Procuring and Contracting for Paper Clips to School Buildings: Lessons Learned

Transcription

1 Procuring and Contracting for Paper Clips to School Buildings: Lessons Learned Forrest Jack Lance Rockdale County School District Conyers, Georgia April 3-5, School Law Seminar New Orleans, Louisiana This presentation paper will help school attorneys develop sound practices in the area of procurement and contract drafting.

2 for Paper Clips to School Buildings: Lessons Learned Procuring and Contracting for Paper Clips to School Buildings: Lessons Learned Forrest Jack Lance Rockdale County School District Conyers, Georgia TABLE OF CONTENTS Introduction... 3 How Not To Contract: The Problem... 4 Scenario 1: Reliance on Vendor s Contract... 4 Lessons Learned... 5 Scenario 2: The Ubiquitous Standard Contract Myth... 5 Lessons Learned... 5 Scenario 3: Total Exclusion of or Total Dependency on the Attorney... 6 Lessons Learned... 6 Scenario 4: Contract by Board Chair... 6 Lessons Learned... 6 Contract Versus Contracting... 7 Respective Roles Among Board, Superintendent and Attorney... 7 Role of The Board... 7 Role of Superintendent... 8 Scenario 5: Deal Requires Payment in Advance... 8 Lessons Learned... 8 Role of School Attorney... 8 Copyright 2014 National School Boards Association. All Rights Reserved. 1

3 for Paper Clips to School Buildings: Lessons Learned How To Demostrate Importance of Contracting... 9 How To Develop Better Contracts Through Contracting Scenario 6: Listening to the Vendor s Concerns Lesson Learned Scenario 7: Rejecting Unreasonable Terms Lessons Learned Ethical And Legal Duties of Attorneys In Contracting Scenario 8: Competency versus Expertise of the Attorney Lessons Learned Scenario 9: Competency versus Expertise of another Professional Lessons Learned Scenario 10: Commenting on the Business Deal Lessons Learned Conclusion Appendixes Copyright 2014 National School Boards Association. All Rights Reserved. 2

4 for Paper Clips to School Buildings: Lessons Learned INTRODUCTION Boards of Education must see that tax funds are used appropriately and legal liability is minimized to the extent possible. In short, under Georgia law, boards must work with the local superintendent to ensure prudent and accountable uses of the resources of the school system. 1 Superintendents need large amounts of goods and services in order to run a modern school district. Procurement and contracting are the vital processes used to obtain goods and services costing millions of taxpayers dollars. Although they are large consumers of goods and services, many boards of education, superintendents and school attorneys, unfortunately, neglect this vital process of procurement and contracting. Often the goods and services delivered are not what was expected, inferior to what was promised, cost more than expected, or untimely. When one turns to the standard contract offered by the vendor, there is usually little or no protection for the school district. Thus limited tax funds and resources are often lost in the process; the district is often stuck with inferior goods or services; and the reputation of the district may be tarnished by the adverse publicity in the media and community. This may lead to the loss of one s position as a board member, superintendent or school attorney, jeopardizing one s livelihood. To the extent school districts possess sovereign immunity, they generally waive the immunity when they enter into contracts. Contract liability becomes the other liability in addition to any state tort liability and federal civil rights liability. This raises two critical questions in every contract. First, what legal duty is the district undertaking? Second, what liability may arise from the district s failure to perform the agreed upon legal duty? In addition to the potential liability of the district, certain conduct in relationship to procurement and contracting may result in personal liability and criminal prosecution. Some states, for example, hold government officials personally liable for signing unauthorized contracts. Recently The Atlanta Journal-Constitution reported that one metro-atlanta superintendent and the chief financial officer lost their jobs and have been criminally charged with racketeering, theft by taking, bribery, and falsifying public records. Both have pleaded not guilty but they await a criminal trial set for April 15. This presentation explains, first, how NOT to contract for goods and services. This helps in two ways. First, it helps to avoid these contractual problems, and second, it shows why effective contracting is so important to modern school districts. With these two points in mind, the board, the superintendent and the school attorney will be in a better position to understand the importance of contracting and the need to ensure sound contracting policies and procedures are in effect. Second, the presentation addresses the various roles among the board, the superintendent and the school attorney. Clarity of the respective roles is essential to successful contracting. Third, the presentation explains how to better develop contracts through a systematic process as opposed to a reactive process on a case by case basis. This session will show you how to use the 1 Rockdale County (GA) School District Board Code of Ethics, Policy BH, Domain II, Par. 3. Copyright 2014 National School Boards Association. All Rights Reserved. 3

