Contract Review Essential Questions, Considerations and Common Issues
Does the University, as a state agency, have authority to enter this type of agreement/contract consistent with its mission and with applicable laws, regulations, policies, and procedures? When in doubt, consult with the Contract Services Office or University Counsel.
OBFS and Counsel have created several pre-approved ("standard") contract templates to facilitate some common business transactions. Units may use these pre-approved templates to expedite the contract process, provided the terms of the contract require no alteration to the template language or legal form. These standard templates are available at Contracts Forms and in the Illinois Contract System (iCS).
A University contract must be between the Board of Trustees of the University of Illinois on behalf of the appropriate college or department and another entity. For example:
The Board of Trustees of the University of Illinois on behalf of its College of _________, on the Urbana-Champaign campus ("University") and ____________...
The other party should be identified by its legal corporate/partnership or individual name.
It is important that the subject matter of the agreement, whether related to the purchase of goods or services, use of a University facility by a third party, or international academic and research cooperation, is clear and unambiguous. The expectations of each party should be plain and specific. Make sure that the five W's and H (Who, What, When, Where, Why, and How) are explicit in the text of the agreement.
Length of Agreement
Every contract should have a defined term (start date and end date). In general, a University contract should not have a term of more than 10 years (this includes the initial term, plus any renewal periods allowed).
Does the agreement allow both parties to terminate for cause and for convenience? If not, is there a reason why it doesn't? Are the circumstances allowing termination clearly identified and applicable to both parties? If not, why not?
The agreement should require advance written notice of early termination, identify the contact person for each party to receive such notice, and their address. The agreement should provide for payment to the University for services performed by the University up to the date of termination on a pro rata basis and/or for non-refundable obligations incurred by the University in anticipation of providing services.
Does the contract list events or actions that constitute a material breach (or default)? These items should be clear and specific and the contract should also define the consequences to the defaulting party. You may also want to consider allowing an opportunity to cure a breach, giving the defaulting party a specified number of days to make it right.
Does the agreement include language requiring non-disclosure or a prohibition on releasing defined confidential information? These kinds of clauses can be problematic for the University, which is subject to the Illinois Freedom of Information Act (FOIA). The University often negotiates to strike confidentiality provisions, or at a minimum to allow for disclosure by the University as required by law.
As a state entity, the University is limited in its ability to indemnify or hold others harmless. This kind of language in contracts is often problematic and requires negotiation with the other party. The Office of University Counsel's website provides additional information about contractual liability and indemnity.
Requests from contracting parties for proof of University insurance coverage are processed through the University Office of Risk Management. A certificate of insurance can be requested through the University Office of Risk Management website .
For facility use agreements where an external party is accessing University premises, the user (or tenant) may be required to provide evidence of liability protection to the University. The user may have access to this through their local insurance broker; or, the University offers access to a Tenants and Users Liability Insurance Policy (TULIP) issued through two different vendors, Marsh and Arthur J. Gallagher. More information about the TULIP programs can be found on the University Office of Risk Management website.
As a rule, the University always strikes arbitration language. Accepting binding arbitration puts the University at risk because we lose the liability cap provided by the Court of Claims (see Venue/Jurisdiction).
Choice of Law
The contract should specify an application of Illinois law. The University's standard, preferred language is:
This contract shall be interpreted by application of Illinois law without regard to its conflicts provisions.
Under Illinois law, a contract claim against the University must be brought in the Illinois Court of Claims, which provides us with a cap on liability. The standard, preferred language is:
Any claims against University must be filed in accordance with the Illinois Court of Claims Act. This contract is non-exclusive.
State Required Clauses
There are certain clauses that the University is required by law to include in its contracts. While there are several such clauses required for procurement contracts, there are only two that frequently apply to non-procurement contracts.
Applies to all University contracts:
Contractor certifies that it will comply with all applicable provisions of the Equal Opportunity Employment Clause at 44 Ill. Adm. Code 750, Appx. A, which forms a part of this Contract by reference. (775 ILCS 5/2-105).
Applies to contracts with an individual when University is acquiring or providing goods or services:
If Contractor is an individual, or individual doing business as a sole proprietorship, partnership, or LLC, Contractor certifies it is not in default on an educational loan. (5 ILCS 385/3).
The University Comptroller is the general fiscal officer of the Board of Trustees of the University of Illinois and is authorized to approve and execute, on behalf of the Board, contracts not expressly requiring prior, specific Board authorization. The Comptroller may delegate contract execution authority. Delegates who sign contracts on behalf of the Comptroller must have express authority to do so. Comptroller delegates are responsible for ensuring all required approvals are received and appropriate legal review is complete, before affixing the Comptroller's signature to a contract.
The Urbana AVP for Business and Finance may authorize a unit head, or other designated employee, to execute in the name of the Comptroller, specific unaltered templates for amounts less than $5,000 (see OBFS Policies and Procedures Manual, Section 1, Initiation, Review, and Approval of University Contracts and Leases). Contact the Contract Services Office to learn more about this signature authority.
Warning: If you sign a contract and are not an authorized delegate, the University is not a party to the contract unless it decides to ratify your unauthorized act. "Apparent Authority" does not generally apply to transactions involving the State of Illinois. If authorized University officials decline to ratify a contract, the other party's remedy for any breach or recovery on a contract claim will be from the person who signed without authority.
A facsimile signature is a reproduction of a manual signature (i.e., scanned, photocopied, etc.). Comptroller signature delegates in OBFS routinely apply facsimile signatures to contracts using Adobe Pro and the Illinois Contract System (iCS). It is also common to accept a scanned, emailed copy of the other party's signature, which eliminates the need to send copies of contracts through the mail. This clause is generally included in all University contracts:
This contract may be signed in counterparts. Facsimile signatures constitute original signatures for all purposes.
Please note that the State of Illinois does not permit the acceptance of a digital signature. A digital signature is a type of electronic signature that is essentially a security procedure. While the image it produces may have the appearance of a hand-written signature, it is essentially a font, not an authentic, manual signature.
Other Standard Terms
Following are other examples of "boilerplate" contract clauses commonly used in University contracts.
Any rule of construction that would resolve ambiguities against the drafting party shall not apply in interpreting this contract.
No modification of this contract shall be effective unless made by a written amendment signed by each party's authorized signatory.
Neither party may assign its obligations under this contract without the prior written consent of the other party.
The individuals signing this contract on a party's behalf represent that they have the requisite authority and intent to bind that party to this contract.
Compliance with Laws:
Each party shall perform its obligations in compliance with all relevant laws governing its performance. Breach of this provision is a material breach of this contract.
A party is excused from performing its obligations under this contract when conditions beyond its control and unforeseen by the parties make its performance commercially impractical, illegal, or impossible. Conditions of excuse include, but are not limited to: natural disasters, strikes, fires, war, terrorism and threats of terrorism, government actions, and acts or omissions of third parties. So long as the conditions continue, the party whose performance is affected shall keep the other party fully informed about the conditions and the prospects of their ending.
Headings in this contract are intended only to assist with readability and are not substantive.
The parties are independent contractors with respect to each other. Nothing in this contract is intended to create any association, partnership, joint venture, or agency relationship between them.
This contract with its attachments, amendments and incorporated references constitutes the parties' entire agreement regarding the subject matter.
This contract is non-exclusive.
If any provision of this contract is held by a court of competent jurisdiction to be unenforceable, the provision shall be severed from this contract so long as severance does not affect the enforceability or essential purpose of the remainder of the contract.
By entering into this contract, University does not waive the sovereign immunity or any other defenses and immunities afforded to it by Illinois and federal law.
Use of Name:
[YOU/Other party] shall not use University's name or protected marks for any commercial purpose without University's advance written consent.
The failure of either party to enforce any provision of this contract shall not waive the party's right to later enforce the provision or the contract.
Don't be fooled by the name of a document. A Memorandum of Agreement (MOA), Memorandum of Understanding (MOU), Letter of Agreement (LOA), Purchase Order (PO), or any other type of document can still be a contract if it binds the University to any legal obligations (even if there are no outright financial obligations). When in doubt, consult the Contract Services Office or University Counsel.
Last Updated: January 22, 2015