Guidance on Contracts
This note is intended to provide guidance. It is not an official University Policy. Existing policies on approval and signing of contracts remain in force. Accordingly:-
- contracts dealing with research grants, contracts and consultancy or with the exploitation of intellectual property must be approved by Research and Enterprise Development,
- contracts involving the receipt or payment of money must be signed by Finance Office and
- long-term or high value commitments must be approved by the Property & Commercial Lawyer.
The purpose of this guidance is to assist Deans, Heads of Departments or Divisions, and others with responsibility for projects or proposals which will lead to agreements or other contractual arrangements (‘contracts’), to ensure that the University does not commit to obligations which it can not perform, or can only perform at a cost which is unreasonable, or which expose the University to some other form of unacceptable (and perhaps unforeseen) risk.
It is written from a legal perspective. It should not increase the administrative burden on you but should make it easier for you to draw up, agree or approve written contracts. Never rely on a verbal contract under any circumstances.
Ease of contract
English law makes it very easy to enter into contracts. Simple day-to-day transactions like buying toothpaste or taking a bus ride are all underpinned by very simple but legally enforceable contracts. These contracts can be made by word of mouth, without any formality and the law will ‘fill in’ details which may not have been discussed between (or even thought of by) the people concerned. Some ‘filling in’ is done by Acts of Parliament (e.g. in a sale of goods or a partnership); and some by the Courts, which will seek to interpret contracts in such a way so as to give effect to the commercial intentions of the people who made them.
Only some types of contract (dealings with land being the most common) must be made in a formal way and/or in writing to be effective.
It is unlikely that anyone would be unaware that they are making a contract. But it is quite possible to be unconscious of the full extent of a commitment when making it. In the past the University has made significant commitments orally, informally and without any kind of internal review process. It is for this reason you are advised not to rely on a verbal contract.
Avoid ‘shaking hands’ on an oral deal; ask for time to put the arrangements in writing and to do an internal review. When writing a contract or considering an agreement sent to you by the other side, take time to carry out the checks listed below and/or seek help from Purchasing, RED or the Property & Commercial Lawyer (Clare.Smith@bristol.ac.uk) (as appropriate).
In particular beware ‘academic partnership’ MOU’s (Memoranda of Understanding) which can sound very non threatening but which have caused serious financial and reputational losses to some Universities which unwittingly committed to more than they bargained for. In ‘academic partnership’ MOU situations:-
- stress co-operative arrangements e.g. exchanges of non-commercial information and best practice, review and peer review, without giving any commitment. If you think you will be committing at some time in the future say those commitments are “to be delivered via contracts agreed at the relevant time”;
- stress common missions, interest and approaches;
- avoid ‘legal’ wording’ (particularly words which create obligations e.g. ‘shall’ ‘is to’ ‘must’ and words which have an extended meaning in law e.g. ‘partnership’; try ‘academic collaboration’ instead).
Sometimes there is pressure to use an ‘expression of intent’, (i.e. “if you want us to start now, say you intend to give us a contract when the details are agreed”). If you sign up to an expression of intent you have given your negotiating position away; it takes away all incentive on the other side to accept obligations that are difficult for them. It will be difficult to complete the negotiation of the detailed contract. Unless the expression of intent is replaced by detailed contract, the expression of intent creates a contract of itself. The obligations are not likely to be as you want. Accordingly insist on working up a full contract.
The problem of authority
An organisation like a company (or indeed the University) can only make contracts though real people. This creates a risk that someone outside the organisation will believe that a contract exists when the organisation believes it does not. So someone dealing with the University through, for example, a Professor or ‘Dr Smith’ or the ‘Something or another Officer’ can believe that the person they are face to face with has committed the University when internal authorisation is still required. So:-
- make it clear to everyone you are negotiating with that you need internal approval before you can commit the University and
- make it clear that no contract will come into existence until the University has signed the written contract.
Do you have authority?
In constitutional terms, only Council has the power to commit the University. Authority to commit the University is delegated (and sub delegated) to staff through Council approval of the University Plan and of particular major projects. Accordingly in relation to your proposal:-
- be able to demonstrate how the contract supports and contributes to the achievement of your departmental/divisional plan and the University Plan;
- get approval of the detail of the contract from the responsible budget holder (the Dean or Division Head or, perhaps, the Prince 2 Project Sponsor), and in relevant cases, RED, Finance Office or the Property & Commercial Lawyer and;
- have the contract signed by the person authorised by the University’s Financial Regulations or, if the Regulations do not apply, the person authorised to sign by the appropriate budget holder.
Having sought your time to think, do a risk analysis, and involve colleagues and superiors in the process. Is the proposal in the best interests of the University, your faculty, and your department? Will it have an adverse impact on any of them?
Even if the analysis supports going forward, what risks are there, and how can you protect against them? Who is best placed to manage each risk, what can be done to reduce the impact of the risk event, what is the likely cost of doing that, who should do (or pay for doing) that? You may need to put things into the contract (e.g. limits on liability, get out clauses), take things out of it (obligations which the University can not perform) put internal procedures in place, or seek insurance, to bring the risks down to an acceptable level.
Here are a few of the things that have gone wrong with various University contracts during the last two years. There are many other possibilities:-
- unwittingly agreeing to deliver more than you can deliver/bargained for/costed
- accepting liabilities unwittingly or without pricing in the risk
- undertaking work which is not insured or which breaks the University’s insurance policy
- agreeing to a “poison pill” that makes enforcement of the contract by the University extremely unattractive.
