State Government Contracting
Provided by the Texas Building and Procurement Commission
September 2006
TEXAS BUILDING AND PROCUREMENT COMMISSION
MISSION AND PHILOSOPHY
Mission
Employ cost-effective, efficient and innovative methods to provide quality goods, services and
facilities to meet the demands of agencies, the legislature and leadership of the State of Texas.
Philosophy
The Texas Building and Procurement Commission will conduct its activities in a manner that:
2
Fosters competition and business opportunities
2
Delivers services faster and better while streamlining administrative processes
2
Maintains the highest standards of ethics
2
Promotes a cooperative partnership with state agencies
All decisions will be founded on accountability, transparency and consistency in order to
ensure the best value to the State of Texas.
Table of Contents
Introduction
LESSON
i
1
General Principles
About the workbook
1
About this class
1
Training Requirement Flowchart
2
3 “O” Model
3
Structure of the Guide
4
Online Resources
4
Standard of Conduct/Conflict of Interest
5
Socioeconomic Policies
6
Test Your Knowledge
7
Phase One – OUTLINE
LESSON
2
Contract Planning
Contract Management
9
Grant Management
10
Risk Management
12
Risk Categories
12
Quantifying Risk
14
Minimizing Risk
15
Statement of Work
22
Invitation for Bid (IFB)
23
Performance vs. Design Specifications
23
HUB Subcontracting Plan
24
Advertising the Solicitation
25
Evaluating Responses
25
Duties of the Evaluation Team
26
Contract Award
26
Test Your Knowledge
27
LESSON
4
Contract Formation
Elements of a Contract
28
Drafting the Contract
31
Recommended Contract Clauses
35
Contract Reconstruction Exercise
36
Test Your Knowledge
41
Phase Three – OVERSEE
LESSON
5
Contract Administration
Administrative Responsibilities
43
Planning
44
16
Monitoring Contractor Performance
46
Procurement Lead Time
17
Payment Approval
47
Test Your Knowledge
19
Change Management
48
Audit Exercise
49
Contract Closeout
50
Test Your Knowledge
51
INDEX
52
Role of Procurement in
Contract Management
Phase Two – OPERATE
LESSON
3
Procurement
Preparing the Solicitation
21
Request for Proposal (RFP)
21
TEXAS BUILDING AND PROCUREMENT COMMISSION
State Government Contracting
Workbook
INTRODUCTION
The Texas Building and Procurement Commission (TBPC) is committed to the education and
professional development of state contract managers. Through this commitment we provide
training opportunities that allow you to manage your level of success and professional
development.
This workbook is designed to provide state contract managers with a firm understanding of their
ethical and professional responsibilities associated with the job and fundamental skills which can be
used to improve contracting practices in the state.
Other classes include: Project Management for State Contract Managers, Supply Chain
Optimization, and Power Negotiations.
More
information
about
each
class
is
(http://www.tbpc.state.tx.us/stpurch/cmttoc.html)
available
on
TBPC’s
website
The staff of TBPC’s Training and Certification Program wishes you success with your professional
development endeavors.
i
1
Lesson
General Principles
The State of Texas requires state contract managers to adhere to the utmost ethical
standards. In conjunction with the legal rationale behind what this training must provide,
you will also learn your ethical obligations, the structure of the State of Texas Contract
Management Guide and socioeconomic policies.
About the workbook
T
he key below should be a useful tool for you, as it draws your attention to valuable
information, quiz sections, fill in the blank areas and
= Valuable information
PowerPoint exercises. This workbook is a complement to the
= Test your knowledge
PowerPoint presentation for this class and your participation
= PowerPoint exercise
is required in order for it to be an effective learning tool.
Please fill in all blanks, complete all exercises, answer all quiz
= Fill in the Blank
questions, and participate as much as possible.
This workbook should only be used as a supplement to the State of Texas Contract Management
Guide Version 1.2. In addition, state contract managers should refer to state statutes, rules, the State
of Texas Procurement Manual, and other resources mentioned throughout this workbook for
assistance with daily contracting and purchasing procedures.
About this class
Pursuant to Gov’t Code §2262.053, this class will provide state contract managers with information
on how to include provisions in a contract that hold the contractor accountable for results,
monitor and enforce a contract, make payments consistent with the contract; and comply with any
requirements or goals contained in the State of Texas Contract Management Guide.
This class will loosely follow the contract management framework (found on page 5 in the State of
Texas Contract Management Guide). The overall organization of the class will focus on the 3 "O"
(Outline, Operate, and Oversee) approach to contract management, which puts the contract
management framework into a broader, easy to understand perspective.
-1-
Contract Manager Training Requirement Flow Chart
•Integrated Supply Chain Management
•Research/Procurement Review
•Value Add Analysis
•Project Manager
•Risk Analysis
•Communications Management
Required to attend TBPC’s
Contract Manager Training
Contract Manager
Supplier’s
Supplier
Supplier
Purchaser
User
External
Customer
Contract Administrator
Best Value Considerations
*Inventory/Warehousing
*Delivery
*Lead Time
*Performance
*Cycle Time
-2-
•Vendor Performance
•Contract Maintenance
3 “O” Approach to Contract Management
Prepare
Solicitation
Send copies of
info to CAT
or TBPC
Determine
Procurement
Method
Solicit
Proposals
Conduct
Initial Risk
Assessment
Evaluate
Responses
Develop
CM Team
Award
based on
terms
Identify
Need
Closeout
Contract
Approve
Payment
Monitor
Contractor
Performance
Manage
Change
-3-
Execute
Contract
Structure of the State of Texas Contract Management
Guide Version 1.2
T
BPC in coordination with the CAT wrote the State of Texas Contract Management Guide
(Guide) to help improve state government contracting practices. The Guide describes the
duties of a contract manager, expounds upon existing statutory requirements, and provides
insight regarding contract formation.
The Guide consists of eight chapters: Contract Advisory Team, Planning, Preparing the Solicitation,
Advertising the Solicitation, Evaluation and Award, Contract Formation, Contract Administration,
and Contract Closeout.
Five core processes of contract management are planning, procurement, contract formation,
rate/price establishment, and contract oversight. The Guide can also be broken down to mirror
that framework.
Contract Planning- Pages 13-25
Procurement- Pages 26-50
Contract Formation- Pages 51- 58
Rate/Price Establishment - Pages 30 and 48
Contract Oversight- 59-78
Appendices- 79-148
Index and References- 149-157
Online Resources
A PDF version of the Guide
(http://www.tbpc.state.tx.us/stpurch/contractguide.html)
The State of Texas Procurement Manual
(http://www.tbpc.state.tx.us/stpurch/toc.html)
Enabling legislation
(http://tlo2.tlc.state.tx.us/statutes/gv.toc.htm)
TBPC's Rules
(http://info.sos.state.tx.us/pls/pub/readtac$ext.ViewTAC?tac_view=3&ti=1&pt=5)
-4-
Standards of Conduct and Conflicts of Interest
T
he Texas Ethics Commission compiled a PowerPoint presentation delineating ethical
standards of conduct for all state personnel. According to the presentation a state officer or
employee should not:
1. Accept or solicit ______ gift, favor, or service that might reasonably tend to
____________.
2. Accept other _______________or engage in a business that would involve
the _______________ of _________________ information.
3. Accept other _________________
_______________.
that
could
____________
independence
of
4. Make _______________ _____________ that could create a conflict with public interest.
5. Intentionally or knowingly solicit, accept, or agree to accept any benefit for ____________
___________ powers or duties.
A public servant commits an offense if, with the intent to obtain a benefit or harm or defraud
another, s/he misuses ___________ ___________, services, _____________, or any other thing
of value belonging to the government that has come into the public servant's custody or possession
by virtue of the public servant's office or employment.
Gov't Code §2155.004 prohibits the acceptance of certain bids and contracts. If an individual even
participated in preparing the specifications or the Request for Proposal (RFP) on which the bid or
contract is based could gain compensation from the bid or award, the state can reject the bid, or
terminate the contract without recourse if the following language is provided in the solicitation
document or contract:
“Under Section 2155.004, Government Code, the vendor
certifies that the individual or business entity named in
this bid or contract is not ineligible to receive the
specified contract and acknowledges that this contract
may be terminated and payment withheld if this
certification is inaccurate.
While this section allows for the immediate termination of a contract if a violation is found,
the addition of this section does not create a cause of action to contest a bid or award of a
state contract, nor does it prohibit bidders or contractors from providing free technical
assistance to a state agency.
-5-
Socioeconomic Policies
A statutory mandate
requiring state agencies to purchase, on a non-competitive basis, the products made and
services performed by persons with disabilities. Texas Council on Purchasing from People with
Disabilities (TCPPD) is a state agency whose purpose is to encourage and assist disabled
persons to achieve maximum personal independence by engaging in useful and productive
activities.
State Use Program (40 TAC, § 189.2 & Human Resources Code, Chapter 122)
A
division of the Texas Department of Criminal Justice whose purpose is to provide inmates with
marketable job skills in the hopes of reducing recidivism. Any award to TCI is under the
Prison-Made Goods Act and is non-competitive. TCI can negotiate if the agency chooses to
award to another vendor.
