Drafting Contracts

Drafting ContractsDrafting Contracts

Language and LayoutLanguage and Layout

Contract Administration

Office of the Vice President

for

Finance and Administration

Barry C. Nelson, Ph.D.

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What’s the current state of What’s the current state of contract drafting?contract drafting?

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What are the costs of What are the costs of deficient drafting?deficient drafting?

•Time

•Money

•Loss of anticipated benefit

•Disputes

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What are the causes of What are the causes of deficient drafting?deficient drafting?

•Learning by osmosis

•Law as voodoo

•Everyone’s a great writer

•You can’t stop the machinery

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What’s the difference What’s the difference between good drafting and between good drafting and

deficient drafting?deficient drafting?

Smoking gun versus the cumulative effect of countless small changes

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The Goals of this SeminarThe Goals of this Seminar

• How to distinguish good drafting from bad drafting

• How to put that knowledge to use

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The Four Principles!The Four Principles!

• Be consistent

• Use standard English

• There’s no such thing as a “personal drafting style,” only efficient and less efficient drafting

• “Tested” contract language isn’t an obstacle to clear and efficient drafting

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Policies and Regulations Policies and Regulations on Contractson Contracts

• SPRM 01.04: Items requiring action by the Board of Regents

• SPRM 25.07: Contract Administration

• SPRM 25.07.01: Contract Administration and Delegations of Authority

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TAMUS Policy 25.07TAMUS Policy 25.07

TAMUS Policy 25.07 governs contracting and provides for the levels of approval required for

different types of contracts.

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TAMUS Regulation 25.07.01TAMUS Regulation 25.07.01

TAMUS Regulation 25.07.01 lists contract administration procedures and delegations.

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The Front of the ContractThe Front of the Contract

The Title

The Introductory Clause

Recitals

Cover Sheet, Table of Contents, and Index of Defined Terms

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The Layout of the Body The Layout of the Body of the Contractof the Contract

The Format

Arranging Provisions

Cross-References

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The Back of the ContractThe Back of the Contract

The Concluding Clause

The Signature Blocks

Attachments

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Contract Review ChecklistContract Review Checklist

Description of goods/services to be Description of goods/services to be received by component?received by component?

Clear and understandable description of the subject of the contract.

Limit use of highly technical terms when possible.

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Contractor’s name, address, phone, fax?Contractor’s name, address, phone, fax?

Verify current information. Use legal name.

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Contact person(s) for contractor, name, address, phone, fax, email address?

Verify current information.

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Date contract is to begin?Date contract is to begin?Date contract is to begin?Date contract is to begin?

This may or may not be the date the contract is signed.

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Date contract ends?Date contract ends?

This refers to date the contract would normally end unless terminated earlier for any reason.

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Other important dates (deadlines, Other important dates (deadlines, mileposts, reports due, etc.)?mileposts, reports due, etc.)?

Other important dates (deadlines, Other important dates (deadlines, mileposts, reports due, etc.)?mileposts, reports due, etc.)?

Dates should be clearly identified. Use full dates (ex: “June 3, 2004”) whenever possible. NOTE: in many

foreign countries dates expressed in numerals use the Day/Month/Year format (e.g., June 3, 2004 would be

written as 3/6/04 rather than 6/3/04).

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Procedure for renewal clearly identified and understood?

Caution when using an “evergreen” clause.


Procedure for termination clearly Procedure for termination clearly identified and understood?identified and understood?

Termination for cause and termination at will should be identified.

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Verify highest level of approval within Verify highest level of approval within TAMUS needed from contract? TAMUS needed from contract?

Use current HSC President’s Delegation of Authority internal policy to identify highest level.

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All exhibits, attachments, appendices, All exhibits, attachments, appendices, schedules, etc. attached?schedules, etc. attached?

Office of General Counsel normally will not approve an agreement until all of these

documents have been provided for review.

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Title and authority of person Title and authority of person signing for contractor? signing for contractor?

Should be an officer or authorized agent of contractor.

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This may cause problems for component and should be clearly understood prior to signature.

If contract can be terminated at will (for no cause or without cause), verify that this is

what component wants in the contract

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Partial payments should be stated with due dates; amount tied to other amounts (e.g., royalties, percentages) should be stated in clear terms.

Clear description of amounts of money Clear description of amounts of money or other consideration for contractor other consideration for contract

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All payments are in U.S. dollars?All payments are in U.S. dollars?

If any part of the contract is performed or payable outside the U.S.

