KBS Reference Desk: Importance of Contract Legal Review

Q:        Our district entered into a million-dollar contract with a vendor for the purchase of technology goods and services last summer. We have been running into huge issues with the vendor since executing the contract, such as pricing increases and poor customer service. We want to terminate the contract but since we did not obtain legal review prior to signing, we are not sure of our options. Going forward, should we obtain legal review prior to signing the contract? What types of contracts should always be reviewed by a lawyer first?

 A:        Yes. Legal review prior to signing a contract that is to be paid with public funds is always recommended to ensure the district is in compliance with policy and applicable law and that the most favorable terms for the district are obtained. Any contract requiring Board approval and/or competitive procurement should be reviewed by an attorney prior to Board approval and final execution of the contract.

 Your “C” series of board policies govern the purchase and acquisition of all goods and services for the district. Board Policy CH (LOCAL) generally sets forth the purchasing authority of the district, including threshold purchase amounts requiring Board approval prior to the start of the transaction. Purchases coming in under that amount may be approved by the Superintendent without school board approval. Additionally, several Texas statutes apply to the procurement of goods and services, including specifically Section 44.031 of the Texas Education Code, for any purchase by the district that is $50,000 dollars or more over a 12-month period. Purchases at or above this threshold amount are required to be “competitively” procured which may include competitive sealed proposals or competitive bidding or selecting a vendor through a purchasing cooperative service.

Once determined that a purchase will require board approval and/or competitive procurement, the District then turns to contract review and negotiation. It is recommended that any purchase requiring Board approval (remember your threshold amount at CH Local policy) be reviewed by legal counsel to ensure the district’s compliance with any applicable laws and the inclusion of contracting terms that benefit the district. Contracts for the district’s purchase of goods or services are negotiable and may require certain legal revisions that are mandatory or discretionary in nature. For example, contract clauses requiring the district to indemnify a vendor, waive the district’s governmental immunity, or remit payments in less than 30 days, would not be legally permissible clauses within the contract under applicable Texas law. Additionally, more discretionary revisions to the contract may be needed taking into consideration to obtain more favorable contracting terms that may align with the district’s considerations. For example, the performance objectives and goals of the district in relation to the nature of the purchase, and the district’s business operational capabilities—i.e., whether the district’s internal processes or procedures would permit the district’s compliance with certain contract clauses.

Legal review early in the district’s contracting process is an added benefit for the district. Forgoing legal review may subject the district to certain liabilities or consequences, such as, for example, risk of being out of compliance with applicable Board policy or state law (resulting in a void or voidable contract), inability to immediately terminate an unfavorable contract, and obligating the district to pay vendors that are not fully performing under the terms of the contract.

For specific questions or additional information regarding obtaining appropriate legal review for contracts prior to Board approval, please consult with your local school law attorney.

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