Negotiating the Contract

1780 Pages·2016·13.09 MB·English

American Bar Association
Section of State and Local Government Law

2016 Spring Meeting

Negotiating the Contract-
What Can be Changed?

William Dixon Robertson III
Assistant General Counsel
State Fiscal Accountability Authority
Columbia, SC

April 7-10, 2016
Intercontinental Hotel
San Juan, PR
William Dixon Robertson III*
Dixon Robertson began practicing law in Columbia, South Carolina, in 1984, focusing exclusively
on building design and construction litigation. In February 2012, the State Budget and Control
Board hired Dixon as the lawyer for South Carolina’s Chief Procurement Officers. The three
CPO’s—Materials Management Office, Information Technology Office, and Office of the State
Engineer—constitute the State’s central procurement authority. From goods and services to
information technology to construction, they administer the South Carolina Consolidated
Procurement Code and supervise purchasing officials across the State. Dixon is honored every
day to work with the men and women of the Procurement Services Division.

Act 121 of 2014 (SC Restructuring Act of 2014) abolished the Budget and Control Board.
Effective July 1, 2015, the Division of Procurement Services was transferred to the State Fiscal
Accountability Authority.

* William Dixon Robertson III prepared this paper for the American Bar Association Section of Public Contract Law’s
11th Annual State and Local Procurement Symposium, held April 7 and 8, 2016. Any opinions expressed in this
paper are his own, and do not reflect any official position of the Authority.
Contents
Perspective ...................................................................................................................................... 1
Background ..................................................................................................................................... 1
Standard Clauses ............................................................................................................................. 3
MMO and ITMO: The Compendium ........................................................................................... 3
Compendium Organization ..................................................................................................... 3
OSE: The Manual ......................................................................................................................... 4
Mandatory Clauses for South Carolina Contracts .......................................................................... 5
Certifications ............................................................................................................................... 5
Certificate of Independent Price Determination, Clause No. 2A032 ..................................... 5
Certification Regarding Debarment and other Responsibility Matters, Clause No. 2A035 ... 5
Drug-Free Work Place Certification, Clause No. 2A065 .......................................................... 5
Ethics Certificate, Clause No. 2A075 ....................................................................................... 5
Iran Divestment Act Certification, Clause No. 2A077 ............................................................. 5
Open Trade Representation, Clause No. 2A083 ..................................................................... 6
Performance Obligations ............................................................................................................ 6
Iran Divestment Act – Ongoing Obligations, Clause No. 7A072 ............................................. 6
Open Trade, Clause No. 7A053 ............................................................................................... 6
Illegal Immigration, Clause No. 7B097 .................................................................................... 6
Pricing Data – Audit –Inspection, Clause No. 7B185 .............................................................. 6
Other ........................................................................................................................................... 6
Lease Form – Questions, Clause No. 2B065 ........................................................................... 6
Choice-of-Law, Clause No 7A010 ............................................................................................ 6
Disputes, Clause No. 7A025 .................................................................................................... 7
No Indemnity or Defense, Clause No. 7A045 ......................................................................... 7
Payment and Interest, Clause No. 7A055 ............................................................................... 7
Termination due to Unavailability of Funds, Clause No 7A085 .............................................. 8
Term Contracts ........................................................................................................................... 8
Contract Limitations, Clause No. 7B045 ................................................................................. 8
Statewide Term Contract – Scope, Clause No. 7B230 ............................................................ 8
Insurance Terms .............................................................................................................................. 8
i
Contractor’s Liability Insurance – General, Clause No. 7B056 ................................................... 8
Contractor’s Liability Insurance – Information Security and Privacy, Clause No. 7B058 ........... 9
Information Security, Use and Disclosure Terms ......................................................................... 10
Information Security - Definitions, Clause No. 7B104 .............................................................. 11
Information Security - Safeguarding Requirements, Clause No. 7B105 ................................... 11
Information Use and Disclosure, Clause No. 7B108 ................................................................. 11
Information Use and Disclosure – Standards, Clause No. 7B110 ............................................. 11
Information Security – Location of Data, Clause No. 7B106 .................................................... 12
Offshore Contracting Prohibited, Clause No. 7B122 ................................................................ 12
Restrictions on Presenting Terms of Use or Offering Additional Services, Clause No. 7B212 . 12
Service Provider Security Assessment Questionnaire - Required, Clause No. 4027 ................ 12
Service Provider Security Representation, Clause No. 7B217 .................................................. 12
Service Provider Security Assessment Questionnaire, Clause No. 9025 (Form) ...................... 12
Bankruptcy – Government Information, Clause No. 7B007 ..................................................... 12
Indemnity Requirements .............................................................................................................. 12
Indemnification-Third Party Claims – General, Clause No. 7B100 ........................................... 12
Indemnification - Third Party Claims – Disclosure of Information, Clause No. 7B102 ............. 13
Indemnification - Intellectual Property, Clause No. 7B103 ...................................................... 13
Other clauses ................................................................................................................................ 13
Limitation on Liability................................................................................................................ 13
Software Licensing .................................................................................................................... 13
Conclusion ..................................................................................................................................... 13

