Contract Basics

 picture of Campanile and trees in winter

 

 

What is a contract?

 A contract is a legally binding agreement that imposes upon the parties a duty to perform the promises embodied in the agreement. If one does not fulfill their duty to follow through with their promise, one is in breach of the contract. When one breaches the contract, the other party is entitled to a remedy. The remedy will generally restore the nonbreaching party to the position they would have been in had the other party never breached.

Contract formation begins when one party makes an offer to indicate their willingness to enter into an agreement with certain terms. The contract is formed when the other party indicates acceptance or assent to the agreement. In order to be a contract, the agreement must include valid consideration. That is, both parties must contribute something to the agreement such as money, labor, a return promise, etc. To form a valid contract, both parties must have the legal capacity to enter into a contract and the purpose or objective of the contract must be legal.

 Does a contract have to be in writing?

Many contracts can be oral.  As a state entity accountable to the public, university contracts generally should be in writing except for small [define] purchases of goods and services.  Under contract law (known as the “statute of frauds”), certain contracts are void unless they are in writing, such as those calling for performance of obligations to be completed more that a year in the future, or real estate transactions.

What is a University contract?

A University contract involves mutual commitments between the University and another party that are intended to be binding. Commitments may be in the form of money or promises to transfer property or services.

We often hear that Memoranda of Understanding (MOU) are not contracts. Most often MOU’s meet the above definition and therefore should be treated as a contract.

We often hear that arrangements that do not involve the exchange of money are not contracts. This is not correct.

Sometimes the question arises whether contract is only a commitment by an individual faculty or staff member —though it may relate to their job— and so they have power to enter into such agreements without University approval. If the agreement clearly is drawn with the individual and not the University as a party, it will not bind the University. However, employees should consider whether such agreements require commitments in conflict with University policies or the employee’s work for the University (such as transfer of intellectual property rights or conflict of interest concerns).

Contracts signed by student organizations are not in themselves binding on the University. However, the activities of some student organizations are joint projects with the University and require separate signature of an authorized University official. To assure responsible conduct of student contracting, all such contracts must be made consistent with student organization rules.

Who can sign a contract or make a binding offer for the University?

Authority to enter contracts is granted by law or by Regents delegation to University Officials.  University officials have in some cases re-delegated authority either by memorandum of delegation or by policy. The table on the Contract Assistance page indicates who has authority on behalf of Iowa State University to sign commonly used contracts. For more information on delegation, please see the Contracting Authority Policy on our page on the delegation process.

Remember that responding to a Request for Proposal (RFP) is a binding offer that must receive prior clearance unless the response to the RFP indicates it is subject to approval by the final contract authority for the University. Note, however, that most RFP's will say that the response must be signed by an authorized party and must be unconditional. In such cases, a University official with delegated authority must sign the response.

How can I receive a delegation of authority?

The University delegates contract authority both by policy and by a memorandum of delegation. See the University Delegation Policy. Memoranda of delegation may delegate for an individual transaction or for a series of the same kind of transaction. In order to control contract risks, the University generally delegates only as necessary to facilitate the responsible transaction of business. If you believe you or your unit should have contract authority, please review the Contracting Authority Policy and then contact the Office of University Counsel at 4-5352. Because the Regents have retained authority over some transactions, we cannot delegate authority for those transactions.

Which contracts require Regental approval?

The following contracts require Regental approval, which means they must be approved by the President, a Vice President or University Counsel before being forwarded to the Regents Office for appropriate action:

  • Real estate purchases, sales, security interests and easements (except for disposal of buildings of a value of less than $10,000 (RPM §9.02)
  • All land leases (except farm leases) and all other real property leases (including farm leases) with any of the following terms: 10,000 gross square feet or more; for an annual rental cost of $100,000 or more; for a period of greater than five years (including all renewal periods); or which include an option or right of first refusal to purchase (RPM §9.02(E))
  • Legal advice or representation, bond counsel or bond-related financial advisors (IAC §681-8.2(3); IAC §681-8.8; and RPM §3.03(L))
  • Contracts for construction of capital improvements projects with an estimated cost of $250,000 or more, unless the Board of Regents has approved the budget of a capital improvement project with an estimated cost of between $250,000 and $999,999 (RPM §9.07(B) and §9.09(A))
  • Contracts for architectural, engineering, construction management, and other design professional and consulting services on capital improvement projects with budgets of $1,000,000 or more (RPM §9.08(B))
  • Feasibility study agreements for capital improvement projects if the costs of the study is expected to be $50,000 or more (RPM §9.10(C))
  • Contracts for fire protection services (RPM §7.08(G)(2))
  • Moveable and fixed equipment with a unit cost of $250,000 or more, or of an aggregate cost of $500,000 or more (RPM §7.06(B)(12)(b))

What happens if a contract is signed or an offer is made without authority?

Such a contract is not binding on the University, and may be disclaimed.  Under the law, the other party may hold the unauthorized signor personally responsible.

What about constraints regarding competition with private business?

As provided by Iowa Code Chapter 23A, University units which sell goods and services to the public ("fee for service units") are required to undergo review for competition with private enterprise. That review is incorporated into the process the Controller's Office has set up for securing budget accounts to receive funds from such activities. For more information, contact Nancy Brooks (4-8757).