What Do You Need To Know About Contracts?

Contracts can be used by two (or more) parties to set the terms of an agreement in a variety of contexts. The best practice is to take the lead in drafting or reviewing written terms of an agreement to make sure that any contract meets your district’s needs.

Taking that active role in contracting includes a careful consideration of contractual provisions that relate to insurance, certificates, liability, due diligence, and indemnification. Knowing what to ask for in a contract can help your district manage its contractual costs and risks.

Of the many types of typical agreements your district may have used, this article highlights liability waivers and claim release agreements to explain why putting a formal, written agreement in place may be a good practice for your district. Further, this article overviews some basic contractual provisions as a tool to review contracts presented to your district.

Liability Waiver and Claim Release Agreements

Many districts use liability waivers or claims release agreements as they conduct business with the public. The purpose of a liability waiver or claim release is two-fold: to educate the person using your district’s facilities on some of the risks that exist and to protectively reduce the risks for your district.

If your district provides access to its facilities or property, or provides classes or services to the public, getting a process in place to require waivers or releases is a good way of reducing your risks. However, as you consider the form of a waiver or release that best suits your district’s needs, keep in mind that not all liability waivers are enforceable under Colorado law.

If a liability waiver or claim release is impossible for a typical user to understand, Colorado courts may be reticent to uphold it. Therefore, districts should strive for waiver or release forms that are legally correct, but also written in clear and unambiguous terms in order to show the parties understood the contract.

Some of the characteristics of valid and enforceable waiver or release agreements are:

  • Written in simple and clear terms that are free from legal jargon;
  • Not inordinately long and complicated;
  • Terms should be understandable to the person signing the release; and
  • Description of risk(s) which allows the person signing the release to understand the risk.

Consider your audience prior to drafting a liability waiver or claim release agreement because a judge will analyze whether an agreement clearly and unambiguously waived liability and released claims. It is important to know who will be signing the agreement so it can be written in a manner that they will understand what they are taking responsibility for.

Also, it is a good idea to provide them the agreement in advance so the person signing has time to review the terms (and consult with an attorney, if appropriate).

Tips for Contract Drafting and Negotiation

A good place to start with your proactive approach to contracting is to make a standard contract review checklist for your district. A checklist is a useful tool to make sure there are no essential provisions that get lost in a long, technical contract. At a very high level, each contract should:

  • Identify the parties,
  • Describe the purpose of the contract,
  • Set forth the duties and responsibilities of the parties, and
  • Address how the parties will manage the risks under the contract.

Further, each party signs or “executes” the agreement, usually with an acknowledgment each party understands their contractual obligations and risks. There are often other miscellaneous terms that your district may want or need to include, such as choice of law, severability, amendments, or other provisions that will help the parties understand how to apply or interpret the contract.

Before you get too far into reviewing or drafting an agreement, there are some practical considerations to take into account.

First, you should check your district’s coverage if you have questions regarding whether the contact requires the proper insurance or risk allocation. Another practical matter is whether your district has specific procedures under its purchasing policy that may require additional steps during the bidding or contracting process.

Insurance requirements play an important role in a contract and vary depending upon the type of work or services that are to be performed.

Coverage requirements of general liability, automobile liability, and workers’ compensation are standard in almost all contracts but other types should be considered depending on the type of work to be performed.

When hiring for professional services such as an attorney or accountant, you should include a requirement for professional liability (errors and omissions) coverage; when hiring a software or IT provider, include a requirement for Cyber including errors and omissions, network security and breach of data.

Second, you will need to know whether the contract is within your district’s budget. One final, practical matter you may need to cover is to verify the identity of the vendor or contractor (Are they who they say they are? Are they licensed and bonded, if necessary?).

Special districts commonly enter into contracts for a variety of circumstances, including: the provision of professional or personal services; to buy, sell, or lease property; to execute intergovernmental agreements; and to obtain goods or equipment for a district through procurement contracts.

An understanding of some contracting fundamentals, along with careful attention to the contract language while in the negotiation stage, can help avoid contract disputes. Here are some legal issues with which to familiarize yourself to prepare:

An Indemnification clause allocates the risk of third party injuries or damages in the course or performance of a contract. For a district, if a contractor’s negligence causes damage to a resident, the district does not want the resident to pursue a remedy from the district.

Indemnification clauses clarify that, when an injury or damage is by a contractor or vendor’s negligence, the contractor or vendor must hold the district harmless and defend the district against third parties.

The Taxpayer Bill of Rights (“TABOR”) requires voter approval for long-term obligations (like public debt financing tools such as revenue bonds or general obligation bonds). However, a multi-year contract may raise questions about whether the agreement was a long-term obligation for which an election was required. Therefore, there is a provision that is commonly used when a public contract covers more than one fiscal period (or includes an option to renew) to clarify that it is not the intent of the parties to create a multiple-year financial obligation that would require voter approval under TABOR. Please note: This provision may not be relevant to “enterprise” revenues or funds that are exempt from TABOR.

This is a very Colorado-specific provision, and if your contractor has never seen this, you may need to take some time to educate them.

There are some other Colorado state-specific legal requirements with which your vendor or contractor may not be familiar, including the statutory requirements of software providers to protect customer data and to cooperate with the notification and fixes if there are any data breaches and the public records inspection requirements of the Colorado Open Records Act (CORA).

Contract review and negotiation is an art, not a science. As you approach reviewing a contract that has been prepared by someone else, remember that you are negotiating language. Depending on the nature and volume of changes you may need, you may have to agree to language that addresses your district’s interests, but is not the language you would prefer.

Some tips to help you be more successful in negotiating terms are to first identify those changes that your district must have, and second, to take the time to understand (and be able to explain) the need for the changes you have proposed.

Engage Your District and Attorney, Broker, and Pool Administrator in the Contracting Discussion

As you approach an agreement, working with your colleagues in your district to understand the district’s needs and goals can be an important first step.

Do you all have a good understanding of what the district hopes to achieve? Having this clarity from the start can really help as you put pen to paper to draft a contract. And, remember: you can’t enforce performance in a contract if you haven’t first articulated your goals on the page.

Your district may have good processes in place around contracting that give you certainty that you do not need to seek out advice on every contract. But, even if you have seen a similar contract in the past, if you have questions, or if you see new and unusual contract terms, you should feel empowered to reach out to experts.

Develop your inner skeptic and share your questions and concerns with your colleagues, including experts that work with or for your district. For example, we encourage districts to contact the attorney who serves as your general counsel to consult on contracts. Although there may be costs to seeking advice and input, getting that legal review up front can help your district save money in the long term.

Further, you can reach out to your district’s insurance consultant, broker, or the Pool Administrator – and, although these folks’ input may be limited to the risk transfer provisions in the contract, each can provide an essential perspective on your district’s risks under the contract.

Consult with Your Attorney

This information is not a substitute for legal advice. Your district’s general counsel is the person charged to act as your legal advisor – and they best understand your district, your district’s legal requirements, and the context of these decisions.

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