Chapter 7
FORMALIZING THE CONTRACT
Once you have selected a service provider, the next step is to prepare a
written contract identifying all terms of agreement between the contracting
parties.
7.1
INDEPENDENT STATUS OF CONTRACTOR
An essential criterion in the use of services is the independent
entrepreneurial relationship between the contractor and the department.
Departments could potentially be subject to payment of fines by the Internal
Revenue Service and the Social Security Administration, if a determination of
"employee" status is made regarding the department’s contracts.
Federal employment tax regulations essentially convey that every
individual is an employee, if under the usual common law rules the relationship
between the individual and the person for whom services are performed is the
legal relationship of employee/employer. Generally, such a relationship is
considered to exist when the person for whom services are performed has the
right to control and direct the individual who performs the services, not only
as to the result to be accomplished, but also as to the details and means by
which the result is accomplished. It is not necessary that the employer direct
or control the manner in which the services are performed,
rather it is sufficient that the employer has the right to do so. DAS-State
Accounting Enterprise, Accounting Policy and Procedure Manual, Procedure
240.102 includes additional information about the factors to consider when
trying to determine if the contract creates an
employer/employee relationship.
Prior to signing a contract, the department must determine if Department
of Administrative Services - Sate Accounting Enterprise (DAS-SAE) has made a
determination as to whether or not the contractor has an employer/employee
relationship with the State. Contracts that create an employer/employee
relationship are not allowed. The department must review VCUST
(Vendor Customer Table) that is a part of the
7.2 DRAFT
CONTRACT
Service contracts must always be set forth in writing. Frequently terms
and conditions of the contract will be included in a Request for Proposal (RFP)
document. RFP’s, however, usually permit the agency to negotiate on the terms
of the contract if it is in the agency’s best interest to do so. Although it is
permissible to negotiate further after you have selected a service provider,
you must be careful to avoid undermining the competitive selection process
during the negotiations. As a basic rule of thumb, if other service providers
might have been able to submit a better, more competitive proposal if they had
been given an opportunity to make a proposal on the project as revised by the
negotiations, then agreeing to the change undermines the competitive process.
For example, if you are trying to negotiate a lower price and the service
provider agrees to accept a lower price in return for removing a major
component of the project, that change undermines the competitive process
because another service provider might have been able to submit a better
proposal if it had been given the opportunity to bid on the project without
that component. You should consult with your legal counsel if you are
contemplating making changes that might be significant enough to raise these
concerns. Agencies may utilize a contract format appropriate to the services
being acquired, provided that all required elements stated in 11 IAC chapter 107 are included.
The formal written contract should include all terms and conditions and
reflect the intent and agreement of the parties. The contract is the
culmination of the entire procurement process and formalizes the agreement
between the parties.
7.3 TERMS AND
CONDITIONS
The Terms and Conditions are the stipulations governing a specific
contract and include the elements indicated below. Many other requisites may be
routinely included in an agency's Special Terms and Conditions. For the
purposes of this Guidebook, only the most common elements are included.
The Model Contract included in Appendix I contains additional information about
the purposes of these clauses and considerations you should take into account
when drafting contracts.
•Identification of the Parties
This section identifies the parties entering into the
contract. It states the name of the agency, the contractor's legal corporate
name and address, and may include other identifying information such as
telephone number, fax number, e-mail address.
• Scope of Work
The scope of work is the single most important
element in the contract. This section documents all elements of the work
and magnitude of the project and reflects the mutual understanding of the
parties. The scope of work must be consistent with the project and services
described in the solicitation document issued. The scope of work should clearly
address the performance criteria that the service provider is expected to meet.
Refer to Chapter 3 for more detailed information on how to develop an effective
scope of work.
• Duration
The contract should specify a starting date and an
ending date. You should not enter into a service contract for a period of
longer than six years (including extensions) unless you get a waiver of the duration
limitation from the Director of the Department of Administrative Services. See
11 IAC 106.11. If you want to be able to extend the contract beyond its
initial term, the duration provision should also address contract extensions.