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Negotiating the Contract-What Can Be
Changed?
Perspective
This paper treats involvement of general counsel in pre-award discussions of contract terms
and conditions. Those discussions typically occur at three different points in the process. First,
we may elicit comment and other feedback from the vendor community when developing or
revising “boilerplate” solicitation language. Second, a buyer may request our involvement
during the “Question and Answer” period after a solicitation is issued. Third, we may be asked
to participate in, or review, negotiations with an offeror, after evaluation but before contract
award. A fourth example of counsel’s involvement—software licensing agreements, or
“piggybacks”—is beyond the scope of this program.
Nearly all of our consultation in Q&A or post-evaluation discussions is in solicitations for
supplies, services, or information technology. Because of our use of standard design,
construction, and CM contract documents, and our code’s deference to using agencies and
strong preference for hard bids, we are rarely involved in negotiating terms of design or
construction procurements. There is no formally required legal review for contracts awarded by
Procurement Services, so our advice is usually on demand only. To paraphrase the first Chief
Judge of our modern Court of Appeals, we are like well-behaved children and only speak when
asked.1
Even when we are consulted, our advice focuses on the legality of the contract, not its wisdom.
When the central purchasing office conducts a solicitation for another agency, it is that
agency’s responsibility to define the scope of work, develop a risk profile, and evaluate specific
terms limiting or transferring contractual risk. For statewide contracts, the professional buyers
in Procurement Services Division perform that role. Counsel will not ignore issues that
procurement staff may have overlooked; but our review is primarily to assure that the award
complies with the Consolidated Procurement Code and that the resulting contract will be
enforceable.
Background
South Carolina is a Model Code jurisdiction. You can find our Consolidated Procurement Code
at S.C. Code Ann. § 11-35-10, et seq. (Supp. 2015). Procurement Services Division is one of three
operating divisions of the State Fiscal Accountability Authority. The Authority is governed by a