5 for Paper Clips to School Buildings: Lessons Learned procurement process effectively for starting and finishing the negotiating process with a contract that states clearly what is expected of both parties, i.e. the deal. Further the final contract will provide some protection to the school district in the case of disputes or failures to perform as promised during the term of the contract. Lastly, this presentation provides sample tools that may immediately be used to improve contracting for a district. These tools include: 1. A standard software contract along with some training PowerPoints on why the contract language is vital if there is a dispute between the parties. See Appendices A and B. 2. A request for proposals containing a template contract drafted for a school district and a legal memorandum written for vendors informing them what a school district can and cannot legally do. See Appendix C. 3. An actual software contract incorporating the vendor s terms into the district s template contract. See Appendix D. 4. A legal memorandum showing the wide variety of laws that may influence contracting with a school district. See Appendix E. 5. A policy and procurement process including contract review and a diagram of the process for training purposes. See Appendices F and G. 6. A contracting master outline that organizes a wide array of resource materials. See Appendix H. 7. A contracting bibliography with a number of available resources regarding contracting including contract law, negotiation, drafting, and procurement. See Appendix I. 8. An article that addresses the situation when a board or superintendent rejects the advice of its attorney. See Appendix J. 9. Checklist of Risk Sources arising out of contracts and legal relationships. See Appendix K. HOW NOT TO CONTRACT: THE PROBLEM Scenario 1: Reliance on Vendor s Contract Early in the technology age, board buys well known business accounting software for its accounting functions. Superintendent signs vendor s standard contract without legal review or consultation. Two years later after much blood, sweat, and tears, both parties conclude that the software is not compatible. When the board looked to the standard contract, it provided a disclaimer of all warranties not contained in the agreement and it contained a merger clause that eliminated any representations or agreements that was not contained in the contract. Consequently, the board found itself at the mercy of the vendor who fortunately did refund some license fees but the board lost not only the use of the software but it lost several hundred-thousands of dollars on hardware, training and implementation costs for a software program that proved incompatible. The out of pocket loss did not include the substantial labor costs, poor morale of staff and adverse publicity involved in the failed project. Copyright 2014 National School Boards Association. All Rights Reserved. 4

6 for Paper Clips to School Buildings: Lessons Learned Lessons Learned: In this scenario, the vendor did refund some money but it was woefully inadequate compared with the substantial amount the district lost. One may argue that if everything goes well, a contract is not important and scenario 1 is the exception not the rule. While this view contains some truth, the problem with this view is twofold. In the first place, the parties do not know in the beginning if they are going to encounter disputes. In the second place, many disputes do arise during the term of contracts. For example, it is estimated that one-third of software contracts fail completely, as in this scenario. One-third of the contracts obtain less than what was originally expected and one-third of the contracts provide mutual satisfaction. The better view is that the parties understand and agree upon clear terms at the beginning. With this understanding, there is far less chance for disputes and a far better chance of a good relationship during the contract. Given the above statistics, the district would be better off in 66% of its software contracts to have a fully developed contract. Hence, boards and superintendents must realize that contracting is extremely important and they cannot merely rely on the vendor supplied contract. Scenario 2: The Ubiquitous Standard Contract Myth Administrator comes to the attorney and says, We have selected a vendor. Please review this standard contract; the board needs to approve it in two days. Upon questioning by the attorney, the administrator says, I m okay with it. It is their standard contract and everyone is signing it. Lessons Learned: At this stage, it is too late. Developing good contracts need to be part of the early planning. It takes time to develop good contracts and this development of good contracts should be incorporated into the procurement process. Administrators who say, It is their standard contract and everyone is signing it assumes that it is a balanced agreement. They also assume that since other districts allegedly sign the standard contract, it must be harmless and should be approved right away. These are false assumptions. This approach, if tolerated, puts the attorney in a very difficult position. First, all attorneys know that there is no such thing as a standard contract. On the contrary, standard contract generally means vendor s contract with numerous provisions extremely harmful to the interest of a school district. Second, since the vendor had already been selected and if there were no contractual terms in the Request for Proposal (RFP) or in the initial selection, the vendor has little incentive to materially change its terms. Third, since the administrator wants or needs to get board approval in two days, this lack of planning creates unnecessary time pressure that the vendors often use to their advantage. After butting heads with the vendor s attorney and often with administrators in this type of scenario, the school attorney often develops a severe headache because the school attorney is limited to a Hobson choice 1) accept highly undesirable contractual terms or 2) kill the deal. Copyright 2014 National School Boards Association. All Rights Reserved. 5