Many arrangements the University enters into are contracts to work with another person or body ‘with a view to profit’. This creates a partnership in law and certain risks for the University, which are not well understood in the University.
An example of a contract that could create a partnership if the contract is not written carefully is a contract for the development for commercial exploitation of intellectual property with profit sharing.
Avoid the use of the word “partnership” if possible, and make it clear in the contract that a partnership is not intended and that no-one is to give the impression that there is a partnership.
'A man who wasn't there'
When dealing with others, particularly companies, corporations or Universities, you must check that they exist, are financially sound and legally compliant, have the power to do what they are promising to do, and that the University will not be damaged by involvement with them. There are self-styled Universities that are essentially one man in a shed, banks that have no money, and companies that are not at all what they seem.
With UK based organisations the financial and legal checks are quite simple to do. Finance Office (email@example.com) and Secretary’s Office (firstname.lastname@example.org) can do credit and Companies House checks quickly and cheaply. If the results are bad they can advise what you should do.
With non-UK entities it is more difficult; you may need FCO advice, you will probably need to involve local professionals, and you may have to visit the entity itself. Remember the restrictions on exporting knowledge and know how which may have military uses to certain countries. And unless English law is to apply (and frankly English law should apply because the University is in England and most of its activities are conducted in England) you need advice from a lawyer qualified in the country whose law is to apply. It is very dangerous to assume that ‘their’ law is the same as ‘ours’ – it isn’t.
What do you want to achieve? when? how? other critical concerns?
When working up a contract it often helps to answer the questions “who is to do what, when, how, to what standard, in what time frame? And what is to happen if they don’t? How long is the arrangement to last, what happens when it finishes, is it to be renewed?”
No-one can really help you here except your immediate colleagues. You are the expert in your field, and only you know what you want to achieve, how to go about it and what is critical, what trivial, and when things have to happen.
Lawyers and contracts officers can help you with the legal format, with your consideration of risk and ‘what if’s’ and with the development of an effective contract; but not with your basic aim and grasp of the detail of your subject.
So, before writing a contract or reading a contract supplied by the other side, think about what you are trying to achieve until you are clear about all aspects. Seek advice at this stage; do not wait until the contract is almost ‘cast in stone’. It is too late for advice then.
What commercial levers do you have to make "them" do what they agree to
It is all very well being able to sue for damages or to terminate the contract in theory. But having a legal right is often not very helpful; and termination may not be practical even with a poor or non-performing party. Consider each obligation the other side is taking on; and what the impact on the University will be if the other side don’t perform. Can you build in something which gives you commercial leverage; suspension of activity or payment, step in rights or similar? Never assume it will all be alright; mostly it will be, but sometimes things do go wrong.
What are you going to do if they go bankrupt?
And reject anything in the contract that entitles them to a payment from the University if the contract ends for any reason except the University’s default. It is completely unacceptable for the University to have to pay anything if the contract ends because they have not performed.
What else might go wrong, or 'what if' thinking
The risk analysis and commercial levers processes should drive out all the issues about the other party to the contract. What of wider issues, e.g. changes in the external environment, which might impact on what you propose to do? If a disaster strikes, how do you need or want to deal with it?
It is always too late to think about how to apportion external risks when they arise. Try to identify them now and agree with the other side how to deal with them in the contract; this may mean saying that one side will accept the risk, that the risk will be shared (how?) or that the contract will end.
Their terms or ours? Plain English
English law has traditionally shied away from the concepts of good faith and fair dealing in contracts, unlike mainland European jurisdictions. This is changing and it may be worth putting such clauses into the contract particularly where the University is dependent on the other side disclosing internal or management information or the subject matter of the contract is complex.
If you are generating the contract:-
- Purchasing Office has standard purchasing terms and conditions of contract. So if your contract is a purchase contract, consult Purchasing and use their terms.
- RED has standard contracts for consultancy, collaborative research, and intellectual property deals. Consult RED and use their standard terms.
- The Property & Commercial Lawyer will help with all types of contract.
If you are presented with the other side's form of contract:-
- remember they’re not on your side; they may seem nice and reasonable but they are looking after their interests, not the University’s. There is no such thing as a free lunch;
- do not accept any clause that says that the University will indemnify the other side or that the University will hold them harmless. Get advice from the Property & Commercial Lawyer or the Insurance Officer. The University can only accept liability for its own negligence and then usually only up to a certain cap. It is the nature of research in particular that the results must not be guaranteed.
- under no circumstances sign it or pass it for signature by someone else unless you are absolutely sure you fully understand it. If you don’t understand anything, get the other side to explain it and then insist they re-write the contract in a way that matches the explanation. If it wasn’t clear to you when you read it, then it won’t be clear to a judge; so put the meaning beyond doubt;
- insist it’s made according to the law of England & Wales; and
- get help from the Property & Commercial Lawyer or, if the budget is adequate, an external lawyer (see the Policy on the Appointment of External Professionals (ante) for do’s and don’ts on appointing external lawyers) unless it’s a purchase contract (speak to Purchasing Department) or a research or IP exploitation contract (speak to RED).
If you are writing a contract yourself there are some standard clauses (‘boilerplates’) dealing with administrative and precautionary matters that you may want to adopt or use for ideas. Contact the Property & Commercial Lawyer for advice before use though, as some have specific (non obvious) legal implications.
Long term/high value Contracts
The Financial Regulations require that certain types of contract have to have Purchasing Office, RED and/or Finance Office approval before signature.
UPARC has decided that all contracts which involve long term or high value commitments by the University must, in addition to any other required approval, be approved by the Property & Commercial Lawyer.
Contact the Secretary's Office.