September 13, 2024
Part 2

School Contracts with Vendors, Construction Companies, & Architects: Contract Clauses

Education Law WASDA Conference Vendor Contracts

In April, Kirk Strang presented at the WASDA New Superintendents Academy on the topic of school contracts. It’s an important topic that Kirk talks about every year to make sure Wisconsin school districts are up to date, and in the know, regarding school contracts.

In Part 1 of the series, we covered legal capacity to contract, negotiations, and contracting requirements in Wisconsin.

In Part 2, our attention shifts to school contracts and contract clauses. Let’s begin …

Contract Clauses

SPECIFICS TO EXAMINE

  1. Forum designation clause.
    1. The forum designation clause provides the court and location where the parties agree to resolve any legal disputes.
    2. 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.
  2. Choice of laws.
    1. The choice of laws clause provides that a particular state’s laws will govern the contract.
    2. 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.”
    3. This type of clause is not recommended. Choice of laws provisions breed complex litigation and can be a loaded proposition because the language of the contract may produce a definite — but to the school district, unknown — result under the laws of another state.
  3. Arbitration clause.
    The parties may agree to resolve legal disputes through arbitration, rather than litigation. 
    1. Strengths of arbitration include:
      1. Speed and finality
      2. Cost (in some cases)
      3. Opportunities for mediated outcomes
    2. Limitations of arbitration include:
      1. Potential impact on immunity
      2. Potential impact on insurance coverage (defense and/or liability)
      3. Availability of discovery
      4. Availability of review
      5. Unfavorable arbitration clauses (e.g., industry-favorable arbitral selection process, time limits and defaults inconsistent with governmental decision making, dictated hearing procedures or submissions)
  4. Term of the contract and renewal.
    1. Definite (and reasonable) term
      1. Length of term
      2. Capacity to cancel or terminate
      3. Term that is compatible with capacity to cancel or terminate
      4. Automatic renewal that is reasonable and does not frustrate capacity to cancel
      5. Term that does not create unjust enrichment
  5. Payment and advance payment.
    1. 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.
    2. Contractual “outs.”
      School districts generally should have contractual “outs” if goods are not delivered or services are not performed for funds to be paid or already paid.
    3. Nonrefundable payments. 
      School districts should not agree that payments are nonrefundable.

  6. Warranties (and disclaimer of warranties). 

    Warranty provisions should be examined closely and should never be trumped by oral assurances about “standard” or “boilerplate” language.

    1. Express or implied warranties
    2. Fitness for a particular purpose
    3. Customer’s or client’s requirements (especially where bidding has occurred)
    4. Compatibility with other technology, systems, or other instrumentalities currently used by the school district
    5. Cure or correction of defects
    6. Assumption of risk by school district

  7. Indemnification.

    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.”

    1. 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). 
    2. Limited indemnity.
      In some circumstances, limited indemnity can be considered.
    3. Examples of limited indemnity clauses.
      1. “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.”
      2. “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.”

  8. 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:

    1. Natural disasters
    2. War or terrorism
    3. Epidemics
    4. Changes in the law
    5. Labor strikes or disputes

  9. Agreed-upon legal conclusions/positions.

    Do not accept a clause that contains agreed-upon legal conclusions that are invalid or solely benefit the vendor. 

    1. 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.”
    2. Response: 
      No. This clause mandates a particular interpretation of law for the vendor's benefit at the school district's expense.
  10. Exclusivity provisions that purport to bind the district to secure certain goods and/or services solely from a particular vendor.
  11. Ultra vires contract provisions.
    1. Provisions that exceed the power or capacity of the school district to fulfill.
    2. Contract provisions determined to be ultra vires are rendered void.

This brings us to the end of Part 2 of the series. In Part 3, we’ll be covering school contracts as they relate to issues, traps, and pitfalls — as well as contracting methods, issues, and practices.

Additional articles that may be of interest:

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