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Method for providing notice of default Method for providing notice of default and opportunity to cure?and opportunity to cure?

Normally written notice and reasonable time to cure.

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Rights, obligations, duties of every Rights, obligations, duties of every party clearly listed?party clearly listed?

Each party’s responsibilities identified in understandable wording.

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Time and place for performance?Time and place for performance?

If performance extends over a period of time, include due dates if necessary.

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Indemnification, liquidated damages, attorney’s Indemnification, liquidated damages, attorney’s fees, waiver of contractor’s liability, waiver of fees, waiver of contractor’s liability, waiver of

statutes of limitations clausesstatutes of limitations clauses

These types of clauses are not allowable for TAMHSC components because of state constitutional restrictions.

AFTER attempting to have these deleted, if contractor refuses to comply, the following wording must be inserted before the wording:

“To the extent permitted by the laws and constitution of the State of Texas,”.

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Governed by laws of the State of Texas?Governed by laws of the State of Texas?

TAMHSC components may not agree to be governed by the laws of another state.

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State law (Sec. 85.18, Tex. Educ. Code) mandates this venue: it is not negotiable.

Venue for suits in county where Venue for suits in county where component’s CEO has main officecomponent’s CEO has main office

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The TAMHSC Risk Manager, Matt Walton, should be consulted if there are questions about the

levels of coverage and/or carriers.

If insurance is required, types and If insurance is required, types and levels of coverage listed?levels of coverage listed?

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Confidentiality Provisions?Confidentiality Provisions?

TAMHSC cannot agree to keep information confidential if it is subject to public disclosure

under the Texas Public Information Act(Ch. 552, Texas Government Code).

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Act of God or force majeure clause?Act of God or force majeure clause?

Provides relief if performance impaired by unexpected events including weather and civil disturbances.

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Written pre-approval of assignments is preferred but not mandatory.

Assignment by either party must be Assignment by either party must be approved in advance in writingapproved in advance in writing

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Mandatory Alternative Dispute Resolution Mandatory Alternative Dispute Resolution clause (Ch. 2260) included?clause (Ch. 2260) included?

Not required for contracts with other agencies of the State of Texas or the U.S. Government.

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Alternative Dispute Alternative Dispute Resolution ClauseResolution Clause

Ch. 2260, Texas Government CodeCh. 2260, Texas Government Code

Most contracts entered into by state agencies must include language about the dispute resolution process used by the agencies.

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Spelling, formatting, grammar, Spelling, formatting, grammar, punctuation, and general appearance of punctuation, and general appearance of document are professional and accuratedocument are professional and accurate

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Contract ReviewContract Review

Review by the DrafterReview by the Drafter

•Is this document going to work?

•Is this document serving the TAMHSC component’s objectives effectively, efficiently, and without the need to resort to litigation?

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Review for ContentReview for Content

•Substantively, does it cover everything that it needs to cover?

•Does it satisfy all the legal requirements?

•Does it contain fatal ambiguities?

•Does it contain potential loopholes that a hostile reader could exploit?

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•Is it internally consistent?

•Are the rights, duties, and other legal consequences clearly and unequivocally stated?

•Are the objectives of the document properly conceptualized?

•Does the document identify the correct parties in their proper capacities (use of legal name)?

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•Are the dates correct?

•Are all currency amounts correct and complete?

•Do the provisions clearly state mandatory duties? Who does what to or for whom or what, when?

•Does the document contain representations and warranties in favor of the contractor?

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Review for Content

•Will the document provide sufficient guidance to govern the relationship?

•Will it provide sufficient guidance to a court interpreting the document?

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Review for Style and UsageReview for Style and Usage

If a reasonable reader thinks a provision is unclear, then that provision is, by definition, unclear.

Do not argue. Revise it.Do not argue. Revise it.

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Review by Other Party: CommentsReview by Other Party: Comments

•Beneficial to all parties or to the document and the deal

•Matters of style of opposing party and that do no harm to the document or TAMHSC component position

•Harmful to either component’s position or the smooth operation of the document

•Valid points for future renegotiations47


Proofread the DocumentProofread the Document

After all the corrections and revisions have been made as a result of the review process, it is still not

final until it has been proofread one final time.

The case of the misplaced commaThe case of the misplaced comma

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The Comma DisputeThe Comma Dispute

Contract language at issue:

“Subject to the termination provisions of this agreement, this agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years

from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year

prior notice in writing by either party.”

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Documents

Drafting Contracts