Texas Correctional Industries (TCI) (Gov’t Code, Chapter 497; & Prison Made Goods Act of 1963)
Historically Underutilized Business (HUB) (1 TAC 111.13)
An entity with its principal place of
business in this state that is:
(A) a corporation formed for the purpose of making a profit in which 51 percent or more
of all classes of the shares of stock or other equitable securities are owned by one or more
economically disadvantaged persons who have a proportionate interest and actively
participate in the corporation's control, operation, and management;
(B) a sole proprietorship created for the purpose of making a profit that is completely
owned, operated, and controlled by an economically disadvantaged person;
(C) a partnership formed for the purpose of making a profit in which 51 percent or more
of the assets and interest in the partnership are owned by one or more economically
disadvantaged persons who have a proportionate interest and actively participate in the
partnership's control, operation, and management;
(D) a joint venture in which each entity in the venture is a historically underutilized
business, as determined under another paragraph of this subdivision; or
(E) a supplier contract between a historically underutilized business as determined under
another paragraph of this subdivision and a prime contractor under which the historically
underutilized business is directly involved in the manufacture or distribution of the goods
or otherwise warehouses and ships the goods.
Remember, HUB is not a preference. Preferences allowed for
consideration are outlined in Gov't Codes §§ 2155.441-451.
Preferences: http://tlo2.tlc.state.tx.us/statutes/gv.toc.htm
-6-
TEST YOUR
KNOWLEDGE!
Speculating or aiding another to speculate on the basis of official information is a form of misuse of
official information.
TRUE or
FALSE
If false, what would make this a true statement?
____________________________________________________________________________
____________________________________________________________________________
Financial advisors or service providers must send a written disclosure of a conflict of interest to:
A) The administrative agency head
B) The State Auditor’s Office
C) Both A and B
D) Neither A nor B
It is okay for contractors to use subcontractors without agency consent as long as they are HUB
vendors.
TRUE or FALSE
If false, what would make this a true statement?
_________________________________________________________________________
_________________________________________________________________________
-7-
PHASE ONE: OUTLINE
-8-
2
Lesson
Contract Planning
The first step in the successful management of a contract is planning. Planning assists
agencies in determining need, preparing the statement of work, choosing the appropriate
procurement type, writing and issuing the solicitation, preparing for negotiations, drafting the
contract and monitoring contract oversight. Proper planning will reduce or eliminate the risk
of error.
Contract Management
T
here are fundamental differences between contract management and contract
administration. The contract manager serves as the project manager who oversees
each step of the procurement/contracting process including planning, specification
development, solicitation, evaluation and award. The contract manager may provide
recommendations regarding vendor performance requirements, best value criteria,
contract term, terms and conditions, etc.
Contract administration is a post contract award function. The primary duties of the
contract administrator are monitoring vendor performance, approving payments, and
managing contract changes. The contract administrator should also be involved
throughout the procurement process so they are familiar with the contract requirements
and the expectations of the end-user. Ultimately, the contract administrator serves as the
facilitator between the technical staff, purchasing, legal, executive management and the
contractor.
After the award has been made, the contract manager works with the contractor and the
end-user to inform both parties of schedule tracking issues with respect to the status of
the project development. In the event of a contract issue, the contract manager contacts
the contract administrator to resolve contractor performance issues with the contract.
Contract Management
Contract Administration
________________
________________
________________
________________
________________
-9-
Planning
Monitoring
Contractor
Performance
Payment Approval
Change Management
Grant Management
According to Gov't Code §2105, grants must be managed according to the standards set forth
by the Governor’s Office. The Uniform Grant Management Standards (UGMS) was
developed by the Governor’s Office of Budget and Planning to promote the efficient use of
public funds in local government and in programs requiring cooperation among local, state,
and federal agencies.
The management of grants is complex, but the Federal Office of Management and Budget
provides several circulars to guide you.
Although there are six grant circulars, you are only covered by three of them, depending on
the type of entity:
States, local governments, and Indian Tribes follow:
•
•
•
A-87 for cost principles
A-102 for administrative requirements, and
A-133 for audit requirements
Educational Institutions (even if part of a State or local government) follow:
•
•
•
A-21 for cost principles
A-110 for administrative requirements, and
A-133 for audit requirements
Non-Profit Organizations follow:
•
•
•
A-122 for cost principles
A-110 for administrative requirements, and
A-133 for audit requirements
Several definitions are important to understand when managing grants.
Block Grant A block grant is a program resulting from the consolidation or transfer of
separate federal grant programs, including federal categorical programs, so that the state
determines the amounts to be allocated or the method of allocating the amounts to various
agencies or programs from the combined amounts, including a program consolidated or
transferred under the Omnibus Budget Reconciliation Act of 1981.
- 10 -
Provider - A public or private organization that receives block grant funds or may be eligible
to receive block grant funds to provide services or benefits to the public, including a:
(A)
(B)
(C)
(D)
local government unit;
council of government;
community action agency; or
private new community developer or nonprofit community association in a
community originally established as a new community development program
under the Urban Growth and New Community Development Act of 1970.
Recipient - An individual or a class of individuals who receives services or benefits available
through block grants.
Subrecipient - The legal entity to which a sub-award is made and which is accountable to
the recipient for the use of the funds provided. The term may include foreign or international
organizations (such as agencies of the United Nations) at the discretion of the Federal
awarding agency.
Characteristics indicative of a Federal award received by a subrecipient are when the
organization:
(1) Determines who is eligible to receive what Federal financial assistance;
(2) Has its performance measured against whether objectives of the Federal program are met;
(3) Is responsible for programmatic decision making;
(4) Is responsible for adherence to applicable Federal program compliance requirements; and
(5) Uses the Federal funds to carry out a program of the organization as compared to providing goods
or services for a program of the pass-through entity.
The subrecipient relationship differs from the procurement relationship held between the
agency and a vendor.
Vendor - A purveyor of goods or services available to any purchaser for a price.
Characteristics indicative of a payment for goods and services received by a vendor are when
the organization:
(1) Provides the goods and services within normal business operations;
(2) Provides similar goods or services to many different purchasers;
(3) Operates in a competitive environment;
(4) Provides goods or services that are ancillary to the operation of the Federal program; and
(5) Is not subject to compliance requirements of the Federal program.
The most important distinction is that an agency/vendor relationship exists in a competitive
purchasing environment.
- 11 -
Risk Management
T
he objective of risk management is to identify the possibility or likelihood that loss,
harm or damage may occur due to errors or problems related to the day-to-day
operations of an organization. Proper risk management can increase the likelihood of
project success, mitigate the chance of project failure and clarify organizational
objectives where the project is concerned.
What is Risk?
___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
Risk management is a three part process starting with identifying the potential risks,
quantifying those identified risks, and then minimizing those risks.
Minimize Risks
Quantify Risks
Identify Risks
Steps in Risk Management
Identifying Risk
As you plan your project, some risks will be easily identifiable. In order to identify those risks
that are not so obvious, risk can be recognized in four categories.
1) _________________________
2) _________________________
3) _________________________
4) _________________________
- 12 -
Product Risk
Product risk factors arise as a result of the nature of the product. For example, owning a
product such as gasoline would have a high product risk due to the fact that gasoline is
flammable and, if used in excessive quantities, could have an adverse affect on the
environment. Services can also invite this type of risk.
In order to assess product risk, one should establish a plan that reviews known hazards of the
product, review uses, understand any applicable regulations regarding the product and
establish a plan of action. This assessment should not only be done at the initial stage of
ownership, but for the lifecycle of product ownership.
This in-depth look at product risk is called product stewardship. Product stewardship is the
ongoing evaluation of a product at every stage in the product lifecycle by referencing industry
standards. The success of this type of risk assessment generally means working very closely
with end users, suppliers, and others in the supply chain to identify and hopefully reduce the
environmental impact of a product (or service) throughout its life. A closer study of the
supply chain is included in the Supply Chain Optimization (SCO) class.
Process Risk
As no process is entirely perfect, process risk is a reality for any project. Process risks can
occur due to the complexity of the procurement, the experience level of the staff involved,
unclear objectives (organizational, end-user, or otherwise), a faulty internal/external process,
or a combination of any of the aforementioned factors. Common process risk factors include
an unclear definition of the project and an unclear procurement strategy.
Financial Risk
Financial risk occurs when the procurement or grant agreement will result in a major contract.
As defined by Gov’t Code §2262.001, a major contract is valued over $1,000,000.
It is very likely that there are several tasks that are involved in one large project. Each
individual task is not necessarily costly alone, but the culmination of these tasks can be. It is
possible that the failure of one task can lead to the failure of other tasks, resulting in a higher
degree of financial risk. It is also possible the tasks are not interdependent, and individual task
failure or delay does not lead to the whole project failing or being delayed. In that instance,
financial risk might be lower.
Schedule Risk
Schedule risk is associated with the time it takes to complete each phase of the project. Setting
a timeline is essential to project management, but more often than not, there will be set-backs
in regards to the time it takes to complete a task.
The most important thing to remember when scheduling a project is to make a realistic
schedule based on research and facts versus an optimistic schedule based on impractical
expectations.
- 13 -
Quantifying Risk
There is no one formula fits all approach to quantifying risks. The basic approach is to identify
the areas of importance, and assign a level of risk to each area. The assignment can be
numerical (as seen on pages 68 and 69 of the State of Texas Contract Management Guide), or
as simple as a “High,” “Medium,” or “Low” risk designation.