1 “[A]ppellate courts in this state, like well-behaved children, do not speak unless spoken to and do not answer
questions they are not asked.” Langley v. Boyter, 284 S.C. 162, 181, 325 S.E.2d 550, 561 (Ct.App.1984) (Sanders,
C.J., for the Court), rev'd, 286 S.C. 85, 332 S.E.2d 100 (1985), but cited with approval in Nelson v. Concrete Supply
Co., 303 S.C. 243, 399 S.E.2d 783 (1991).
1
board whose members are three State constitutional officers (Governor, State Treasurer, and
Comptroller General) and two members of the General Assembly (Chairs of the Senate Finance
and House Ways and Means Committees).2 SFAA functions independently from the executive
and legislative branches. SFAA’s Office of General Counsel provides legal support, including
support for Procurement Services Division.
Procurement Services is the central purchasing office for South Carolina.3 Under the division
director are three Chief Procurement Officers: the Materials Management Officer,4 for supplies
and services; the Information Technology Management Officer,5 for IT; and the State Engineer,6
who is also the Chief Procurement Officer for Construction.
Within their respective areas, MMO and ITMO buyers solicit two different kinds of contracts.
First, they conduct procurements for a single agency, where the value of the purchase is
expected to exceed the agency’s purchasing limit, or certification. Second, they may solicit
“term contracts,” or master agreements.7 Term contracts, sometimes called “statewide term
contracts,” are for specific items for which there is a widespread demand. Generally speaking,
all State government agencies are required to purchase from these contracts during their
terms.8 Term contracts thus allow the State to leverage its combined purchasing dollars.
The State Engineer’s jurisdiction is different from the other CPOs. OSE publishes the “Manual
for Planning and Execution of State Permanent Improvements.”9 All procurements involving
construction, architectural and engineering, construction management, and land surveying
services, must be conducted in accordance with the Manual and regulations promulgated by
OSE. OSE does not, however, actually conduct those procurements. The office and its project
managers generally oversee construction-related purchasing, and assist agencies in developing
requirements and solicitation documents. Agencies hire design professionals from the private
sector to develop the actual bidding and construction documents, subject to approval by OSE.
Administration of construction projects is performed by individual agencies, subject to OSE’s
audit oversight.10
All three CPOs hear protests,11 contract disputes,12 and debarments.13 Their decisions in those
cases are publicly posted. They also issue written determinations in other contexts pertinent to
procurement. All these decisions are subject to review by the South Carolina Procurement

2 S.C. Code Ann. § 11-55-10.
3 S.C. Code Ann. § 11-35-510.
4 S.C. Code Ann. § 11-35-810.
5 S.C. Code Ann. § 11-35-820.
6 S.C. Code Ann. § 11-35-830.
7 S.C. Code Ann. § 11-35-310(35).
8 Id.; see also S.C. Code Ann. Reg. 19-445.2135.
9 S.C. Code Ann. § 11-35-830; S.C. Code Ann. Reg. 19-445.2145.
10 S.C. Code Ann. § 11-35-845.
11 S.C. Code Ann. § 11-35-4210.
12 S.C. Code Ann. § 11-35-4230.
13 S.C. Code Ann. § 11-35-4220.
Negotiating the Contract-What Can be Changed?
William Dixon Robertson III
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Review Panel.14 Legal support provided by OGC encompasses development of standard
solicitation terms and conditions; advice to CPOs in their capacity as hearing officer; advocacy
on behalf of the CPOs at the Procurement Review Panel and, when necessary, subsequent
appeals; general legal advice; and, when requested, assistance in negotiating with offerors prior
to contract award.
Standard Clauses
As mentioned, the CPOs have worked with counsel over many years to develop standard terms
and conditions for solicitations. As indicated above, OSE is required by statute to develop
standard procedures for design and construction procurements. MMO and ITMO take a
different approach. The boilerplate language used in each shop is published, along with
instructions for division and agency users.
MMO and ITMO: The Compendium
Procurement Services publishes the Procurement Compendium. The Compendium includes
general guidance for buyers and contains, in tabular form, all the standard clauses for
solicitations, along with specific guidance, where appropriate, for each clause’s use. There are
currently twenty-eight appendices to the Compendium. The appendices cover standard forms,
suggested or mandatory attachments for solicitations, instructions and examples, and other
materials. The most recent version of the Compendium is an interim revision released June
2015.15 We publish the Compendium on the Internet, along with forms, clauses not included in
the current full version, and other useful information.16
Compendium Organization
MMO and ITMO have adopted a uniform solicitation format for procurements exceeding the
small purchase threshold. The outline of the USF is:
I. Scope of Solicitation
II. Instructions to Offerors
A. General Instructions
B. Special Instructions
III. Scope of Work / Specifications
IV. Information for Offerors to Submit
V. Qualifications
VI. Award Criteria
VII. Terms and Conditions
A. General
B. Special
VIII. Bidding Schedule / Cost Proposal

