;
- Changes in the law; and
- Labor strikes or disputes.
- Agreed-Upon Legal Conclusions/Positions.
Do not accept a clause that contains agreed-upon legal conclusions that are invalid or solely benefit the vendor.- Sample Proposal: “The school district agrees that the goods and services provided by the vendor are ‘trade secrets’ under Wisconsin law and, consequently, the school district shall deny any request for vendor’s materials, systems, programs, contracts, or other records that might be made under Wisconsin’s public records law and, further, shall defend at school district expense against any action brought to secure such records and shall appeal any adverse decision until a decision is reached from the highest court from which a decision can be had or a favorable decision is secured, whichever comes first.”
- Response: No. This clause mandates a particular interpretation of law for the vendor's benefit at the school district's expense.
- Exclusivity provisions that purport to bind the district to secure certain goods and/or services solely from a particular vendor.
- Ultra vires contract provisions.
- Provisions that exceed the power or capacity of the school district to fulfill.
- Contract provisions determined to be ultra vires are rendered void, but watch out for claims of misrepresentation.
Issues, Traps, And Pitfalls
- Dependence on the vendor's "form" or "standard" contract.
- Representations and sales pitches to the effect that "everyone is using the same contract.”
- Pitches to board members or administrators.
- Resolving ambiguity against the drafting party.
- The vendor’s standard contract and the vendor’s legal interests.
- Board policies that determine procedures for contracting, directly or indirectly.
- Advance payment or other schedules for payment set forth separately from good and services obligations.
- Damages and reasonable opportunity to cure.
- Lack of regulation of administrative support fees, methods, and/or standards.
- Performance standards and requirements.
- Capacity to recover fees or secure refunds.
- Vendor or service provider expenses.
- Intellectual property.
- Licensing.
- Confidentiality and reasonable limitations.
Contracting Methods, Issues, and Practices
- The school attorney’s role.
- The “standard contract” and the use of an addendum.
- Considering the contractor’s point of view.
- School board policy and school board review.
- Retention of infrastructure and other challenges to “keeping the ship afloat.” The school district should never be in a position where terminating a relationship with a vendor will compromise operations more than incidentally.
- Use of RFP’s and bidding.
- Relationship to board members’ terms of office.
We hope this series gives you a better understanding of how to handle the ins and outs of school contracts with vendors, construction companies & architects.>
And, if you’re a superintendent in Wisconsin, you may also like the following article, Everything Superintendents Need to Know About Public Records Laws.