Contracts and Procurement

The following links will take you to template contracts taken from TBR Guideline G-030, along with instructions associated with those templates.

The following links will take you to a sample release agreements for summer camps:

In general, the President of an institution governed by the Tennessee Board of Regents, or the Vice Chancellor for Vocational Education or his or her designee acting for the technology centers is the final approving authority within the system for any contract which is prepared consistent with G-030; except that the approval of the Chancellor or his/her designee shall be required for certain dual services agreements, certain real property agreements as well as certain grant agreements and any other agreement for more than $100,000.

The president's signature, or his/her designee's signature, must be affixed to all contracts. The president of the institution must sign contracts required to be submitted to the Board office or to the Department of Finance and Administration. If the president's signature has been omitted from contracts prepared and delivered to the Board office by other institution personnel, such contracts will be returned to campus. The president may delegate his/her authority to sign contracts only if such delegation is specifically permitted in Board policy or if the delegation is specifically approved in writing by the Chancellor.

4. Software Licensing Agreements

All software agreements which exceed $100,000 or which do not comply with G-030 shall be subject to the express approval of the Chancellor of the Tennessee Board of Regents. Institutions must negotiate deletion of all unacceptable provisions and must attempt to secure the agreement of the vendor prior to submission to the Board office.

The Office of General Counsel is available for assistance in negotiating modifications with the vendor. The institution may wish to consult the General Counsel’s Office by phone prior to contacting the vendor regarding modification.

6. Common Contract Provisions which may not be accepted on behalf of the State of Tennessee

IMPERMISSIBLE CLAUSES

1. Hold harmless / indemnification by the State.

A. The Tennessee Attorney General=s Office has consistently opined that hold harmless / indemnification agreements whereby the State agrees to assume the risk of liability which might otherwise fall on other parties are void as both an unauthorized attempt to abrogate sovereign immunity and an unauthorized attempt to lend the State=s credit. Tenn. Const. art. I, '17; Tenn. Const. art. II, '31.

2. Disclaimers of liability for incidental, exemplary or consequential damages.

A. Damages are awarded to the State if it loses money as a result of a breach of contract. The State is entitled to actual damages which consist of both general and special damages.

i. Actual or compensatory damages - real damages that place the innocent party back into the position it was in before the breach. Examples: overtime for re-inputting data, costs of replacement goods.

ii. Incidental damages - reasonable costs and expenses beyond actual damages which directly arise from the breach. Examples: loss profits, costs of returning the product, storage or inspection.

iii. Consequential damages - damages not directly related to the breach but which are indirectly caused by the breach and can reasonably be foreseen. Examples: Loss of another contract, failure to meet a deadline, postponement of a project.

iv. Exemplary damages - punitive damages above actual damages awarded for outrageous behavior of the breaching party such as fraudulent or malicious activity. Rarely would the State attempt to collect exemplary damages.

B. Disclaimers of liability for damages are an unconstitutional lending of the State=s credit. If the State is prohibited from recouping all its losses following a breach, then it has in essence made a loan to the breaching party equal to the amount of damages waived.

3. Disclaimers of express or implied warranties.

A. Disclaimers of warranty limit the circumstances under which the contractor will be in breach of the contract by waiving its responsibility for the goods= or services= performance. The risk of performance falls to the State, and the State is essentially purchasing the product as is.

i. Warranty of merchantability - the product sold is fit for the general purpose for which it was purchased.

ii. Warranty of fitness for a particular purpose - the product sold is fit for the specific purposes of the buyer.

B. Disclaimers of warranty are an unconstitutional lending of the State=s credit.

4. Limitation on dollar amount which can be recovered by the State.

A. This limitation is similar to the disclaimer of types of damages.

B. Example: In no event will the State be able to recover more than the purchase price of the product -- this ignores consequential and incidental damages.

C. The State is entitled to actual damages.

5. Limitation on time within which State may bring suit.

A. Suits alleging a breach of contract may be brought within six years from the date of breach under Tennessee law. TCA § 28-3-109. If the contract involves real property, the time limit is three years. If the contract is a construction contract, the time is four years.

B. Limiting the time within which the State may bring suit is an impermissible waiver of sovereignty; only the legislature can say how and when the State shall sue or be sued.

6. No termination date.

A. Every agreement must contain a provision setting out the term. The State operates on a balanced budget system. Each contract is subject to the sufficient appropriation of funds. If a contract extends beyond the fiscal year, the right to terminate if funds are not appropriated must be specifically included.

B. State purchasing procedures permit certain contracts to extend for up to five years (see Appendix to G-030 Page 15 from F&A Rules). However, ONLY real property procedures permit agreements in excess of 5 years.

C. Example: The term of this Agreement shall be one year commencing upon execution and shall renew automatically for additional one year terms.