7 for Paper Clips to School Buildings: Lessons Learned Scenario 3: Total Exclusion of or Total Dependency on the Attorney When an attorney is asked to review a contract, some administrators resent that an attorney is involved at all and they certainly do not think that the attorney should comment on the business deal or political issues. They see contracting as mainly after the fact paperwork, like a purchase order or invoice. On the other hand, some administrators abdicate any responsibility for the terms since the attorney is reviewing it. Lessons Learned: In the first situation, often the administrators are either protecting their turf or they genuinely do not understand the importance of contracting. In the second situation, these administrators are not protecting their turf. On the contrary, they are doing the administration shuffle, i.e. they are avoiding taking any responsibility for the contract and shuffling the responsibility unto the attorney. In doing so if anything goes wrong, they have cover, i.e. The attorney approved it! Thus I have no responsibility. The same lessons learned from Scenario 2 apply to this situation with an emphasis on both types of administrators learning the importance of contracting and, as explained below, understanding that ideally it is a joint responsibility. Scenario 4: Contract by Board Chair Chair of the Board of Education meets with the Chair of the Board of County Commissioners on a new school site and agrees that the District will pay the County for improvements of a public road. A couple of years later after the completion of the school and the improvement of the county road, the County submits a six figure invoice to the Board of Education for the cost of the county road improvement. The former Chair is no longer a member of the Board of Education. Tense relationship exists between the district and the county. Lessons Learned: A number of legal and political issues arise from scenario 4. Foremost is the fact that the Chair lacks the legal authority to contract on behalf of the district. No individual board member possesses authority to contract on behalf of the district. Only the board can contract on behalf of the district and it must meet a number of legal requirements like the contract must be in writing, approved in a public meeting, and recorded in the board minutes. Equally important, the subject matter of the alleged contract is ultra vires under Georgia law. In other words even if the agreement had met the above conditions, the board lacks the legal authority to spend educational funds for improvements of a county road not adjoining the school site. Lastly, this type of unauthorized behavior by a board member may create intense political pressure that hampers the critical working relationship among districts, counties and cities. CONTRACT VERSUS CONTRACTING There has to be a better way to contract. Mark Twain said, The difference between the right word and the almost right word was the difference between a lightening bug and lightening. This adage Copyright 2014 National School Boards Association. All Rights Reserved. 6

8 for Paper Clips to School Buildings: Lessons Learned is true in this situation. The difference is huge between any given contract and contracting, i.e. the process of formulating, executing and implementing contracts on an ongoing basis. Attorneys know a lot of contract law and they know that standard contracts are one-sided; but many attorneys do not know much about contracting or how to explain to boards or superintendents the importance of contracting. This paper will address each of the following three questions: 1. What are the respective roles among the board, the administration and the attorney; 2. How can an attorney demonstrate to boards and superintendents why contracting is important; 3. How can an attorney develop better contracts for school districts; and 4. What are the legal and ethical duties of attorneys when drafting contracts? RESPECTIVE ROLES AMONG BOARD, SUPERINTENDENT AND ATTORNEY Generally, procurement is an administrative function with some related legal issues such as legal compliance, protest and legal challenges. Contracting usually arises out of procurement. Ideally, contracting is a joint responsibility among the board, the superintendent and the school attorney. Role of the Board As a part of governance, Boards of Education are accountable to the taxpayers for the prudent use of tax funds and for the prevention of fraud. Goal II of the Rockdale County Board of Education requires it to Provide Prudent Stewardship of District Resources to Best Support Student Success including the following: D. Implement Sound Fiscal Practices E. Enhance Contracting Procedures F. Enhance Operational Efficiency. Each individual board member must refrain from using the position as board member for personal gain or benefit any person or entity over the interest of the school system. Further each board member must comply with the conflict of interest policy of the board and all applicable laws and before board action is taken. Failure to do so may result in the board member being sanctioned. 2 The board, as a board, fulfills its obligation by adopting fair, legal and equitable policies regarding purchasing, contracting and conflicts of interest. The board also sets the millage rate and adopts a budget that authorizes the purchase of needed goods and services. Lastly, under Georgia law, the board has the legal authority to contract. Often the Rockdale County Board of Education approves an agreement contingent on final approval of the contract by the superintendent and general counsel. See Board Policy and Regulation on Procurement including Contract Review. Appendix F. 2 Rockdale County (GA) School District Board Code of Ethics, Policy BH, Domain VII and Conflict of Interest, Policy BHA. Copyright 2014 National School Boards Association. All Rights Reserved. 7