Figure 1 below (continuing on to the next page) identifies four major risk elements: supplier
selection, project requirements, solution match to user needs, and project characteristics. Each
major element has several items identified as potential areas of risk. Each risk identified is a
type of risk attributed to at least one of the four major risk categories.
Circle all that Apply
Supplier Selection
1
Selection process
documentation
2
Evaluation criteria
The
evaluation
and selection
process
follows an
approved,
documented
organization
process
Supplier
evaluation
criteria were
developed
based on
defined
requirements
(Product, Process, Schedule, Financial)
The
No
evaluation
documented
and selection
evaluation and
process were
selection
based on
process was
external
used
recommendati
-ons
Supplier
evaluated
using predefined
evaluation
criteria
No evaluation
criteria used in
supplier
selection
process
Circle all that Apply
Project Requirements
3
Well defined
requirements
Supplier
solution was
based on well
defined
requirements
(Product, Process, Schedule, Financial)
Requirements No defined
defined at an
requirements
abstract level
for supplier
- 14 -
Notes
TBD
Need Info
High Risk
Cues
Not Applic
Medium Risk
Cues
High
Low Risk
Cues
Medium
Risk Factors
Low
Factor ID
Rating (check one)
4
Possible increase
in costs
Low
probability of
cost
increases
during
development
and
deployment
Some
probability of
cost increases
High probability
of cost
increases
during
development
and
deployment
Circle all that Apply
Solution Match to User Need
5
Key user
participation in
process change
6
Match to
Documented
Process
Key users are
participating
in defining
related
business
processes
changes
Solution was
selected after
processes
were
documented
and/or
redesigned;
fits well
(Product, Process, Schedule, Financial)
Key users are No key users
indirectly
are involved
involved in
defining
business
process
changes
Solution
Significant
selected while mismatch to
processes
elements of
under
existing
definition;
process, or
some
process is
mismatches
undocumented
to process,
so that
which must be comparison is
changed
not possible
Circle all that Apply
Project Characteristics
7
Budget basis
8
Life cycle support
Budget based
on what is
available, not
considering
how this
solution will
be
implemented
Budget
includes
support for at
least first
several years
of use
(Product, Process, Schedule, Financial)
Budget based Budget set
on early
during analysis
analysis of
of alternative
this solution
solutions,
without
specifics about
this one
Budget
includes
marginal
support for a
year from
internal
personnel
Budget
includes no
funds for work
other than
implementation
Minimizing Risk
Risk is a part of every project. Risk management is not about avoiding risk altogether, but
rather identifying possible risks, assessing the potential damage if those risks occur, and then
developing a strategy to lessen those risks, or face them head on.
- 15 -
The foundation of a good risk mitigation strategy includes prioritizing the risks that pose the
greatest detriment to the success of the project, along with risks that have the most potential
to occur. Once identified, develop a strategy to handle those risks.
Remember! Well written terms and conditions is one of the best ways
to protect the agency from unnecessary risk.
Role of Procurement in Contract Management
N
ow that you have defined the need and determined how risky the procurement will
be for your agency, it is time for the purchasing personnel to take a more active role
in the project. Based on what is to be purchased, there are purchasing procedures
that must be followed. The State of Texas encourages competition in order to foster
a fair purchasing environment. Unless exempt by statute or dollar amount, competitive
methods of procurement should be used. The procurement method you select will probably
be determined by your cost estimate, the market analysis, and agency needs.
Two commonly used procurement methods include Invitation for Bids (IFB) and Request for
Proposals (RFP). The IFB and RFP are also known as Competitive Sealed Bid and
Competitive Sealed Proposal, respectively.
Invitation for Bid This method is used when:
1) __________________________________________________
__________________________________________________
2) __________________________________________________
__________________________________________________
3) __________________________________________________
__________________________________________________
Request for Proposal This method is used when:
1) __________________________________________________
__________________________________________________
2) __________________________________________________
__________________________________________________
3) __________________________________________________
__________________________________________________
- 16 -
Other methods include Request for Information, Request for Offer, and Request for
Qualifications.
Primarily used as a planning tool, RFIs are used to identify industry
standards, best practices, potential performance measures, and cost or price structures; or to
generally ascertain the level of interest in prospective respondents.
Request for Information
Uses the same process as an RFP, but is generally used for automated
information systems (AIS) purchases.
Request for Offer
Request for Qualifications Generally used for Professional and Consulting Services wherein the
respondents are solely evaluated on their qualifications. Price is not considered until after a selection
is made by an agency.
Procurement Lead Time
The procurement lead time is measured from the time it takes to plan the solicitation to the
time performance begins. The steps involved in the procurement may be concurrent or
sequential as seen in Figure 2.
Task Description
Week One Week Two Week Three Week Four Week Five Week Six Week Seven
Form Contract
Establish Scope
Review Proposals
Make Award
As demonstrated in Figure 2, because contract formation is a lengthy process, there are other
aspects of the project that start and end during the time it takes to form the contract (represented
by the areas in the ovals). It is also likely that some aspects of the project will happen
simultaneously. Conversely, there are aspects of the project that cannot begin until the previous
steps are complete. For instance, you cannot make an award until after you review proposals
(represented by the area in the rectangle).
- 17 -
The Seven Major Considerations of Procurement Lead Time
Please shade in the approximate time it takes to
complete each consideration of procurement lead
time in the table below.
Process
Amount of Time the Process takes in months
0.5
1.0
1.5
2.0
2.5
Begin solicitation
document
preparation
Submit final
solicitation
Advertise and issue
solicitation
Receive responses
Evaluate responses
Negotiate and form
contract
Execute contract
- 18 -
3.0
3.5
4.0
4.5
5.0
5.5
6.0
TEST YOUR
KNOWLEDGE!
In most instances, grants are considered contracts.
TRUE
or
FALSE
If false, what would make this a true statement?
____________________________________________________________________________
____________________________________________________________________________
Identify an advantage and disadvantage respectively of using the IFB method of procurement.
A) Award process is simpler, but does not encourage innovative solutions.
B) Factors other than price can be considered, but procurement lead time is much longer.
C) Proposals may be customized, but specifications may be hard to define.
D) Award is made to the lowest responsive bidder, but the evaluation process might be subjective.
Which of the following is NOT part of the Contract Management Framework?
A) Planning
B) Procurement
C) Payment Approval
D) Contract Oversight
If Vendor A offers a deliverable at a slightly higher price than Vendor B, Vendor A’s HUB status is
an appropriate preference to consider when making an award.
TRUE or
FALSE
If false, what would make this a true statement?
____________________________________________________________________________
____________________________________________________________________________
Name the members typically involved on a Contract Management Team.
- 19 -
PHASE TWO: OPERATE
- 20 -
3
Lesson
Procurement
A good understanding of the procurement process is essential for effective contract
management. Contract Managers should be involved with the preparation of the solicitation
document and be aware of specifications, performance measures, and terms and conditions
that are critical to the success of the procurement.
Preparing the Solicitation
A
fter an agency determines which procurement method is appropriate, the solicitation
document (IFB, RFP) is prepared. As seen in the “Procurement Lead Time” section, the
preparation of an RFP will take longer than the preparation of an IFB usually due to the
complexity of the good(s) or service(s) being procured. Except when otherwise provided
by statute, the purchase of goods or services must be accomplished through competitive
bidding.
Request for Proposal
The demands of the RFP on potential respondents, any requirement for a pre-proposal
conference, the responses to requests for clarification and issuance of addenda, the evaluation
and safeguarding of proposals, the notification of award recommendations, the
communication with unsuccessful respondents, and the administration of the contract must all
be outlined in the RFP.
An RFP generally consists of the following information:
1___________________
2___________________
3___________________
4___________________
5___________________
6___________________
7___________________
8___________________
9___________________
10___________________
11___________________
12___________________
13___________________
- 21 -
Statement of Work (SOW) A detailed description of what is required of the contractor to
satisfactorily perform the work and describes the role that the agency will have in the
procurement. The SOW is the core of the RFP.
The Federal Acquisition Regulation (FAR) outlines policies and procedures for procurements
(contracts) by and for the use of federal agencies. The FAR includes solicitation and selection
of sources, award of contracts, contract financing, contract performance and administration,
and technical and management functions related to contracts.
In the SOW section, the FAR suggests that agencies—
Describe requirements in terms of results rather than processes.
Use measurable performance standards and quality assurance surveillance plans.
Provide for reductions of fees or price.
Include performance incentives where appropriate.
It is important to remember that one of the benefits of using an RFP is that it encourages
ingenuity. While you must make certain to include provisions that protect the state from
unnecessary risk, you must also make your SOW flexible enough to avoid proposals from
different vendors that provide the same approach. A poorly crafted SOW can reduce the
opportunity for innovative solutions. On the other hand, provisions should not be ambiguous.
Flexible Provisions in a Statement of Work
Rewrite the provisions below in a manner that allows the
contractor some flexibility without being ambiguous.
Personnel
Contractor must assign a minimum of three (3) individuals to carry out the duties assigned in
this contract.
Only individuals credentialed as Certified Texas Purchasers (CTP) may procure goods or
services in relation to this contract.
Lawn Maintenance
Lawns must be mowed on a weekly basis.
Clear snow as required.
