Tuesday, December 7, 2010

Contract Negotiations and Standard Contract Language of Public Agencies

After selecting a consultant or service provider based on a Request for Qualifications (RFQ) or Request for Proposals (RFP), where factors other than price are used as selection criteria, a public agency is faced with then negotiating a contract with the successful firm.  

Sometimes negotiations break down over the language included in the public agency's standard contract and the parties are unable to successfully negotiate a contract.

To mitigate against this problem, there are a couple of strategies that public agencies can employ:
  • Make Contract Language Available:  Some agencies will either include the standard contract language as an attachment to the RFP or RFQ, or refer firms to the agencies website where the language can be read.  However, without taking additional steps such as those outlined below, the parties may still find they disagree about specific contract terms.
  • Require Firms to State Objections to Contract Language:  Some agencies take it a step further and require as part of the response to the RFP or RFQ a statement by the proposer that they have no objection to the standard contract language, or if they do have objections, to identify the sections that are problematic.  However, without indicating what the public agency intends to do with the information about the objections to the language, the parties may still find themselves at loggerheads when it comes to contract negotiations.
  • Require Firms to Propose Alternate Contract Language:  Other agencies require responding firms who have objections to the contract language to propose alternate contract language for consideration by the public agency.  In most cases, the alternative contract language will not be beneficial to the public agency, and the agency is still faced with potentially protracted contract negotiations over issues that have been identified prior to contract award.
  • Assign Points Based on Acceptance of the Contract Language:  Another strategy employed by some public agencies is to assign points to firms who do not object to the contract language.  The number of points assigned would be reduced if alternate language was proposed that was not beneficial to the public agency.  This has the benefit of forcing firms to decide how much they object to the contract language or if is something they can live with.  This strategy has the most hope for ensuring successful and smooth contract negotiations.
If a public agency is using a two step selection process (qualifications and then price), it may be beneficial to request feedback from the proposers on draft contract language during the qualifications portion of the selection process, and then issue final contract documents during the pricing portion of the selection process.

In any event, standard contract language must protect the public's interests, but be fair to firms proposing to do work.
Mike Purdy's Public Contracting Blog 
© 2010 by Michael E. Purdy Associates, LLC 

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