9 for Paper Clips to School Buildings: Lessons Learned Role of Superintendent The superintendent s role is to ascertain and understand the deal, i.e. the essential terms. The deal or essential terms include the goods or services to be provided, the timing of delivery or implementation, all costs, terms of payments and the availability of funding. Preferably the administration does this through a competitive procurement process. Scenario 5: Deal Requires Payment in Advance With State Department of Education encouragement, superintendent approves a contract with an employment agency that provides foreign teachers. The contract requires the district to make advance payment in full of the annual salaries of the teachers provided plus a ten percent (10%) administrative fee. First year proves to be successful for district and teachers. Second year, superintendent modifies contract to pay in advance the salaries of all the provided teachers on a quarterly basis but continues to pay in full the 10% administrative fee for each provided teacher. Two days after the district makes the second quarterly payment, the agency bankrupts. Consequently the District lost over a hundred thousand dollars. Lessons Learned: The obvious problem is the terms of payment which called for paying in advance for services not rendered (or goods not delivered). Terms of payment are an essential term of the deal. Many district contracts call for advanced payment of the entire amount. When asked why the district agreed to provisions requiring advance payment of the entire amount, one administrator answered that it was easier to write one check. While recognizing there is a legitimate administrative interest in not writing too many small checks, this administrative convenience must be balanced with the reality that sufficient retainage is the most effective leverage the District has to ensure satisfactory performance in most contracts. For the role of the attorney in addressing the economic factor of a contract, see Scenario 10 below. Role of School Attorney Generally, the role of the attorney in contracting includes ensuring: That the deal is adequately described, ensuring that the District gets what it wants or needs, when it wants and needs it, and paying only the amount agreed upon; That some protection is provided if the goods and services are flawed; That the deal and the protections are contained in an enforceable contract developed in compliance with state law; and That legal, business, political, and ethical risk are identified and evaluated by the decision maker, i.e., the board and the superintendent. In identifying risk as mentioned above, the attorney is looking at the specific contract and trying to identify specific risks contained within the proposed contract. For example, the attorney should have identified as a significant risk the advance payment of the salary and the possibility of a failure to perform in scenario 5. Copyright 2014 National School Boards Association. All Rights Reserved. 8

10 for Paper Clips to School Buildings: Lessons Learned Additionally, risk arising in contracting may be identified and addressed following a risk management approach. Risk management usually includes a risk management team and the attorney. The risk management team examines on a global and on a systematic basis the areas where risk is most likely to be found. Ideally the modern district uses both a risk management and a contracting approach to identify and address risk arising out of contracts and other legal relationships. See Appendix J for a checklist of risk sources arising out of contracts and legal relationships for a modern school district. HOW TO DEMOSTRATE IMPORTANCE OF CONTRACTING To understand why contracting is important to school districts, the board, superintendent and attorney should discuss some of the general provisions of a standard contract found in Appendix A. Some training PowerPoints are found in Appendix B. In particular, the following paragraphs should be examined with the goal of identifying how each paragraph adversely impacts the deal, eliminates protection, or creates significant legal risk for the school district: Entire Agreement 2. 4 Term Support Term and Fees License and Support Fees Taxes Travel and Other Expenses Payment Interest 8. 6 Confidentiality 9. 8 Disclaimer of Warranties Indemnification Limitation of Actions Limitation of Liability Choice of Law Agreement Drafted by Both Parties Force Majeure After the review, the board and superintendent should be able to understand why the deal being sought is adversely impacted by these standard provisions and how providing protection is compromised without thoroughly examining the numerous legal risks contained in these standard provisions. Copyright 2014 National School Boards Association. All Rights Reserved. 9