14 S.C. Code Ann. § 11-35-4410.
15 http://procurement.sc.gov/webfiles/MMO_Legal/Terms/20150610_2.0.1_PUBLISH.pdf(.)
16 http://procurement.sc.gov/PS/legal/PS-legal-proc-docs.phtm(.)
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William Dixon Robertson III
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IX. Attachments to Solicitation
At the State level, South Carolina manages procurements through its enterprise resource
program, SCEIS.17 SCEIS is an SAP product. Buyers rave about its intuitive interface and ease-of-
use, and there is a clamor for access among those entities currently on other platforms. A buyer
logs onto SCEIS and specifies the type of solicitation (e.g., invitation for bids, request for
proposals) and other variables. Using a question-and-answer framework, SCEIS generates a
solicitation document with appropriate clauses drawn from the Compendium. A buyer must
review the assembled document and revise it as necessary to include other terms or exclude
terms that do not fit the specific purchase. The logic outline for SCEIS’s document assembly is
Appendix V to the Compendium.
The most frequent questions or objections to the State’s terms are directed at sections 2 and 7.
As their titles suggest, section 2 comprises instructions to bidders, and section 7 applies to post-
award obligations. The State rarely entertains requests to modify its general instructions to
bidders (section 2A) and general terms and conditions (section 7A). Many of those terms are
required by statute, and others reflect either court precedent or attorney general’s opinions
pertinent to procurement.
OSE: The Manual
OSE publishes Part II18 of the State’s Manual for Planning and Execution of State Permanent
Improvements.19 Included are standard supplemental terms to basic AIA design and
construction documents. Currently these supplemental terms are based on the 2007 edition of
the AIA forms. We are working to update them to work with the current edition. The Manual
(Part II) is a comprehensive guide to every phase of procuring design and construction services.
For design-bid-build construction contracts, OSE has incorporated provisions mandated by
statute into the following documents:
 Standard Supplemental Instructions to Bidders (OSE Form 0020120)
 Standard Modifications to Agreement between Owner and Contractor (OSE Form 0050121)
 Standard Supplementary Conditions (OSE Form 0081122)

17 Institutions of higher education, including technical colleges, are not required to use SCEIS. Political subdivisions,
like municipalities, counties and school boards, cannot access SCEIS.
18 http://procurement.sc.gov/PS/agency/PS-ose-manual-2015.phtm(.)
19 Part I of the Manual prescribes the forms and process for approval and authorization of capital building projects.
http://www.admin.sc.gov/budget/capital-budgeting-unit/manual(.)
20 http://procurement.sc.gov/webfiles/OSE_draft_manual/Appendices/OSE_Form_00201_-
_Standard_Supplemental_Instructions_to_Bidders.docx(.)
21 http://procurement.sc.gov/webfiles/OSE_draft_manual/Appendices/OSE_Form_00501_-
_Standard_Modifications_to_Agreement_Between_Owner_and_Contractor.docx(.)
22 http://procurement.sc.gov/webfiles/OSE_draft_manual/Appendices/OSE_Form_00811_-
_Standard_Supplementary_Conditions.docx(.)
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Identical clauses are contained in the Manual for construction management at risk (Appendix
C23) and design-build (Appendix D24) projects. OSE Form SE-22525 amends AIA Document B101
to incorporate those provisions into architect and engineering contracts.
All the clauses discussed below are reproduced in Appendix A to this paper.
Mandatory Clauses for South Carolina Contracts
There are some clauses required by legislation. We have no discretion whether to omit or
modify them. We tried to draft these terms to include only the minimum requirements of the
relevant statutes. Most of these are in section 2, instructions to bidders. A few are performance
obligations, and appear in section 7. Other clauses reflect State law, whether in the code or
reflected in appellate decisions. All of these are in part 7. Finally, there are a very few clauses
we will never advise our buyers to modify.
Certifications
Our instructions to bidders include several mandatory certifications.
Certificate of Independent Price Determination, Clause No. 2A032
South Carolina’s version of this clause is indistinguishable from FAR 52.203-2, included in
federal solicitations since at least 1985.
Certification Regarding Debarment and other Responsibility Matters, Clause No.
2A035
This clause is almost identical to FAR 52.209.5, Certification Regarding Responsibility Matters.
Drug-Free Work Place Certification, Clause No. 2A065
Mandated by the Drug-Free Workplace Act, S.C. Code Ann. §§ 44-107-10, et seq. Note the
clause only applies to contracts over $50,000.
Ethics Certificate, Clause No. 2A075
This clause has no direct federal analog. It is intended to call the bidder’s attention to the
requirements of Chapter 13 of Title 8, S.C. Code of Laws (Ethics, Government Accountability,
and Campaign Reform).
Iran Divestment Act Certification, Clause No. 2A077
Required by 2014 Act No. 267, codified at S.C. Code Ann. §§ 11-57-10, et seq. Applies to
contracts over $10,000.

23 http://procurement.sc.gov/webfiles/OSE_draft_manual/Appendices/Appendix_C-
Construction_Management_At-Risk_Clauses.docx
24 http://procurement.sc.gov/webfiles/OSE_draft_manual/Appendices/Appendix_D_-
_Clauses_for_Use_on_Design-Build_Projects.docx
25 http://procurement.sc.gov/webfiles/OSE_draft_manual/Appendices/SE-225_-_Article_12_-
_Other_Conditions_or_Services_-_AIA_B101-2007.docx
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William Dixon Robertson III
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Open Trade Representation, Clause No. 2A083
Required by 2015 Act No. 63, § 1, codified at S.C. Code Ann. § 11-35-5300.
Performance Obligations
Two are complementary to the Iran and Open Trade certifications, two have other sources.
Iran Divestment Act – Ongoing Obligations, Clause No. 7A072
Required by 2014 Act No. 267, codified at S.C. Code Ann. §§ 11-57-10, et seq.
Open Trade, Clause No. 7A053
Required by 2015 Act No. 63, § 1, codified at S.C. Code Ann. § 11-35-5300.
Illegal Immigration, Clause No. 7B097
Required by Chapter 14 of Title 8, S.C. Code of Laws (Unauthorized Aliens and Public
Employment). Applies only to service contracts, defined as
a contract that involves the physical performance of manual labor, if the total
cost of such labor exceeds (i) thirty percent of the total cost of all labor, or (ii)
five percent of the total contract price.
The clause itself requires only that the contractor document either compliance or exemption
from compliance.
Pricing Data – Audit –Inspection, Clause No. 7B185
Required by S.C. Code Ann. §§ 11-35-1830 (cost or pricing data), -2210 (right to inspect plant),
and -2220 (right to audit records). Note that § 11-35-1830 has limited applicability and a high
threshold. Cf. FAR Clauses 52.215-20 (certified cost or pricing data); 52.214-26 and 52.215-2
(audit and records); and 52.246-2 and -3 (inspection of supplies).
Other
Lease Form – Questions, Clause No. 2B065
S.C. Code Ann. Reg. 19-445.2152 requires use of a lease form that was adopted in 1980 and last
revised in 1988. We are aware that the form is incompatible with Article 2A of the UCC, and are
developing a new equipment lease form that should satisfy most vendors who are affected.
Meantime, do as the clause directs and propose modifications.
Choice-of-Law, Clause No 7A010
The Consolidated Procurement Code
applies to every procurement or expenditure of funds by this State under
contract acting through a governmental body as herein defined irrespective of
the source of the funds, including federal assistance monies, except as specified
in Section 11-35-40(3) (Compliance with Federal Requirements) and except that
this code does not apply to gifts, to the issuance of grants, or to contracts
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