SCHOOL DISTRICT CONTRACTS PITFALLS AND OPPORTUITIES

January 27, 2017

Bill Cornell

Preg O’Donnell & Gillett, PLLC

This information contained in this presentationis not legal advice. Your are encouraged to seekthe advice of counsel when considering yourrights and obligations in connection withcontracts and other important documents.

TODAY’S TOPICS

• Contract Fundamentals

• The Fine Print (what you don’t read will hurt you)

• Using your Own Contract

• Public Contracting 101

• Small Works Roster Contracts

• L&I /WISHA Issues in Contracting

WHY IS THIS IMPORTANT?

• Public entity ignored contractual insurance requirements for a small window washing services contract ($500) to a one-person business.

• They ignored policy prohibiting loaning equipment to contractors.

• Window washer fell to his death off a ladder owned by the entity.

• Window washer had no insurance.• Entity was sued for wrongful death. • Settlement was almost $1,000,000.

WHAT IS A CONTRACT?

Definition:

• A contract is a binding agreement between two or more parties for the performance of some specified act(s) in exchange for lawful consideration.

• Consideration is something of value, such as money or personal services, given by one party to another, in exchange for an act or promise.

ESSENTIAL ELEMENTS

• Identification of parties

• The subject matter (description of the

required performance)

• The promise

• The terms and conditions (due date for

performance)

• The consideration given for performance

• Writing required?

TYPICAL CONTRACTS USED BY

SCHOOLS• Equipment and vehicle leases

• Personal services

• Property leases

• Building construction or renovation

• Purchase Orders

• Use of Facilities (field trips, senior parties)

CONTRACTING

FUNDAMENTALS• Have you taken the time to read the agreement?

• Can you explain the terms and conditions to your boss?

• Who can negotiate terms?

• Can you meet the terms and conditions?

• Who is authorized to sign the agreement?

• Have you followed District policy?

• Does your District have a policy?

• Have you consulted with counsel?

• Do you have a process for implementation?

WHAT COULD GO WRONG?

• Held to terms you can’t comply with.

• The provider defaults and has no insurance.

• The provider defaults and you’re responsible.

• You default and a painful remedy is imposed.

• The goods and/or services fail and you have no recourse.

• A worker employed by the provider is injured on the job. And you’re responsible.

• You’re forced to litigate. In New York.

EXAMPLES

• “The scope of work is described in the attached documents.”

• “Contractor shall use his best skill and judgment in furthering the interest of the Owner.”

• “FOB Dallas, TX”

• “We will make every reasonable effort to complete the project in a timely manner.”

• “Any dispute arising out of this Agreement will be governed by the laws of the State of New York and venue will lie in Queens County.”

HOW TO AVOID THE PITFALLS

• Read the contract!

• Review the contract with someone who understands the proposed service, project, product, etc.

• Focus on the sections that outline the District’s duties.• Do you agree to these requirements?

• If someone else is responsible for the requirements, do they agree?

• Are the terms in compliance with District policies?

THE FINE PRINT

- Agreements to Hold Harmless

- Defense and Indemnification

- Insurance Requirements

- Term (duration) of Contract

- Liability Waivers

- Remedies

- Liquidated Damages

- Termination

- Governing Law and Venue

APPROACHES TO CONTRACT RISK MANAGEMENTUSE YOUR OWN FORM

• More control over the terms!

• The contract starts with District policies and procedures.

• Spending less time revising the other parties document.

APPROACHES TO CONTRACT RISK MANAGEMENT: NEGOTIATION

• Everything is negotiable but• Know what negotiating powers you have.

- You need the service; limited providers (weak)- They need your business, lots of competition

(strong)• Negotiation targets:

- Indemnification/Hold Harmless Clause- Delivery, project completion dates- Price and payment terms- Penalties for cancellation and default- Insurance requirements (types and amounts)- Staff or resource requirements

EXAMPLES OF UNACCEPTABLE TERMS AND CONDITIONS

• Payment in advance for services

• FOB manufacturer

• Performance/quality determined by the provider in its sole discretion

• Indemnity provisions requiring indemnify for sole negligence

• Termination without notice

• Unreasonably short time limits on warranty

SIGNING THE CONTRACT

SuperintendentPurchasing ManagerSchool PrincipalASB SecretaryCoachTeachersStudents

DO YOU HAVE A BOARD POLICY ADDRESSING THIS ISSUE?

LEGAL AUTHORITY TO ENTER INTO A CONTRACT

• Washington State Law- Only the Superintendent or his designee with authority

of the School Board.

- Contract signed by school principal without authority is not binding -G.A. Pehrson v. School District No. 334, 194 Wash. 334, 77 P.2d 1022 (1938).

- Pepsi Co. vs. Federal Way S.D. Court ruled contract signed by school principal was not

binding.

• Board Policy can dictate the Superintendent’s designee.

• Strong purchasing guidelines that are enforced can reduce violations of Board Policy.

HOLD HARMLESS AND INDEMNIFICATION CLAUSES

• General rule: each party responsible for its own negligent conduct.

• Indemnity: shifts liability to another party.

• Defense: payment of attorneys fees.

• Hold Harmless: relieves parties of “responsibility” and possibly “liability” to the extent provided in the language of the contract.

• There are three main types of Indemnification Clauses:

- Broad Form (Type I)

- Intermediate Form (Type II)

- Limited Form (Type III)

BROAD FORM INDEMNITY

• “Indemnitor agrees to defend and indemnify Indemnitee for any and all claims arising out of the obligations undertaken herein.”

• Often seen in leases (landlord has arguably little control over use of the premises).

• Indemnitee can enforce the obligation despite its passive or active contribution to the harm.

• May not be enforceable.

INTERMEDIATE FORM INDEMNITY

• “Contractor will indemnify Owner and save it

harmless from any and all claims resulting

from any and all negligent acts or omissions of

the Contractor, its agents and employees

except for those claims arising form the sole

negligence or willful conduct of the Owner.”

• Indemnitor must be squeaky clean to avoid

responsibility.

LIMITED FORM INDEMNITY

• “Contractor and Owner each agree to defend and indemnify the other for any and all claims arising out of the Project. However, the obligation to defend and indemnify herein is limited to proportionate fault of Contractor and Owner.”

• Neither party is obligated when the harm is caused by a third party and the indemnitee and indemnitor are fault free.

• Each party is responsible for its own negligence.

REVISING INDEMNITY TERMS: AN EXAMPLE

• The District shall defend, indemnify and hold the Contractor, its officers, officials, employees and volunteers harmless from any and all injuries, damages, losses or suits including attorney fees, (“Claims”) arising out of, or in connection with, the performance of this Agreement .

• Add: “except for Claims caused by the sole negligence or willful misconduct of the Contractor.”

THE ROLE OF INSURANCE AS A CONTRACTING RISK MANAGEMENT TOOL

• Many types of insurance - what are the risks?

• Claims made v. Occurrence

• The role of the CGL policy

• Interplay between indemnity and insurance

• The importance of being an additional insured

• The importance of the additional insured endorsement

• Evidence of insurance and endorsement before work begins

• Require that insurance be in place for duration of the work

POTENTIAL CONFLICTS BETWEEN CONTRACT TERMS AND INSURANCE

• Waiver of Subrogation Clause

• Waiver of Title 51 Immunity

• Claims Made Coverage

• Sunset clauses

• Available limits don’t match contract limits

• Insurance lapse in a triple net lease

• Failure to procure builder’s risk coverage on a construction project

• Monitoring insurance requirements

YOU’VE NEGOTIATED NEW TERMS: NOW WHAT?

• Make the changes in writing.

• Cross out the unacceptable language and add the new language.

• Revisions should be initialed and dated.

• Create a separate addendum.

• Incorporation by reference.

CONSTRUCTION CONTRACTING

• Enhanced role of insurance and indemnity• Enhanced importance of scope of work and payment

provisions• Liens and lien waivers• Warranty• Default• Price changes• The interplay between RCW Title 51 Immunity and

Indemnity• Stute and the controlling employer doctrine in WA• The risks associated with an unlicensed contractor in WA

CONSTRUCTION CONTRACTING

Example RCW Title 51 Waiver:

Contractor specifically and expressly waives any immunity that it may be granted under Washington law relating to claims for workplace injuries. Further, the indemnification obligation under this Agreement shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable to or for any third-party under workers' compensation acts, disability benefit acts, or other employee benefit acts; provided Contractor’s waiver of immunity by the provisions of this paragraph extends only to the claims against Contractor by Owner and does not include, or extend to, any claims by Contractor’s employees directly against the Contractor.

Contractor’s duty to defend, indemnify and hold Owner harmless shall include all liens, claims, demands, damages, losses, liabilities, and expenses to which it applies; the Owner’s personnel-related costs, reasonable attorneys’ fees, arbitration costs, court costs and all other claim-related expenses.

The provisions in this Section ___ have been specifically negotiated by Contractor and Subcontractor.

Signature of Subcontractor: ________________________________________________

INTRODUCTION TO PUBLIC WORKS CONTRACTING

• With some exceptions requires competitive bidding process.• Overlay between Public Works contacting rules and School

contracting rules.• School Districts governed by RCW 28A read in conjunction

with RCW 39 (Public Works).• Public works less than $300,000 – use small works roster.• Verify contractor status on L&I website.• Indentify the authorized individual(s) to sign the contract.• Require evidence of insurance and additional insured

endorsements .• Acquire all necessary documentation before work is started.• Generally: complex enough to consult counsel.

CONTRACTING CHECK LIST

• Read the entire contract.• Identify the risks associated with the contract

before you sign. Consult your risk manager or insurance carrier.

• Negotiate terms in favor of the District.• Verify contractor status on L&I website.• Indentify the authorized individual(s) to sign the

contract.• Require evidence of insurance and additional

insured endorsements.• Acquire all necessary documentation before work

is started.

CHECK LIST - Continued

• Establish procedures for bid/non bid contracts.• Don’t make changes to the contract language after award

of bid unless it’s in the form of a formal “change order”.• Seek legal counsel in the development and review of

construction contracts written on AIA documents.• Follow the District’s chain-of-command and get help.

- Remember when to include your risk manager;- Don’t hesitate to contact your insurer.

• Hold those who violate Board Policy accountable.• When in doubt, contact counsel.

REFERENCES

• Contracts: Transferring and Financing Risks -

The State of Washington Department of

General Administration, Division of Risk

Management

• Washington Schools Risk Management Pool

Insurance Requirements for Contracts

Questions?

William Cornell

Preg O’Donnell & Gillett, PLLC

901 Fifth Ave. Suite 3400

Seattle, WA 98164

(206) 287-1775

wcornell@pregodonnell.com

Thank You!