11 for Paper Clips to School Buildings: Lessons Learned HOW TO DEVELOP BETTER CONTRACTS THROUGH CONTRACTING Although procurement is outside the scope of this paper, better contracting requires a clear understanding and effective use of procurement procedures. See Appendix C for an example of a Request for Proposal (RFP) that contains a legal memorandum entitled Contracting with a School District. This memorandum explains why the District requires and prohibits certain provisions. The use of the memorandum not only saves time but it simplifies a number of legal issues. A similar memorandum should be considered for each district identifying the legally required provisions, the legally prohibited provisions, and the desired provisions. The RFP also contains a template contract that excludes prohibited terms and includes required and desired terms on behalf of the District. In addition to the template contract, the RFP invites the proposer to object to any provision and offer alternative provisions. The RFP assures the proposer that any objections or alternative provisions will be given due consideration. This distinguishes the template contract from the usual standard contract which is often presented by the vendor as being required as is by company policy. Scenario 6: Listening to the Vendor s Concerns District seeks contract with web based vendor. Template contract prohibits consequential damages which include loss of profit or revenue. Apparent vendor objects and explains that one district allowed its employees to use other copyrighted material in combination with the vendor s website. This resulted in a third party claim against the vendor seeking to shut down the entire web based services for ALL districts. Vendor sought protection against this situation reoccurring in the future. The district recognized this as a legitimate concern and agreed to pay consequential damages if its employees unlawfully used copyrighted materials in connection with the vendor s services, provided the vendor gave the district seven days' notice of the violation and a seven-day right to cure before consequential damages could be claimed. Lesson Learned: By listening to the vendor s concern, a mutually beneficial agreement was reached. The agreement protected the vendor from the unlawful conduct of the district s employees. At the same time, it protected the district from substantial exposure by requiring timely notice of the unlawful conduct and requiring a reasonable opportunity to cure. Many districts insist that vendors must use its standard contract. In this situation, it is unclear whether the vendor would have agreed without the desired protection. Nevertheless, in this situation, the district listened, the parties understood each other's of concerns, and this lead to a successful working relationship. Likewise, many attorneys insist on their client s protection without considering the concern of the other side. Many lawyers adopt an adversarial attitude toward the other party. This is a huge mistake. It gives attorneys a reputation for being deal killers. While there may be times for an adversarial attitude, it is usually after the contract is implemented. The better approach for the attorney is to adopt an attitude of business partners. In other words, the contract should work to benefit both parties, not one at the expense of the other. Copyright 2014 National School Boards Association. All Rights Reserved. 10

12 for Paper Clips to School Buildings: Lessons Learned However, sometimes business partners cannot agree. In that situation, the RFP provides that if agreement is not reached, the district may declare the proposer non-responsive and reject the proposal. This gives the district significant leverage in many situations. Scenario 7: Rejecting Unreasonable Terms The template contract requires that the contract and its performance be controlled by Georgia law and that any legal dispute be resolved in Georgia state or federal courts. Often vendors insist on having the law and courts of another state control. Lessons Learned: The problems with these terms are twofold. First, the district probably has no idea what the law of another state is unless the district is in close proximity to the other state. Second if there is a legal dispute, the district must travel to the other state to enforce the contract. The expense of such travel probably is prohibitive in most contracts. Hence the district may be stuck with a breached or disputed contract without an economical option of enforcement. The insistence on the control of the contract by the law of another state is an unreasonable term. When the vendor does business within a state, the vendor implicitly agrees to be bound by the law of that state. This is similar to an out of state driver being subject to traffic laws of the state where he or she is driving, and not the traffic laws of his residence. Vendors know this and consider a cost of doing business within other states. The district should explain why it thinks the terms are unreasonable. If, nevertheless, the vendor insists on these terms and if the district has other available vendors, the district should reject the unreasonable terms outright and negotiate with the next vendor. The underlined condition above is essential because if the district does not have leverage and if there are no other available vendors, the district may have to accept the onerous term. In this situation, the attorney needs to explain the risk to the final decision maker. Appendix D contains an actual software contract that incorporates the vendor s requested terms into the template contract of the district. (COSA member J. T. Tokarz drafted this contract.) Appendices F and G contain board policy and regulations for contract review and a diagram of the process for training purposes. ETHICAL AND LEGAL DUTIES OF ATTORNEYS IN CONTRACTING A. Legal Malpractice in Georgia To prevail on a legal malpractice case in Georgia, the plaintiff must prove: Employment of the attorney; Failure of the attorney to exercise ordinary care, skill and diligence; and Copyright 2014 National School Boards Association. All Rights Reserved. 11