7. Advanced deposits or payments required.

A. TCA ' 12-4-703 requires payment to be made for products or services when delivered or provided.

8. State shall pay any taxes associated with the contract.

A. As State agencies, TBR institutions are not liable for the payment of taxes. (TCA '' 67-5-203 and 67-6-322.)

B. Beware of provisions that excuse the State from paying sales tax but require it to pay other taxes associated with the contract. Each state=s tax structure varies. For example, some states have a personal or intangible property tax measured by the total payments due under a contract.

9. Assessment of penalties and liquidated damages against the State.

A. A penalty is a sum above actual damages that serves as punishment for default. Requiring the State to pay a penalty is an impermissible waiver of sovereign immunity outside the parameters set by the Tennessee Claims Commission, T.C.A. Section 9-8-101, et. seq. The State is liable for actual damages only and will not be liable for punitive damages and the costs of litigation, including attorneys= fees. TCA Section 9-8-307(d).

B. Liquidated damages are used when actual damages from a breach would be hard to determine or calculate. A primary example is a construction contract that provides for liquidated damages in the event of a delay in construction. Liquidated damages are impermissible for the same reasons as Paragraph A above. However, the State may require payment of liquidated damages if the damages are incapable of measurement and the amount is reasonable and not a penalty.

10. Binding arbitration clause.

A. In order to save costs of litigation, arbitration has become a popular method of contract resolution. It involves a neutral arbitrator and the contract parties.

B. Only the Attorney General can enter into a settlement agreement that is binding upon the State. TCA § 8-6-301. Therefore, the institution may participate in arbitration should it choose, but no agreement reached during arbitration is binding unless approved by the Attorney General.

11. Award of attorneys= fees and costs in case of breach by the State.

The State is liable for actual damages only and will not be liable for punitive damages and the costs of litigation, including attorneys= fees. TCA ' 9-8-307(d).

12. Governing law other than Tennessee; consent to jurisdiction outside Tennessee.

A. The majority of contracts will contain a provision stating that the contract will be construed under the laws of the state of the other party. Although states may have similar approaches to legal issues, their statutes and judicial decisions vary greatly. What is permissible in Iowa may very well be impermissible in Tennessee, but we would be bound if Iowa law controls.

B. In theory, each state respects the borders and sovereignty of its sister states and does not sit in judgment on the other state=s rights and liabilities. However, if we consent to jurisdiction in another state, then that state may very well agree to hear the dispute.

C. Provision represents a waiver of sovereign immunity.

13. Provisions requiring payment of interest, late charges or finance charges in excess of Tennessee Prompt Pay Act.

A. The Tennessee Prompt Pay Act, TCA '' 12-4-701, et seq., governs the amounts payable if the State makes a late payment under a contract. Interest shall be 1 1/2% per month beginning on the day after payment is due. If interest remains unpaid after 60 days, it is added to the principal, and interest on subsequent late payments is calculated on remaining principal plus accrued interest. The institution is responsible for the payment of late interest from its own funds and may not seek an additional appropriation to pay the amount.

B. If the contract is with a federal agency, the Federal Debt Collection Act, 31 U.S.C. Section 3717, may control the payment of late interest charges.

14. Provisions requiring confidentiality and nondisclosure that violate the Tennessee Open Records Act, TCA ' 10-7-101, et. seq.

A. Example: The State agrees that it shall hold the trade secrets and other proprietary information of Contractor in confidence and agrees not to disclose such information to anyone for any purpose other than for usage in support of State=s business under circumstances that preserve the secrecy and confidentiality of the information.

B. TCA ' 10-7-504(7) provides that all proposals, evaluations and related records pertaining to personal, professional and consultant contracts are open for public inspection once the evaluation by the State is complete.

C. TCA ' 12-3-213 provides that all records of purchases are open to the public.

A. Tennessee is a balanced budget state. Funds for operation are appropriated on an annual basis.

B. No contract may extend beyond the fiscal year in which it is executed unless an express right to terminate is granted the State in the event funds are not appropriated for the continuation of the agreement. Tennessee Constitution Article II, Sect. 24, Tennessee Department of Finance Rule 0620-3-3-.06 (3)(c).

A. The institution may not consent to the issuance of an injunction in the event of breach. An injunction against the State may only be issued pursuant to court order.

B. Travel expenses and per diem expenses may not exceed those set by TBR policy.

C. The risk of loss for goods in transit may not pass to the State before delivery unless the seller provides adequate insurance.

D. A contract may not be amended or extended if the termination date has passed. Once the contract has expired, there is no legal document remaining to either amend or extend.

D. The State may not be required to purchase or obtain insurance including liability insurance, performance bonds, or property insurance.

E. State may not be required to pay for labor not employed by the State unless the costs are covered in the contract.