- 22 -
Invitation for Bid
An Invitation for Bid (IFB) is a competitive solicitation whereby the contract may be awarded
to the responsible, responsive bidder who provides the best value according to the criteria
listed in the solicitation document. If awarded to the lowest responsible, responsive bidder,
the contract is awarded based on price alone. If the IFB states that the contract may be
awarded to the bidder providing the best value, then the contractor may be selected based
upon criteria set forth in the IFB.
According to Gov’t Code §2155.074, in determining the best value for the
state, the purchase price and whether the goods or services meet specifications are the most
important considerations. However, your agency may consider other relevant factors such as:
Specifications
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Performance vs. Design Specifications
Please use a check mark to indicate if the item listed is a
characteristic of a performance or design specification.
Characteristic
Performance
Focuses on Resources
Encourages Ingenuity
Vendor Assumes Most of the Risk
Appropriate for Simple Purchases
Focuses on Results
Agency Assumes Most of the Risk
- 23 -
Design
HUB Subcontracting Plan
In an effort to increase the use of HUBs at the subcontracting level, Gov’t Codes
§§2161.251-253 require that all contracts with an expected value of $100,000 or more,
regardless of the source of funds, be reviewed to determine if subcontracting opportunities
exist. If the state agency determines there are opportunities, the agency shall require that each
bid, proposal, offer, or other applicable expression of interest for the contract include a HUB
Subcontracting Plan (HSP). If an HSP is required, and a potential contractor fails to submit an
HSP, then their expression of interest will not be considered.
While the contract manager may not have direct dealings with the HSP form, there are
elements of the HSP that call for the involvement of the contract manager. In section 10,
titled “Affirmation,” the potential contractor verifies the following:
• The respondent must submit monthly compliance reports (Prime
Contractor Progress Assessment Report – PAR) to the contracting agency,
verifying their compliance with the HSP, including the use/expenditures
they have made to subcontractors. (The PAR is available at
http://www.tbpc.state.tx.us/hub/forms/subcontractprogassess.doc).
• The respondent must seek approval from the contracting agency prior to
making any modifications to their HSP. If the HSP is modified without the
contracting agency’s prior approval, respondent may be subject to
debarment pursuant to Gov’t Code §2161.253(d).
• The respondent must, upon request, allow the contracting agency to
perform on-site reviews of the company’s headquarters and/or work-site
where services are to be performed and must provide documents regarding
staff and other resources.
From that affirmation, the contract manager and/or HUB coordinator derive the following
responsibilities:
• Ensuring that the PAR is accurate and submitted on time
• Serving as the point of contact for all HSP modifications
• Performing on-site/work-site inspections
• Reviewing all documentation regarding staff and other resources
• Documenting misconduct and discrepancies
Effective communication between the HUB coordinator, contract manager, and contractor
will minimize the potential for misunderstandings.
- 24 -
Advertising the Solicitation
H
ow a bid is advertised depends largely upon statutory requirements for the dollar amount
and the type of procurement you are trying to make. The State of Texas provides a few
platforms that host information about procurement opportunities in the state.
Procurement opportunities greater than $25,000
must be posted on the ESBD. If you are including the solicitation in its entirety, then the
opportunity must be posted for 14 calendar days. If you are just providing notice of a
procurement opportunity, then the opportunity must be posted for 21 calendar days.
Electronic State Business Daily (ESBD)
Vendors listed on the CMBL can be electronically
notified of procurement opportunities for the state based on their district and what
commodities or services they provide. When public purchasers use a competitive procurement
process (IFB, RFP) they must solicit bids from vendors listed on the CMBL. Registered
vendors pay an annual fee.
Centralized Master Bidder’s List (CMBL)
When might it be advantageous to use (or forgo if statutorily
permissible) either the CMBL or ESBD and opt for a presolicitation conference?
____________________________________________________
____________________________________________________
____________________________________________________
_____________________
____
____
Evaluating Responses
A
fter you have prepared and advertised your solicitation, and received responses, it is
time to evaluate the responses. The method of evaluation as well as the evaluation
criteria specified in the RFP or IFB must be the only method and criteria used. If no
method or criteria were specified, then the only consideration that can be used is best
value, which has been determined by Gov’t Code §2261.052 to mean the vendor's price to
provide the good or service, the quality of the offered good or service; and the quality of the
vendor's past performance in contracting with the agency, with other state entities, or with
private sector entities.
Evaluation teams are usually comprised of three to five individuals that
represent different areas (i.e. someone from the agency with the need, someone from the
purchasing agency, and a subject matter expert). The team should be selected as early as
possible, but must be selected prior to the advertisement of the solicitation document.
Evaluation team members should also, if possible, be involved in the drafting of the RFP in
relevant areas such as evaluation criteria, so that they may have a better understanding of what
exactly is wanted. Involvement in the creation of the RFP may also result in a greater
commitment to their role as evaluators.
The Evaluation Team
- 25 -
The Duties of the Evaluation Team Before the evaluation of proposals begins, the evaluation
team members should sign a nondisclosure agreement to protect the integrity of the RFP
process. Then, the evaluation team should meet to discuss the scoring process and understand
how to score proposals. Each member of the team should be provided with a copy of the
RFP, a copy of all responses received, and evaluation worksheets that list evaluation criteria
and the maximum number of points available for each criterion.
Duties of an Evaluation Team Member
Please use a check mark to indicate if the item listed is or is not
action appropriate of an evaluation team member.
Action
Should
Should Not
Attend all Evaluation Team Meetings
Assist in Drafting the RFP
Copy Portions of the Proposals
Modify Proposals Slightly to Meet
Specifications
Avoid all Bias
Leave Proposal Records in an Unsecured
Location
Document Strengths and Weaknesses in
Each Proposal
Discuss Proposal Information Beyond
the Team
Participate in Evaluation Discussions
Contract Award
O
nce all scores are tallied, a recommendation for award should be submitted to the
individual in charge of the procurement. Contract award should go to the most
responsive, responsible vendor who meets the best value criteria of the solicitation.
If the lowest bidder was not awarded the contract, the reason should be thoroughly
justified and documented in the purchasing file.
It is the responsibility of the contract manager to ensure that each unsuccessful bidder is
notified in writing or electronically promptly that the bid was not accepted. Notification
should extend appreciation for the interest the unsuccessful bidder has shown in submitting a
bid. When the vendors are notified of the outcome of the solicitation, a contract, based on the
terms set forth in the solicitation, is formed.
- 26 -
TEST YOUR
KNOWLEDGE!
RFPs typically take less time to prepare than IFBs.
TRUE
or
FALSE
If false, what would make this a true statement?
____________________________________________________________________________
____________________________________________________________________________
Identify an instance when posting to the ESBD is NOT mandatory.
A) An emergency purchase for $35,999.
B) Large purchase of pens for $23,900.
C) Purchase for services totaling $56,300.
D) A commodity purchase for $124,080.
Which of the following is NOT included in an RFP?
A) Statement of Work
B) Attachments
C) Audit Findings
D) Evaluation Criteria
It is advisable to judge solicitation responses on criteria created by the evaluation team leader.
TRUE or
FALSE
If false, what would make this a true statement?
____________________________________________________________________________
____________________________________________________________________________
Name four duties of an evaluation team member.
- 27 -
4
Lesson
Contract Formation
According to the sixth edition of Black’s Law Dictionary, a contract is an agreement
between two or more persons which creates an obligation to do or not do a particular thing.
Individuals responsible for forming the contract must ensure that all legal elements,
requirements set forth in the solicitation document, any other negotiated terms, and State
recommended terms and conditions are not overlooked. A well-formed contract will
safeguard the state and contractor from unnecessary risk and guarantee that the job
requested is the job that is performed.
Elements of a Contract
F
or low value and/or simple purchases there often will not be a formal contract
document that is signed by both parties. A purchase order issued by the agency
represents acceptance of the offer and is legally binding on behalf of both parties. For
high dollar and/or technical purchases, the original offer is likely to significantly differ
from the final offer or negotiated outcome. For this reason, the final contract document
should be signed by both the contractor and the agency in order to reflect the final agreement.
Seven legal elements of a contract are: offer, acceptance, legal purpose, mutuality of
obligation, certainty of subject matter, consideration and competent parties.
When the state issues a solicitation document to the public, the state invites submission of
offers from potential respondents that are interested in providing the solicited goods or
services. Language in the solicitation can also dictate what constitutes an actual contract. The
following examples are actual sections in an IFB from the Texas Building and Procurement
Commission (TBPC), and an RFP from the Office of the Attorney General (OAG)
respectively:
Language from a TBPC IFB:
“AWARD OF CONTRACT - A response to this IFB is an offer to contract based upon
the terms, conditions and specifications contained herein. Bids do not become contracts
until they are accepted through an open market purchase order. The contract shall be
governed, construed and interpreted under the laws of the State of Texas. The factors
listed in Texas Government Code, Title 10, Subtitle D, Sections 2155.074, 2155.144,
2156.007, 2157.003 shall also be considered in making an award when specified. Any legal
actions must be filed in Travis County, Texas.”
- 28 -
Language from an OAG RFP:
“Should the OAG elect to negotiate a contract resulting from this RFP, that contract shall
consist of one document. This document will contain all of the rights and duties of the
parties extracted from the relevant terms and conditions of: the RFP (including its
attachments, exhibits, and addenda); the Respondent’s response; any OAG request for a
Best and Final Offer; and any Respondent Best and Final Offer. Prior to award the OAG
will prepare the contract for review by the apparent awardee. Discussions may be had
concerning possible revisions to the contract in order to clarify points, further define
contract text, or to correct minor technicalities. These discussions are to be finalized and
all requests for revisions resolved within ten (10) OAG Business Days after the
Respondent receives the contract for review or such additional period that may be agreed
to by the OAG. If the discussions are not finalized within such time frame, the response
may be rejected and discussions may be initiated with another Respondent who submitted
a response to this solicitation.”
The respondent’s reply to the State’s Offer (for example, an RFP) is an offer that the
State may reject or accept. Black’s Law Dictionary defines an offer as a manifestation of
willingness to enter into a bargain.
Offer
Acceptance In
its solicitation, the State reserves the right to accept or reject, in its discretion,
all offers received in response to the solicitation. If the State accepts a respondent’s offer, a
legally binding contract is formed when the State issues a purchase order reflecting the State’s
acceptance, or when the parties both sign the resulting negotiated agreement; the precise
process for contract formation will be described in the solicitation. The state views an offer as
the issuance of the solicitation document, and a vendor’s response to the solicitation is viewed
as acceptance.
Where the solicitation provides that the parties will create a binding agreement
upon their joint signatures; all parties with binding authority in regards to the contract agree
that the contract is legal upon signing. Negotiated agreements are not binding until they are
written into a contract and that contract is signed.
Legal Purpose
Unless both parties are bound to the contract, neither party is bound
to the contract. Parties must agree on the essential terms of the contract.
Mutuality of Obligation
The reason you are entering into the contract must be stated and
the terms to which each party is subject to must be clearly defined and specific. If material
terms are omitted, there is no contract to enforce.
Certainty of Subject Matter
Consideration The cause or motive to enter into a contract is called consideration.
Consideration is a basic, necessary element for the existence of a legally binding contract.
Competent Parties Both parties must have the proper authority as well as suitable ability to
enter into a contract in order for it to be valid. The Sixth Edition of Black’s Law Dictionary
states that when referring to the law of contracts, an individual is competent if they are of legal
age without mental disability or incapacity.
- 29 -
Hey Kid,
I will
give you
$2.00
for that.
WOW!
Two whole
bucks! I’ll
take it!
I bind
myself
to the
terms.
I am
selling
my top
to you
for
$2 00
I bind
myself
to the
terms.
=
I am
buying
your
RARE
top for
$2.00.
--I am 10
yrs old
-------------------
--I am 35
yrs old
-------------------
- 30 -
Drafting the Contract
T
here is no “one-size fits all” contract for state agencies to use, there are essential as
well as recommended clauses and provisions that should be included in every
contract. In many instances, the purchase order generated will serve as the contract.
While there is nothing wrong with this approach, a well planned contract can avoid
the instance of conflicting information because all information (the scope of work as well as
the terms and conditions) are housed in one organized document.
Essential clauses in a contract include: introduction, scope of work, term of contract,
consideration, price, specifications, funding out clause, antitrust, dispute resolution, contractor
responsibilities, indemnification/damage claims abandonment or default, right to audit, force
majeure, ownership of intellectual property, payment, affirmation clauses, technology access
clause, independent contractor, termination, and Buy Texas.
The very first paragraph of the contract is called the recital. The recital identifies
the parties and the binding nature of the contract. A section in the recital is the preamble. The
preamble expresses the intent of the contract. “Whereas” usually serves as a precursor to the
preamble.
Introduction
Definitions Important to establish common meaning and reference points for both parties,
definitions may be included in a separate section or they can be included in the introductory
portion of the contract. For the most part, words used in the contract will have their everyday
meaning, but there are some instances when words should be defined.
Please list three things to remember when including definitions in the
contract.
1.________________________________________________________
2.________________________________________________________
3.________________________________________________________
The scope of work (statement of work in an RFP, or the specifications of an
IFB) is the true subject matter of the contract. Relevant information from the scope of work
used in the solicitation document can be used again in the contract. Also include any
negotiated modifications as well as the contractor’s proposed outline of the scope of work to
form the contractual scope of work.
Scope of Work
The term of a contract is a definite period of time that the contract will
remain in effect. There needs to be a set day, date, or condition for the contract to start and a
day, date, or condition that constitutes the end of the contractual obligation.
Term of Contract
Renewal provisions can also be included in this portion of the contract. The agreement to
renew must occur before the original term of the contract expires.
- 31 -
State agencies are not authorized to incur excess obligations. Contracts
must include a funding out clause. This includes contracts that have an option to renew or
extend.
Funding Out Clause
Antitrust acts are designed to protect trade and commerce from unlawful restraints,
price fixing, and monopolies. Refer to the State of Texas Business and Commercial Code,
Section 15.01 for more information regarding antitrust laws in Texas.
Antitrust
The method of payment and the contract payment type need to be delineated at this
point in the contract.
Payment
The contract manager must decide on and then help enforce terms such as: the processes for
payment to the contractor, the format of invoices, the timing of invoices; and payment
schedule.
Contract Payment Considerations
Please provide some items that should be considered
when writing contract payment terms.
- 32 -
The State of Texas has specific statutes that define rules for dispute
resolution. Gov’t Code, Chapter 2260 should be referenced in this section. You should be
aware that dispute resolution under this statute does not apply to claims for personal injury or
wrongful death arising from the breach of a contract, or a contract executed or awarded on or
before August 30, 1999.
Dispute Resolution
Gov’t Code, Chapter 2260 also states that “Each unit of state government that enters into a
contract to which this chapter applies shall include as a term of the contract a provision
stating that the dispute resolution process used by the unit of state government under this
chapter must be used to attempt to resolve a dispute arising under the contract.” Consult your
agency’s legal counsel for a copy of administrative rules that apply to your agency.
This clause in the contract will protect the state from tacitly
permitting and/or funding illegal means of project completion including the use of minors in
the workplace. Contractor responsibilities can also include not damaging the State’s property
and limiting the number of people on site to employees only. Outlining the contractor’s
responsibilities also safeguards the state from unnecessary risk exposure.
Contractor Responsibilities
Indemnity clauses specify who bears the risk in the
contract. A contract that indemnifies another party is not valid because if funds are not
delegated for the entire scope of the liability for which you have granted indemnity, you have
bound the state in debt. According to the State of Texas Constitution (Article XI, §5), creating
an unfunded debt on behalf of the state is prohibited. Indemnification clauses should be typed
in bold font.
Indemnification/Damage Claims
General Claim Categories
Please list the three general claim categories and give an
example of each.
Category
Example
If the contractor does not abide by the terms of the contract, the
inclusion of an abandonment or default clause provides a way for the state to cancel the
contract at the time of non-performance and award the contract to the next best responsive
and responsible bidder.
Abandonment or Default
- 33 -
The acceptance of public money means that the contractor can be subject to
audits in regards to that money. A provision for this must be written into the contract. This
provision will apply to the primary contractor and any subcontractors working on the
contract. The contractor and any subcontractors are expected not only to agree to the audit,
but also furnish and maintain documents in connection with the public money. The State
Auditor’s Office (SAO) can assist each agency in drafting a standard “Right to Audit” term
that can be used in each agency contract.
Right to Audit
Literally means "greater force." These clauses excuse a party from liability if
some unforeseen event beyond the control of that party prevents it from performing its
obligations under the contract, but they are not intended to excuse failures to perform for
reasons within the control of the parties.
Force Majeure
What are some examples of force majeure?
____________________________________________________
____________________________________________________
____________________________________________________
Generally, whoever creates the work owns the work;
however, if an employee creates a work within the framework and duration of the employee’s
employment, the employer owns the work. In the case of software development, artwork and
architecture, the issue of copyright might be a point of negotiation. Ultimately, the contract
controls ownership.
Ownership/Intellectual Property
In the case of an independent contractor, the state agrees that the
contractor is not an employee of the state, and the state is not liable for negligence as a result
of the work the contractor performed, or for any subcontractor related disputes.
Independent Contractor
Usually requested as a part of the information submitted with the RFP
information, an affirmation clause is a formal verification that the information submitted is
true and that no ethical standards are being violated with the submission of the proposal.
Affirmation Clause
Essential for all automated information systems (AIS) contracts,
the Technology Access Clause of a contract ensures that if state money is used by a contractor
for the purchase of AIS related goods or services, that statutory procedure is used. The
Technology Access Clause also ensures that all AIS developments are made effective for
visual and non-visual use. For more information on purchasing and AIS contracting, please
reference Gov’t Code, Chapter 2157.
Technology Access Clause
This clause provides a remedy in the case of default or breach of a contract’s
terms. Contracts may be terminated in whole or in part depending upon the scope and
complexity of the contracted work, carefully consider the alternatives when constructing this
term.
Termination
Buy Texas This term simply holds the contractor responsible for buying Texas made
products if the price and quality are comparable to the equivalent non-Texas made product at
a given time.
- 34 -
With the help of your group, please define the following
recommended contract clauses.
Notice
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Order Precedence
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Patents or Copyright
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Assignment
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Insurance
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Proprietary or Confidential Information
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Substitutions
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Taxes
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Public Disclosure
_________________________________________________________________________
_________________________________________________________________________
- 35 -
The following is an example of a contract for non-professional
services. The contract was just about to be labeled and numbered
when it was accidentally dropped on the floor. Based on what you
have just learned, please put the contract in a logical order by
numbering and labeling each section. The first and last sections are
done for you.
SERVICES CONTRACT
FOR
[Insert name of project]
STATE OF TEXAS
COUNTY OF NOTREAL
# I
§
§
§
LABEL:
Introduction_____
This Contract is entered into by and between the City of Make-believe, a Texas Municipal
Corporation (hereinafter referred to as “City”) acting by and through its Director of
______________ (hereafter “Director”), pursuant to Ordinance No. 12345 passed and
approved on the 4th day of April, 2012 and _____________ by and through its
_______________ (hereinafter referred to as “Contractor”), both of which may be referred
to herein collectively as the “Parties”. The Parties hereto severally and collectively agree, and
by the execution hereof are bound, to the mutual obligations herein contained and to the
performance and accomplishment of the tasks hereinafter described.
#___
LABEL: ________
________
This Contract shall become effective on the date signed by the City’s Executive Director and
shall expire on ________unless otherwise sooner terminated as provided in this Contract.
Notwithstanding the termination or expiration of this Contract, the provisions of this
Contract regarding confidentiality, indemnification, transition, records, right to audit and
independent audit, property rights, dispute resolution, invoice and fees verification, and
default shall survive the termination or expiration dates of this Contract. The City may, in its
sole discretion, terminate this Contract upon thirty (30) days’ written notice to Contractor.
Such notice may be provided by facsimile or certified mail; return receipt requested and is
effective upon Contractor’s receipt.
# ___ LABEL: ______
______
Contractor shall provide the services and the deliverables described herein in the manner
required by all of the following documents:
- 36 -
1.
This Contract
2.
Exhibit A: The Statement of Work
3.
Exhibit B: The RFP and Addenda
4.
Exhibit C: Authorized Key Personnel List
5.
Exhibit D: Contractor’s Proposal and Contractor’s Best and Final Offer
[List any additional exhibits here in order they appear in RFP.]
All of the above are attached to and incorporated as part of this Contract for all purposes. All
of these documents constitute the Standards of Performance for this Contract.
In the case of conflicts between this Contract and any of the above exhibits, the following
shall control in this order of priority:
1.
This Contract
2.
Exhibit A: The Statement of Work
3.
Exhibit B: The RFP
4.
Exhibit C: Authorized Key Personnel List
5.
Exhibit D: Contractor’s Proposal and Contractor’s Best and Final Offer
[[List any additional exhibits here in order they appear in RFP.]
Contractor shall provide all of the above services and all reasonably related services in
accordance with applicable professional standards of a Contractor providing ________.
Contractor represents and warrants that it has the requisite qualifications, experience,
personnel and other resources to perform in the manner required by this Contract.
The City shall designate a Project Manager for this Contract. The Project Manager will serve
as the point of contact between The City and Contractor. The City Project Manager shall
supervise The City’s review of Contractor’s technical work, deliverables, draft reports, the final
report, payment requests, schedules, financial budget administration and similar matters. The
Project Manager does not have any express or implied authority to vary the terms of the
Contract, amend the Contract in any way or waive strict performance of the terms or
conditions of the Contract.
#__
LABEL: __________________
Prior to authorizing payment to Contractor, The City shall evaluate Contractor’s performance
using the performance standards set forth in all documents constituting this Contract.
Contractor shall provide invoices to the City for Services performed. Invoices must be
submitted not later than the 15th day of the month after the services are completed. No
payment whatsoever shall be made under this contract without the prior submission of
detailed, correct invoices. Subject to the foregoing, the City must make all payments in
accordance with the Texas Prompt Payment Act, Gov’t Code, Chapter 2251. Payments under
this Contract are subject to the availability of appropriated funds. Contractor acknowledges
and agrees that payments for services provided under this Contract are contingent upon the
City’s receipt of funds appropriated by the Texas Legislature.
- 37 -
# __
LABEL: ________________
If Contractor is found to be in default under any provision of this Contract, the City may
cancel the Contract without notice and either re-solicit or award the contract to the next best
responsive and responsible Respondent. In the event of abandonment or default, Contractor
will be responsible for paying damages to the City including but not limited to reprocurement
costs, and any consequential damages to the State of Texas or the City resulting from
Contractor’s non-performance. The defaulting Contractor will not be considered in the
resolicitation and may not be considered in future solicitations for the same type of work,
unless the specification or scope of work is significantly changed.
#___
LABEL: ________________
Contractor shall maintain and retain supporting fiscal and any other documents relevant to
showing that any payments under this Contract funds were expended in accordance with
the laws and regulations of the State of Texas, including but not limited to, requirements
of the Comptroller of the State of Texas and the State Auditor. Contractor shall maintain
all such documents and other records relating to this Contract and the State’s property for
a period of four (4) years after the date of submission of the final invoices or until a
resolution of all billing questions, whichever is later.
Contractor shall cooperate with any authorized agents of the State of Texas and shall provide
them with prompt access to all of such State’s work as requested. Contractor’s failure to
comply with this Section shall constitute a material breach of this Contract and shall authorize
the City and the State of Texas to immediately assess appropriate damages for such failure.
The acceptance of funds by Contractor or any other entity or person directly under this
Contract, or indirectly through a subcontract under this Contract, shall constitute acceptance
of the authority of the State Auditor to conduct an audit or investigation in connection with
those funds. Contractor acknowledges and understands that the acceptance of funds under
this Contract shall constitute consent to an audit by the State Auditor, Comptroller or other
agency of the State of Texas. Contractor shall ensure that this paragraph concerning the
State’s authority to audit funds received indirectly by subcontractors through Contractor and
the requirement to cooperate is included in any subcontract it awards. Furthermore, under the
direction of the legislative audit committee, an entity that is the subject of an audit or
investigation by the State Auditor must provide the State Auditor with access to any
information the State Auditor considers relevant to the investigation or audit.
#___
LABEL: ______________
Any written notices required under this Contract will be by either hand delivery to
Contractor’s office address specified on Page 1 of this Contract or to the City, 1234
Somewhere Blvd., Make-Believe, TX 78654 or by U.S. Mail, certified, return receipt requested,
addressed to the appropriate foregoing address. Notice will be effective on receipt by the
affected party. Either party may change the designated notice address in this Section by
written notification to the other party.
- 38 -
#___
LABEL:
__________
Contractor represents and warrants that it will, within five (5) business days of executing this
agreement, provide the City with current certificates of insurance or other proof acceptable to
the City of the following insurance coverage:
Standard Workers Compensation Insurance covering all personnel who will provide services
under this Contract;
Commercial General Liability Insurance, personal injury and advertising injury with, at a
minimum, the following limits: $500,000 minimum each occurrence; $1,000,000 per general
aggregate.
Contractor represents and warrants that all of the above coverage is with companies licensed
in the State of Texas, with “A” rating from Best, and authorized to provide the corresponding
coverage. Contractor also represents and warrants that all policies contain endorsements
prohibiting cancellation except upon at least thirty (30) days prior written notice to the City.
Contractor represents and warrants that it shall maintain the above insurance coverage during
the term of this Contract, and shall provide the City with an executed copy of the policies
immediately upon request.
#___ LABEL: _____
_______
THE CITY AND ITS OFFICERS, AGENTS, REPRESENTATIVES AND
EMPLOYEES, SHALL NOT BE LIABLE OR RESPONSIBLE FOR, AND SHALL
BE SAVED AND HELD HARMLESS BY CONTRACTOR FROM AND AGAINST
ANY AND ALL SUITS, ACTIONS, LOSSES, DAMAGES, CLAIMS, OR
LIABILITIES OF ANY CHARACTER, TYPE, OR DESCRIPTION, INCLUDING
ALL EXPENSES OF LITIGATION, COURT COSTS, AND ATTORNEY'S FEES,
(COLLECTIVELY REFERRED TO AS “CLAIMS” IN THE REMAINDER OF
THIS SECTION), ARISING OUT OF, CONNECTED WITH OR RESULTING
FROM ANY ACTS OR OMISSIONS OF CONTRACTOR OR ANY OFFICER,
AGENT, REPRESENTATIVE, EMPLOYEE, OR SUBCONTRACTOR OF
CONTRACTOR IN THE EXECUTION OR PERFORMANCE OF THIS
CONTRACT, INCLUDING CLAIMS ARISING IN WHOLE OR IN PART FROM
THE NEGLIGENCE OF THE CITY OF MAKE-BELIEVE OR ITS OFFICERS,
AGENTS, REPRESENTATIVES OR EMPLOYEES, AS LIMITED BY THE
PARAGRAPHS BELOW.
IT IS THE EXPRESSED INTENT OF THE PARTIES TO THIS CONTRACT
THAT THE INDEMNITY PROVIDED FOR IN THIS SECTION IS AN
INDEMNITY EXTENDED BY CONTRACTOR TO INDEMNIFY AND
PROTECT THE CITY OF MAKE-BELIEVE AND ITS OFFICERS, AGENTS,
REPRESENTATIVES AND EMPLOYEES FROM THE CONSEQUENCES OF
THE CITY OF MAKE-BELIEVE OR ITS OFFICERS’, AGENTS’,
REPRESENTATIVES’ OR EMPLOYEES’ OWN NEGLIGENCE, PROVIDED,
HOWEVER THAT SUCH INDEMNITY SHALL BE LIMITED BY BOTH OF
THE FOLLOWING:
- 39 -
(1)
THE INDEMNITY PROVIDED FOR IN THIS SECTION AGAINST THE
CITY OF MAKE-BELIEVE’S OWN NEGLIGENCE SHALL APPLY
REGARDLESS OF WHETHER OR NOT SUCH CLAIMS ARE CONTRIBUTED
TO BY THE NEGLIGENCE OF THE CITY OF MAKE-BELIEVE OR ITS
OFFICERS, AGENTS OR EMPLOYEES; HOWEVER, IN THE EVENT OF SUCH
CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE CITY OF
MAKE-BELIEVE OR ITS OFFICERS, AGENTS OR EMPLOYEES,
CONTRACTOR SHALL NOT INDEMNIFY ANY SUCH INDEMNITEES IN
THE PROPORTION (BASED ON THE PERCENTAGE OF NEGLIGENCE)
THAT SUCH CONTRIBUTORY OR COMPARATIVE NEGLIGENCE CAUSED
ANY SUCH CLAIMS; AND
(2)
THE INDEMNITY PROVIDED FOR IN THIS SECTION AGAINST THE
CITY OF MAKE-BELIEVE’S OWN NEGLIGENCE SHALL NOT APPLY WHEN
THE NEGLIGENCE OR OTHER LIABILITY OF THE CITY OF MAKEBELIEVE OR ITS OFFICERS, AGENTS, REPRESENTATIVES OR EMPLOYEES
IS THE SOLE CAUSE OF SUCH CLAIMS.
#___
LABEL:
_____________
Contractor shall serve as an independent contractor in providing services under this Contract.
Contractor’s employees are not and shall not be construed as employees or agents of the State
of Texas.
#___
LABEL: ______
___________
Without the prior written consent of the City, Contractor may not assign this Contract, in
whole or in part, and may not assign any right or duty required under it.
#_XII
LABEL: __Entire Agreement___
This Contract contains the entire agreement between Contractor and the City and supersedes
any prior understandings or oral or written agreements between the City and Contractor on
the matters contained herein. No modification, alteration, or waiver of any term, covenant, or
condition of this Contract and any attachments shall be valid unless in writing and executed by
the City and Contractor.
EXECUTED and AGREED to this the ________ day of __________________, 20___.
CITY OF MAKE-BELIEVE [Insert Name of Contractor]
_____________________________
Contractor
_____________________________
City Manager
Approved as to Form:
_____________________________
City Attorney
- 40 -
TEST YOUR
KNOWLEDGE!
Agencies should develop a standard contract for all transactions in an effort to increase efficiency.
TRUE
or
FALSE
If false, what would make this a true statement?
____________________________________________________________________________
____________________________________________________________________________
Which of the following is NOT a general claim category?
A) Excusable Compensable Delay
B) Inexcusable Delay
C) Excusable Non-Compensable Delay
D) Inexcusable Compensable Delay
Antitrust laws protect the state from doing business with untrustworthy contractors.
TRUE or
FALSE
If false, what would make this a true statement?
____________________________________________________________________________
____________________________________________________________________________
Name the seven legal elements of a contract.
_______
_________________________
_
- 41 -
PHASE THREE: OVERSEE
- 42 -
5
Lesson
Contract Administration
Contract Administration involves those activities related to documenting and verifying how
well each party performed to meet the requirements of the contract after the contract has been
awarded. It includes all interaction between the agency and the contractor from the time the
contract is awarded until the work has been completed and accepted or the contract is
terminated, payment has been made, and disputes have been resolved. As such, contract
administrators ensure the agency receives deliverables that are of the best quality and value
in accordance with contract terms.
Administrative Responsibilities
T
he contract manager must now shift the focus from securing deliverables and forming
a well-written contract, to supervising the execution of the contract. With that shift
comes another set of responsibilities. During the contract administration phase of
contract management, the contract manager must now serve as the main point of
contact between the agency and the contractor, resolve any disputes that may arise in
connection to the contract, ensure that the project is on time and within the budget, and
update the agency on the status of the project.
A GOOD CONTRACT ADMINISTRATOR SHALL BE:
I _____________________________________ _____ __
II _____________________________________ _______
III ____________________________________ ________
IV __________________________________ __________
V _________________________________ ___________
- 43 -
Planning
T
he planning phase of contract administration can be separated into three phases:
prepare a contract file, review relevant information, develop a contract administration
plan.
The Contract File The development of a contract file is critical as it serves as a central
location for all documents related to the contract. Items such as correspondence with the
contractor, invoices, and budgets should be included in the file. For a list of other items to
include in the contract file, please refer to page 76 of the State of Texas Contract Management
Guide.
Aside from the responsibility of compiling the contract file, the contract manager is also
responsible for ensuring that contract documents are retained for the appropriate amount of
time. To help determine the minimum length of time records must be retained by a state
agency before destruction or archival preservation, the Texas State Library publishes the Texas
State Records Retention Schedule (RRS). The RRS does not take the place of an agency's
retention schedule, but is to be used as a guide by the agency in creating and updating its
schedule. The retention periods given in the RRS are required minimums. Most documents in
the contract file will have a retention period of AC+4, but if you are unsure, please refer to the
RRS at http://www.tsl.state.tx.us/slrm/recordspubs/rrs3.pdf.
Below is an example based on information taken from the RRS:
Texas State Records Retention Schedule
Category 1: Administrative Records
Section 1.1- General
Item
Record Series Title
Archival Total
Comments
No.
Vital
Retention
1.1002 Audits
AC +7
AC= Publication or release of
Audits and reviews
final audit findings. The State
performed by or on
Auditor’s Office retains any
behalf of an agency,
copies of its audits performed
including the working
on Texas state agencies.
papers that support
the audit. Also
includes audits
performed on the
agency.
- 44 -
The RRS uses codes to give the most information yet minimize space. These codes are
explained in the index of the schedule. Can you guess what “AC + 7” under total retention
might mean?
AC + 7 =
_____________
_____________
Can you guess what the other frequently used codes might mean?
Code
Your Guess
Correct Answer
AV
CE
FE
LA
PM
US
Re-reading the solicitation document and the contract will
provide you with the information you need to oversee the contract. It is important to read
these documents periodically so that you can be constantly reminded of the objectives of the
contract.
Review Relevant Information
Quick reference techniques such as highlighting important clauses or even making an abstract
of a lengthy contract can help identify any potential administrative problems and areas of risk.
The contract administration plan should include contact
information for the contractor, purchaser, and any other relevant party, information on how
the contractor will be monitored, a calendar of key dates, information on how the contract will
be paid, and the contract closeout procedures.
Contract Administration Plan
- 45 -
Monitoring Contractor Performance
T
he Texas Building and Procurement Commission maintains the Vendor Performance
Tracking System (VPTS), which provides a platform for state agencies to post
comments about a contractor’s performance. Issues such as delivery time, the quality
of the product delivered and the like can be scored. Use of the VPTS for any
procurement over $25,000 from a TBPC administered contract, or any other purchase made
through an agency’s delegated purchase authority is mandatory pursuant to Texas
Administrative Code, Title I, Part 5, §113.108 (b). Use of the VPTS alone will not replace
active monitoring of a contractor’s performance.
As one of its contract management policies, Gov’t code §2261.202 mandates that each state
agency that makes procurements to which Chapter 2261 applies shall establish and adopt by
rule a policy that clearly defines the contract monitoring roles and responsibilities, if any, of
internal audit staff and other inspection, investigative, or audit staff.
Please list some reasons why it is important to monitor contractor
performance.
1._____________________________________________________
2._____________________________________________________
3._____________________________________________________
4._____________________________________________________
5._____________________________________________________
Just as there are many reasons to monitor contractor performance, there are also a number of
ways to monitor performance.
The typical setting for an administrative review will be an office.
There the contract manager will engage in activities such as reviewing time sheets if contractor
is to be paid on an hourly basis or reviewing quarterly reports to ensure that work is going
according to schedule.
Administrative Review
Fiscal Review Used to ensure that the project is within budget at all times. Tasks such as
verifying all expenses submitted for reimbursement and reviewing invoices to make sure that
they are correct and in the specified format are examples of tasks performed during fiscal
review.
Sometimes the work that is requested may take place at a location that is
different from the primary place of business. This is usually the case in construction contracts.
A review of the site to monitor progress is called an on-site review.
On-Site Review
A physical observation of a good or service is called
inspection. This should be done to make certain that the good or service delivered conforms
to specifications.
Inspection of Goods or Services
- 46 -
Payment Approval
I
nvoice processing is just as important as any other aspect of contract administration. As a
part of the contract, the state must pay the contractor for the goods or services rendered.
Just as the state expects the contractor to meet all contract requirements for quality,
quantity and delivery, the contractor expects no less of the state in meeting its obligation for
timely and accurate payment for goods and services received. A plan or process for quickly
and efficiently meeting this obligation is an essential part of the contract administration plan.
The most important issue when dealing with invoices from the contractor is to deal with them
in a timely fashion. Each agency might have specific timeframes established to determine how
quickly they will respond to invoices, but the Texas Prompt Payment Law outlined in Gov’t
Code 2251 requires agencies to pay for goods and services no later than 30 days after receipt
of the good(s) or service(s), or the invoice, whichever is later. Several exceptions exist,
including one for situations in which there is a bona fide dispute about the invoice or goods/
services received. Late payment penalties apply when prompt payment is not made and there
are no disputes.
You are the contracting authority on the following situation. Decide
on a contract payment type and develop a payment schedule.
A contractor (not TIBH Industries) delivers a special paper to your agency on a monthly basis (not
on a TBPC term contract). You have agreed on a two-year contract that will end up costing your
agency $1,500,000.00 for the duration of the contract. What contract payment type will you use?
Develop a mock payment schedule to include in your contract administration plan.
Contract Payment Type ________________________________________________
Payment Schedule
- 47 -
Change Management
P
roper documentation is the key to effective change management. Any
addition/modification to or deletion from the contract must be documented and all
parties involved must be made aware of the change whether it is an administrative,
substantive, or constructive change.
A change order can be an example of a substantive or constructive change
depending upon the nature of the request. All change orders should be submitted to and
handled by the contract manager. This is because the contract manager should have the most
complete knowledge of the overall project including information on whether or not the
change is in the confines of the budget and within the scope of the contract.
Change Orders
Extensions/Renewals If the contract has an option to extend or renew, this option must be
exercised before the end of the contract. The amount of time needed to notify the contractor
of the agency’s intention to renew should be specified in the contract.
Many times the execution of the contract does not occur without any problems.
Three main categories of problems include problems with schedule, cost, or quality.
Disputes
Problems with schedule have to do with the due dates for the deliverables as specified within
the contract. If progress indicates that deliverables will not arrive on schedule, the contract
manager should:
1.
2.
3.
Depending on contract terms, options for dealing with schedule problems include
rescheduling due dates, withholding payments, accepting late deliveries, liquidating damages,
or exercising contract termination clauses.
Payment timing problems can be mitigated by providing the contractor with specific
information on how invoices should be submitted. The contract manager should handle all
invoicing. In the event of disallowable costs, the contract manager should notify the
contractor in writing why the costs will not be covered and also provide guidance to avoid this
type of charge in the future.
Quality problems are related to the expectation of what the deliverable is to be and what is
actually delivered. Remedies should be sought according to contract terms; however, if the
contractor is still unable to provide the deliverable in accordance to specifications, the
contract should be terminated and awarded to the next responsive and responsible vendor.
- 48 -
The following situations have been deemed to be
weaknesses by the audit department. Please read the
situations, determine why the situation poses a risk and
propose a corrective action so that the agency will not
be susceptible to the weakness in the future.
Reviewing Support for Proposed Direct and Indirect Rates
Although 28 of the contracts in our sample based reimbursement wholly or partly on rates for
direct labor, fringe benefits, and overhead, the city is not collecting and reviewing data to
support proposed rates for direct and indirect costs. For these 28 contracts:
• Two of the contracts, the procuring department obtained accounting data; but, the
department failed to review the data adequately, allowing unallowable costs in the
provisional rate calculations (for example, federal income tax, state tax in excess of
rates, charges for expenses included in overhead, and contingencies).
• Twenty-one of the contracts, the city had no data to support the proposed rates.
What is the major risk associated with not reviewing support for proposed direct and indirect
rates?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
How can this action be corrected for the future?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Reviewing Invoices against Contract Terms and Conditions
City departments do not regularly review contractor invoices against the terms and conditions
of contracts to determine the appropriateness of contractor charges. We closely examined
contractor invoices for six contracts and found that overpayments and unsupported charges
represented almost one-third of the agencies total payments. On four of the six, we found
overpayments for rates that contractors billed in excess of the rates the contracts allowed. On
five of the six, we found unsupported charges, including charges by subcontractors the
contract or amendment did not recognize, direct expense charges without the supporting
documentation the contract required, and charges the contractor invoiced without an executed
contract.
What is the major risk associated with not reviewing invoices against contract terms and
conditions?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
How can this action be corrected for the future?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
- 49 -
Contract Closeout
C
ontract closeout occurs when deliverables are successfully received prior to the
contract expiration date. Contract closeout is the administrative process that takes
place on an otherwise physically complete contract. Basic steps in contract closeout
are: verifying receipt of deliverables and that all contract terms and conditions are
met, obtaining all forms and other pertinent paperwork, and informing the contractor in
writing about any outstanding items. The contract should be formally closed in writing with a
copy sent to the contractor, and the original to remain in the contract administration file.
Please label the steps in contract closeout.
1. _________________________________________
As soon as the required delivery date has passed, review file documentation and ensure
evidence including date of final inspection and acceptance has been received. If information
has not been received, forward a letter to the entity responsible for final inspection and
acceptance requesting closeout information.
2. ________________________________________
The contract manager ensures that the end user completes a vendor performance report. This
report should be submitted regardless of the dollar amount of the procurement, but is only
mandatory for procurements over $25,000.00.
3.
The contract manager must identify any excess funding, research the reasons for the excess
funding and where appropriate, unencumber the excess funds.
4.
When actions in Steps 1-3 above have been completed, the contract manager shall certify that
all purchase actions and contract administration actions (including final payment) have been
fully and satisfactorily completed. The original certification shall be placed in the contract file.
5.
Formally close the contract by including a written notice to the contractor in the contract
administration file.
6.
Project success is evaluated. Project pitfalls as well as best practices are identified.
- 50 -
TEST YOUR
KNOWLEDGE!
Planning is not essential to contract administration since it was done in previous stages.
TRUE
or
FALSE
If false, what would make this a true statement?
____________________________________________________________________________
____________________________________________________________________________
Which of the following is NOT an acceptable way to deal with delays?
A) Determine if the delays are excusable or inexcusable.
B) Ensure that the agency has not contributed to the delay.
C) Resolve the issue according to contract terms and conditions.
D) Immediately terminate the contract if the delay is found to be inexcusable.
A well documented account detailing the progress of the contract from the contractor is the best
way to monitor contractor performance.
TRUE or
FALSE
If false, what would make this a true statement?
____________________________________________________________________________
____________________________________________________________________________
Name the six steps in contract closeout.
_______
__________
_
- 51 -
INDEX
Invitation for Bid ................................- 18 -, - 25 L
A
Legal Purpose ............................................... - 32 Limiting Risk................................................ - 18 -
Acceptance.................................................... - 32 Antitrust ........................................................ - 35 Audit .................................................. - 29 -, - 37 Award ............................. - 6 -, - 20 -, - 21 -, - 28 -
M
Monitoring Contractor Performance............. - 51 Mutuality of Obligation ................................ - 32 -
B
O
Block grant.................................................... - 13 -
Offer ...................................................- 32 -, - 40 -
C
P
Centralized Master Bidder’s List .................. - 27 Certainty of subject matter............................ - 33 Change management..................................... - 53 Competent parties ......................................... - 33 Competitive environment.............................. - 14 Conflicts of interest......................................... - 7 Consideration ................................................ - 33 Contract administrator ....................... - 11 -, - 48 Contract formation ........................................ - 31 Contract management 2, - 2 -, - 6 -, - 11 -, - 16 -, 18 -, - 21 -, - 49 Contract manager.- 6 -, - 11 -, - 26 -, - 27 -, - 29 -,
- 35 -, - 48 -, - 49 -, - 51 -, - 53 -, - 55 Contract planning............................. 2, - 6 -, - 11 -
Payment .............. - 21 -, - 35 -, - 41 -, - 52 -, - 53 Process Risk.................................................. - 15 Procurement.... 1, i, - 2 -, - 6 -, - 7 -, - 18 -, - 1920 -, - 21 -, - 23 -, - 27 -, - 31 -, - 51 Product Risk ................................................. - 15 Provider ........................................................ - 13 Q
Quantifying risk............................................ - 16 R
Recipient....................................................... - 13 Request for information................................ - 19 Request for offer........................................... - 19 Request for proposal..2, - 18 -, - 19 -, - 23 -, - 24 Request for qualifications ............................. - 19 Retention schedule........................................ - 49 Risk...... 2, - 14 -, - 15 -, - 16 -, - 18 -, - 25 -, - 26 -
D
Damage ......................................................... - 36 Dispute resolution ......................................... - 36 E
S
Electronic State Business Daily .................... - 27 Elements of a contract................................... - 31 Evaluating responses..................................... - 27 -
Schedule Risk ............................................... - 16 Socioeconomic Policies ......................2, - 2 -, - 9 Solicitation............................. 2, - 6 -, - 23 -, - 27 Specifications ............................................... - 25 State Use Program .......................................... - 9 Statement of work................ 2, - 24 -, - 29 -, - 40 Subrecipient.................................................. - 13 -
F
Financial risk................................................. - 15 Funding out clause ........................................ - 35 G
T
Grant ............................................................. - 12 Grant management ........................................ - 12 -
Term ............................................................. - 35 Texas Correctional Industries ......................... - 9 -
H
U
Historically Underutilized Business................ - 9 HUB Subcontracting Plan............................. - 26 -
Uniform Grant Management Standards........ - 12 V
I
Vendor ...........................- 13 -, - 21 -, - 25 -, - 51 -
Identifying Risk ............................................ - 14 Indemnification............................................. - 36 Inspection...................................................... - 52 -
- 52 -