13 for Paper Clips to School Buildings: Lessons Learned The negligence of the attorney caused the plaintiff damage. 3 In drafting contracts on behalf of his client, the lawyer must select and employ words in the construction of a [contract] that will accurately convey the meaning intended. 4 If a lawyer fails, however, to accomplish a specific result for a client such as a will, he may be subject to malpractice. 5 In some situations, having the client read and study the contract may avoid a malpractice claim. 6 Reading a complicated operation agreement among doctors; however, did not protect the lawyer from a malpractice claim. 7 In drafting or reviewing contracts, an attorney may want to consider Lance s 5 C s for contract preparation. Lance s 5 C s follow in order of importance: 1. Are the terms Correct? 2. Are the terms Complete? 3. Are the terms Clear? 4. Are the terms Consistent? 5. Are the terms Concise? B. The Georgia Rules of Professional Conduct for Lawyers provides: Rule 1.1 Competence: A lawyer shall provide competent representation to a client. Competent representation as used in this Rule means that a lawyer shall not handle a matter which the lawyer knows or should know to be beyond the lawyer s level of competence without associating another lawyer who the original lawyer reasonably believes to be competent to handle the matter in question. Competence requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. Under Rule 1.1, you must determine if you are competent to handle some or all contracts for your district. If not, you must become competent or you must associate with a competent attorney. To be competent or to become competent you must understand the substantive law of your state regarding contracting with a school district. Appendix C contains a sample legal memorandum regarding Board Authority to Enter Contracts and Its Limitations. The memorandum identifies a wide variety of laws that impact contracting with a school district. 3 Mauldin v. Weinstock, 201 Ga. App. 514, 411 S.E.2d 370 (1991). 4 Kushner v. McLarty, 165 Ga. App. 400, 300 S.E.2d 531 (1985). 5 Young v. Williams, 285 Ga. App. 208, 645 S.E.2d 624 (2007). 6 Berman v. Rubin, 138 Ga. App 849, 227 S.E.2d 802 (1976). 7 Graivier v. Dregar & McClelland, 280 Ga. App. 74, 633 S.E.2d 406 (2006). Copyright 2014 National School Boards Association. All Rights Reserved. 12

14 for Paper Clips to School Buildings: Lessons Learned Scenario 8: Competency versus Expertise of the Attorney Board selects a 403b plan provider. The plan consists of about $60,000,000 and allows employees to invest in an array of mutual funds. The superintendent signs the provider s contract without legal review or advice. Regardless, an attorney competent in drafting or reviewing contracts may have concluded that the liability of the district was limited because either party could terminate the agreement with ninety days' notice. Also the fee was clearly stated as one percent (1%). Lessons Learned: The unseen land mine for the unsuspecting attorney who lacks expertise in retirement plans is that the language is deceptive. First, the board may terminate the contract as it has a legal right to do so. But upon termination, the board or its employees would be subject to a claim of several million dollars for survival fees. The requirement of the board to pay survival fees is not addressed in the provision allowing the termination. Second, the one percent (1%) administrative fee is not the only fee paid to the provider. Since much of the $60,000,000 is invested in mutual funds, the provider receives undisclosed payments from these mutual funds. This is not illegal, but it reduces the value of investments of all the employees. The board has a fiduciary duty to its employees and this duty may be breached by the board s failure to appropriately address in a transparent manner all the fees paid to the provider. An attorney who works in the field of retirement possesses the expertise to spot and avoid the trap of survival fees, to identify all fees and limit them to a more competitive and reasonable fee, and to understand and insist that higher balances should the lower the fee. See What Every School District Needs to Know about 403b Plans, Forrest Jack Lance, Council of School Attorneys publication. Scenario 9: Competency versus Expertise of another Professional Developer approaches board and offers to sell it a large tract of land adjoining his proposed subdivision at a bargain price. The proposed contract is a simple Purchase or Sale Real Estate contract. The competent contract attorney can tell that this contract is sufficient to convey the identified land for the offered price. Lessons Learned: What the competent contract attorney probably cannot see is that the tract of land is the worse part of the larger tract, that the developer probably cannot develop the property profitably for residential use, and that the board will incur hundreds of thousands of dollars in developing the tract for a school. Who could see this? If the district has a facility expert, he or she probably would see the high cost of development. Of course, the district could seek hire a team to conduct a feasibility study. In this scenario, however, another residential developer was consulted. He immediately saw the problems. He also identified a better site for the new school on the original developer s property and explained how it could be developed in a complimentary way with the subdivision. Copyright 2014 National School Boards Association. All Rights Reserved. 13