If the contract resulted from a competitive selection process, the contractual
provision regarding the initial term of the contract and any allowable
extensions must be consistent with the duration and extension provisions
provided in the competitive selection process.
Service contracts may cross biennial and fiscal year lines, and, when
they do, the contract should include a non-appropriation provision.
• Compensation and Payment
This section must include all elements relating to
cost and payment, such as maximum contract cost, cost per deliverable, rates
for individuals providing services, number of hours
required, allowable expenses and total authorized for expenses, payment, and
invoicing procedures. Under the Accountable Government Act, payment should be
tied to the service provider’s performance under the contract unless the agency
has received permission to use a different method. Clearly defining cost
elements authorized for reimbursement will avoid later confusion or minimize
disputes.
With few exceptions, agencies may not pay for any
service before the service has been performed. See
This section should also include whether the agency will pay expenses
incurred by the contractor and, if so, which ones. Such expenses may include
airfare (economy or coach class), lodging and subsistence necessary during
periods of required travel, expenses incurred during travel for telephone,
copying and postage, and private vehicle mileage. If other types of expenses
are to be allowed, they must be clearly defined. Travel expenses for
contractors may only be reimbursed at the current state travel reimbursement
rates. Separate payment for these expenses should be discouraged. Ideally,
these travel related and other expenses should be built into the basic cost of
the contract.
The contract should state the maximum dollar amount allowed to be paid
under the contract for expenses.
The contract should state how often invoices should be submitted and
require that the invoice include sufficient detail and back-up documentation to
determine the appropriateness of the charges.
• Termination Clause Contracts should include a termination clause including a non-appropriation clause. Service contracts may cross biennial and fiscal year lines, and, when they do the contract should specifically include a non-appropriation provision.
• Signatures of Responsible Parties
Only those persons with authority to bind the parties may sign the
contract document. The agency representative who signs a contract must have
delegated signature authority. The contract is considered executed when all authorized
parties have affixed their signature.
It is good business practice to have the contractor sign the document
first. This ensures that full agreement has been reached by the contractor with
the terms and the agency can respond with its approval signature.
The signature block should not appear on a page by itself. A portion of
the text of the contract should be included at the top of the page.
7.4 LEGAL
REVIEW
You may wish to ask your agency’s assistant attorney general to review
the contract before you finalize it. You should consult with your legal counsel
if you are considering making any changes in the contract that the sample Model
Contract included in Appendix I says you should not make or says you should
consult your attorney before making. Please note that if you intend to request
a contract review by the AG’s office, the review must be done before the
contract is signed. Once the contract has been signed, it has been
“executed” and any subsequent legal review serves no purpose. If you need to
have your assistant attorney general review the contract, you should plan on
giving the attorney enough time to fit it into his or her schedule and to
review it. You should work with your assistant attorney general to decide what is the most effective way to utilize your attorney’s review.
7.5 CONTRACT
PAYMENT TERMS
Pursuant to the Accountable Government Act as it relates to service
contracting and the rules adopted in accordance therewith, agencies must
include performance criteria in service contracts and tie payment to
performance, unless the agency gets permission to use a different method. See
7.6 CONTRACT
EXECUTION
The contract is executed when it is signed by all authorized parties.
Upon execution, signed copies of the contract should be provided to all
interested parties including, but not limited to, the contractor, the contract
manager, and anyone in the agency responsible for maintaining contract files.
In most instances, service may begin immediately or may be scheduled for a
predetermined date.
Appendix I: http://das.gse.iowa.gov/procurement/AppI_ModelContract.html
Appendix K: http://das.gse.iowa.gov/procurement/AppK_NoticeofIntenttoAwardRFP.html
Appendix L: http://das.gse.iowa.gov/procurement/AppL_NoticeofIntenttoAwardSealedBid.html