Managing Contract Risks
Who are you dealing with?
The agreement may be worthless if the other party is unethical, unwilling to keep its commitments, and/or in poor financial health. In addition, the agreement may contain an assignment clause allowing the other party to substitute another party to perform the contract obligations. If we approve such clauses we typically require the assignment to be effective only with our approval, and assuring that we have appropriate recourse against one or both parties for failure to deliver.Are the parties' obligations clear?
Disputes often occur because the contract does not adequately specify the obligation of one of the parties. Think through what you want delivered as a product, and how progress will be measured and tied to the our obligation to make payment or deliver product or services. If the other party’s obligation will extend over time, in general contracts that call for prepayment will be scrutinized closely.Integration clauses - All changes in writing.
Written contracts often have an integration clause that specifies that the contract represents the whole understanding of the parties, and that no changes are binding unless executed in writing. Such clauses are acceptable as long as we manage the contract in that manner, and those carrying out the work adhere to the requirement for documenting by amendment any changes.Payment terms.
When we are securing goods or services, be especially careful about prepayment. Does the contract require us to pay now, and await performance? It is surprising how many times such contracts go sour. It is wiser to require payment after delivery, or to make progress payments matching progress or deliveries if the contract calls for performance over time.Term.
A longer term contract can mean security on the one hand, but a loss of flexibility on the ohter. You can expect more scrutiny for a longer arrangement if it involves significant commitments of funds or resources. A longer term can often be justified if there is a fair way to terminate the contract. (See the next item, below.)Termination.
Termination prior to the end of the term may be for cause (failure of the other party to meet its commitment), for occurrence of an event (such as loss of access to key personnel or products) or for convenience of a party (a party no longer wishes to continue the relationship). But termination clauses can be problematic in assuring fair treatment of both parties. From the University standpoint, multiple-year agreements based upon state or sponsored funds should include a clause allowing termination for reason of loss of funding.
See also Termination in Troublesome Contract Clauses.Contract management.
Too often we see contracts entered and then the parties ignore it. For other than a one-time exchange, this can be a recipe for disaster. Upon signing a contract that requires services to be provided over time the appropriate people carrying it out should be informed of the obligations and timelines for performance.Conflicts of interest.
A conflict of interest arises when one engages in a private or personal activity that calls into question one's ability to fullfill their legal and ethical responsibilities as an Iowa State employee in a fair and unbiased manner. Sources of conflict include the use of state resources for personal gain, leveraging one's official authority to gain personal advantage, or accepting outside benefits for the performance of official duties. Iowa State employees have a legal responsibility to disclose possible sources of conflict that could hinder one's objective and impartial job performance.
Numerous laws and regulations at the Federal, State, and University levels clarify what constitutes a conflict of interest and the responsibilities state employees have regarding disclosure of and management of possible sources of conflict. State law and Regents policy, for example, restrict contracting with University employees or their close relatives. For links to the various laws and regulations, refer to ISU Community > Conflicts of Interest.