15 for Paper Clips to School Buildings: Lessons Learned The consulted developer said, The district needs to cut the heart of the melon out of this larger tract of land. The district did. The location and development of the new school was so successful, the district started informally consulting with the developer on other real estate projects. The developer subsequently donated his time and expertise to the District because he had grandchildren attending the schools. The competent contract attorney must be conversant with substantive law. For the best source of substantive law regarding school board contracting, see Reutter s: The Law of Public Education, 6th edition, 2006, Foundation Press. It combines a case book and hornbook approach. It cites cases from numerous states and specifically covers the following topics at the page noted: Contracts Generally, p. 434 Board Authority to Enter into Contracts, p. 436 Contracts Extending Beyond a Board s Term, p. 440 Competitive Bidding, p. 441 Recovery Under Contracts, p. 452 Ratification of Invalid Contracts, p. 456 Board Contracts and Conflicts of Interest, p. 458 Teacher Contracts, p. 515 Loyalty Oaths, p. 581 Collective Bargaining, p. 584 See also Appendix E for a legal memorandum containing a wide array of laws that may influence contracting with a school district. In addition to the substantive law regarding contracting with a school district, the school attorney needs to know the substantive law regarding specialty contracts like construction contracts, purchase and sale of real estate contracts, leases, employment agreements and the like. A great source for sample contracts can be found on websites such as the Georgia Board of Regents, the University of Georgia, and the University of Texas. The website for the State of South Carolina has a side by side comparison of the AIA contracts with required modifications. The website for the Attorney General of North Dakota has an outstanding Contract Drafting and Review Manual. Appendix E provides a sample of how to organize resources regarding contracting and the types of files that you may want to create. This type of system allows the school attorney to expand his or her expertise in contracting over time. As you read a case or article on a specific type of contract, you can drop the case or article into the appropriate file. Also, as you draft or review different types of contracts, you can save them for future reference. Copyright 2014 National School Boards Association. All Rights Reserved. 14

16 for Paper Clips to School Buildings: Lessons Learned The school attorney also needs to understand procurement and the legal issues surrounding it. The school attorney must develop and maintain skills of drafting, reviewing, revising and negotiating contracts. See Appendix F for Contracting Bibliography. The Georgia Rules of Professional Conduct for lawyers also provides: Rule 1.4 Communication: A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation, shall keep the client reasonably informed about the status of matters and shall promptly comply with reasonable requests for information... After this presentation, the school attorney should be able to explain to the board and superintendent why contracting is important and to educate them regarding the various roles among the board, the superintendent, and the school attorney. The Georgia Rules of Professional Conduct for lawyers further provides: Rule 2.1 Advisor: In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. A lawyer should not be deterred from giving candid advice by the prospect that the advice will be unpalatable to the client.... Comment Scope of advice... [2] In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors that may be relevant to the client s situation. Advice couched in narrowly legal terms may be of little value to a client, especially where practical considerations, such as cost or effects on other people, are predominant. Purely technical legal advice, therefore, can sometimes be inadequate. It is proper for a lawyer to refer to relevant moral and ethical considerations in giving advice..... Scenario 10: Commenting on the Business Deal Superintendent wants to upgrade computer system and recommends that the board contract with Comcast to install fiber optic lines for the district s use but not ownership. E-rate funds would finance the project and it would cost a couple of million dollars. The contract requires a $500,000 payment in advance. As required by Georgia law, the district could terminate the contract at the end of each calendar year. If the district does terminate the contract, however, the district would lose the use of the lines and Comcast refused any pro rata refund. Copyright 2014 National School Boards Association. All Rights Reserved. 15

17 for Paper Clips to School Buildings: Lessons Learned The attorney thought this was a terrible business deal but did not express this opinion to the board. Nevertheless, the attorney emphasized to the board that if it terminated the contract for any reason in the future, it would not only lose access to the optic lines, it would not be entitled to any refund. The board rejected the agreement. The rejection created a rift between the attorney and some administrators. Lessons Learned: Under Rule 2.1 Advisor, the attorney had every right to express concern with the economic factors, as well as legal concerns. However, the superintendent or the board is the final decision maker. The attorney is an adviser, not a decision maker. Thus the attorney should advise the decision maker in writing prior to the decision being made of any concerns or reservations about a proposed contract. Once the attorney expresses any concerns, it is the responsibility of the superintendent or the board to make the final decision. See Appendix F for a sample of a contract review process with this expectation clearly stated. There may be times when a board or superintendent wants to do something that is either unethical or unlawful. The school attorney must have the courage of his or her convictions and provide the board and the superintendent with frank, candid advice. If the board or the superintendent accuses the school attorney of giving political or business advice, he or she needs to assert the ethical duty to consider, moral, economic, social and political factors. If in the end, however, the legal advice is rejected by the board or the superintendent and if the attorney thinks that the board or superintendent is about to do something illegal, see Appendix I, which contains the article Rejected Advice: Philosophical Reflections on the Pursuit of Truth and Justice. Lastly, in any contracting situation, the attorney must be ever mindful of the potential ethical problems arising out of dual representation, and potential conflicts of interest. See Rule 1.7 for the general rule on conflict of interest and Rule 1.8 for prohibited transactions. See. also, In the Matter of Jerald C. Hall, 438 P 2d 874 (1968) (disbarring an attorney who handled the acquisition of real estate for the board of education but failed to disclose 1) that he also represented the broker and two principals of the selling company and 2) that the board purchased the property for more than the appraised value). CONCLUSION The purpose of this paper will be fulfilled if the board, the superintendent and school attorney now have a good understanding of their respective roles in contracting; a good understanding of why contracting is so important; and a good understanding of some useful tools to assist in developing better contracts through a systemized contracting process. Forrest Jack Lance is General Counsel for Rockdale County Schools in Conyers, Georgia and serves as a hearing officer for other metro Atlanta school districts in teacher discipline hearings. He regularly consults and advises school board attorneys in Georgia and across the United States. Mr. Lance is a former director of NSBA s Council of School Attorneys. He received his law degree from Marquette University Law School. Copyright 2014 National School Boards Association. All Rights Reserved. 16

18 for Paper Clips to School Buildings: Lessons Learned APPENDICES A. Standard Software Agreement - permission to use pending B. PowerPoints on Standard Provisions C. Request for Proposal, Template Contract and Legal Memorandum regarding Contracting with School District D. Actual Software Contract E. Legal Memorandum Regarding Board Authority to Contract F. Board Policy and Regulation on Procurement G. Diagram of Contract Review H. Contracting: Master Outline I. Contracting Bibliography J. Rejected Advice: Philosophical Reflections on the Pursuit of Truth and Justice K. Checklist of Risks in District Contracts and Legal Relationships Copyright 2014 National School Boards Association. All Rights Reserved. 17

19 Companion Paper Procuring and Contracting for Paper Clips to School Buildings: Lessons Learned By Forrest Jack Lance General Counsel Rockdale County School District And Public Works Construction Contracts: An Overview Based on Georgia Law By Blake C. Sharpton Partner Peck, Shaffer & Williams LLP and Ashton M. Bligh Associate Peck, Shaffer & Williams LLP Companion Papers For National School Boards Association Council of School Attorneys 2014 School Law Seminar

20 Companion Paper Public Works Construction Contracts: An Overview Based on Georgia Law By Blake C. Sharpton Partner Peck, Shaffer & Williams LLP and Ashton M. Bligh Associate Peck, Shaffer & Williams LLP For National School Boards Association Council of School Attorneys 2014 School Law Seminar 435 Second Street, Suite 204 Macon, Georgia Phone: