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Prohibited Contract Terms for State Agencies

Explanation for standard terms deleted from agency agreements between UNG and providing agency:

As a public institution and instrumentality of the State of Georgia, the University of North Georgia is subject to a number of regulations that prevent us from entering into contracts or agreements that contain certain provisions. These rules apply to all public colleges and universities in Georgia. The following provisions are some of the most common provisions that we must strike through when negotiating an agreement or contract. 

Contact for the Office of General Counsel for questions or further clarification.

Legal Name of the University of Georgia

The correct legal name of UNG, which should appear on all UNG agreements and contracts, is “Board of Regents of the University System of Georgia by and on behalf of University of North Georgia.” UNG is a unit of the Board of Regents.

Contracts with state entities must be governed by the laws of the State of Georgia

State law provides that the Attorney General has exclusive authority and control over all matters of litigation or potential litigation involving State agencies. As a result, the University of North Georgia does not have statutory authority to accept the governing laws of another state. 

Binding Arbitration

UNG does not agree to binding arbitration. The State Attorney General has exclusive authority and control over all matters of litigation or potential litigation involving State agencies, thus UNG has no authority to limit the type or scope of judicial action. Provisions which effectively waive the right of the Attorney General to bring actions on behalf of the state are prohibited. 

Multi-year terms or automatic renewals for agreements obligating state appropriated funds

All contracts must expire at the end of the fiscal year (July 1- June 30) (O.C.G.A. Sec. 50-5-64; Att’y Gen. op. 74-115)

Indemnification and/or hold harmless

State agencies are prohibited from agreeing to indemnify third parties. Indemnification provisions have been determined to violate the prohibition against pledges of the State’s credit and prohibition against gratuities by the State. (Ga. Const. Art. VII, Sec. IV, Par. VIII; Ga. Const. Art. III. Sec. VI, Par. VI; 1980 Op. Att’y Gen. 80-67; Op. Att’y Gen. 74-115) Indemnification provisions have also been determined to be invalid as unauthorized attempt to contractually waive the State’s sovereign immunity. (1980 Op. Att’y Gen. 80-67)

Late Payment/Cancellation Charges/ Interest Charges

State agencies are prohibited from agreeing to pay late payments or cancellation charges. This stems from an opinion of the Attorney General that late payment charges are in the nature of penalty/gratuity which the State is constitutionally prohibited from paying. This stems from an opinion of the Attorney General that late payment charges are in the nature of penalty/gratuity which the State is constitutionally prohibited from paying (Attn. Gen. Position Paper dated August 8, 1978; Bently v. State Board of Examiners, 152 Ga. 836 (1922).

Damage Clauses

Damage clauses for indirect or incidental damages are not acceptable by the Attorney General or allowed by the University System of Georgia Lawyers

Warranty/Guarantee
Any provision that unconditionally assures or promises a certain result or outcome, including such terms as acceptance testing. The Attorney General has advised the warranty provisions violate against pledges of the State’s credit and the prohibition against gratuities by the State. The reason is that resources may have to be expended to satisfy such as warranty and guarantee.
Limitation of Liability

The University of North Georgia does not have the authority to prejudice the rights of the State of Georgia to sue or otherwise enforce a contract by agreeing to a limit on or a waiver of liability per the State Attorney General. (1980 Op. Att’y Gen. 80-67)

Credit agreements

The Board of Regents lacks the legal authority to borrow money. An opinion by the Georgia Attorney General Opinion 74-115 dated 8/23/74 found in 1974 Ga. Ag Lexis 115; 1974 Op. Att’y Gen. Ga. 242 supports this stance. When the State of Georgia borrows, it does so by issuing bonds through the Georgia State Finance and Investment Commission. Other State agencies, of which UNG is one, aren’t allowed to borrow money. Please don’t ask UNG to fill out a credit application in conjunction with opening an account or signing a contract. Legally we are not authorized by the State to do so. The State of Georgia enjoys the highest bond ratings, and UNG is committed to handling their financial obligations promptly. You can give them the AP contact information and a W9. 

Insurance

As a State entity, the University of North Georgia is covered under the Georgia State Tort Claims Act (GSTCA), O.C. G.A. 50-1-20 et. Seq. http://w3.lexis-nexis.com/hottopics/gacode/Default.asp. The GSTCA works in much the same way as liability insurance, or self-insurance. For all types of claims that are covered under the GSTCA, coverage is provided at a limit of $1,000,000 per person, $3,000,000 per occurrence. GSTCA is administered by the Georgia Department of Administrative Services, Risk Division. The GSTCA is different from liability insurance in that we cannot adjust the coverage limits upward or downward; the limits are set by law. Also, because it is not insurance in the conventional sense, we cannot add contractors as additional insured parties.

Attorney's Fees
As a public institution, we cannot agree to pay attorney’s fees, court costs, or other litigation expenses in the event of a dispute.
Confidentiality

As a public institution, the contract itself is a public record and can be disclosed upon request under the provisions of Georgia Open Records Act. As a State institution, the University is subject to the Georgia Open Records Act (O.C.G.A 50-18-70 et. seq.) We cannot agree to provisions that attempt to prohibit UNG from releasing bid or contract documents to any party that submits a request to inspect and obtain such records.

Additional information to help better understand the prohibited contract terms:

Indemnities

An indemnity is a contractual clause by which a contractor may ask that the University defend it against any claims of other persons who might be injured as a result of something that happens while the parties are carrying out their duties under the contract. The Georgia Attorney General has determined that public agencies cannot enter into agreements indemnifying contractors, or any other entity, against third party claims. A copy of an official opinion from the Attorney General to this effect is attached to this letter as Exhibit “A.”

Occasionally a contractor will attempt to deal with this restriction by rewriting an indemnity clause so as to eliminate the words “indemnity” or “indemnify,” while leaving the intent of the clause intact – that is, to obligate the University to defend the contractor against third party claims. “Indemnity” is not a magic word, and if a contract clause has the effect of creating an indemnity, we would not be able to agree to it even though that word has been removed.

The University of North Georgia does not enter into clauses that obligate it to indemnify a contractor “to the extent permitted by law.” There are two reasons for this. From our standpoint, because we know that the extent to which the law permits us to indemnify contractors is no extent whatsoever, it would be disingenuous for us to imply in a contract that there might be some set of circumstances under which we would defend the contractor against a third party claims. We would not agree to something that we know we could not do. Secondly, the “extent” clause is simply an invitation to litigate the matter in the event a third party claims arises, and we prefer not to enter into agreements that invite litigation.

Please do not ask us to ignore this rule. Because the University lacks the contractual authority to enter into an indemnity, any person who is signing such a document on the University’s behalf signs it without authority to do so. We would not ask our administrators to expose themselves to personal liability by signing contracts that they know cannot be enforced.

We find that the indemnity issue is seldom a problem once contractors understand that we cannot provide indemnities, and why. If you think about what an indemnity is, it starts to look a lot like a policy of liability insurance. While the University cannot offer its contractors indemnities, there are many insurance companies that exist for precisely that purpose. 

Insurance

Many contractors ask for clauses that define the manner in which the University insures itself. As a state instrumentality, the University is covered under the Georgia State Tort Claims Act

(GSTCA), O.C.G.A. §§ 50-21-20 et seq. The GSTCA is too voluminous to attach to this letter but you can see it online at http://w3.lexis-nexis.com/hottopics/gacode/Default.asp. Look at Title 50, Chapter 21, Article 2. The State of Georgia waives its sovereign immunity as to covered claims, but retains it as to other claims.

 

The GSTCA works in much the same way as liability insurance, or self-insurance. For all the types of claims that are covered under the GSTCA, coverage is provided at a limit of $1,000,000 per person, $3,000,000 per occurrence. GSTCA coverage is administered by the Georgia Department of Administrative Services, Risk Management Division. The GSTCA is different from liability insurance in that we cannot adjust the coverage limits upward or downward; the limits are set by law. Also, because it is not insurance in the conventional sense, we cannot add contractors as additional insured parties. 

Multi-Year Contracts

The authority to commit taxpayer funds to various agencies for various purposes from year to year belongs to the Georgia General Assembly. While the Board of Regents of the University System of Georgia receives an appropriation every year, and the Board of Regents allocates a portion of that appropriation each year to the University of North Georgia, we cannot presume by contract to commit the General Assembly to doing so. That power belongs to the General Assembly exclusively. Consequently, we cannot enter into contracts that commit funds from future years’ appropriations. For example, we cannot enter into multiyear leases with public funds. An opinion of the Georgia Attorney General on this point is attached to this letter as Exhibit “B.”

This does not mean that we cannot enter into any multiyear contract. Contracts that have appropriate escape clauses do not create problems. Nor do contracts that do not require funding, such as sponsorship contracts. And contracts that are funded through non-public sources of money may be permitted under some circumstances. 

Unliquidated Expenses

In much the same way that we cannot presume that our next year’s appropriation would permit us to fund a multi-year contract, we cannot presume that we would have funds available to pay for claims that might exceed our available funding. Certainly indemnities and limitation of liabilities would fall into this category – who can say how much it might cost to fund an indemnity that has no cap? But the same thing is true as to any other potential expense that cannot be calculated, such as paying a contractor’s attorney’s fees, paying for add-ons which aren’t priced in the contract, paying for unknown cost increases during the life of the contract, and so on.

Credit Agreements

The Board of Regents lacks the legal authority to borrow money. An opinion by the Georgia Attorney General on that point is attached as Exhibit “C.” When the State of Georgia borrows, it does so by issuing bonds through the Georgia State Finance and Investment Commission. Other State agencies don’t borrow money. Please don’t ask us to fill out credit applications in conjunction with contracts. We simply cannot do that. Nor can we agree to pay interest on late payments, which is tantamount to borrowing money. The State of Georgia enjoys the highest bond ratings, and University of North Georgia is an excellent customer with a reputation for honoring its financial obligations promptly. We do that without the need to apply for credit, and without the threat of interest charges. 

Waivers of jurisdiction and service; arbitration; laws of another state

Under Georgia’s constitution, the Attorney General is the State’s attorney for all purposes – including, especially, management of litigation. University of North Georgia cannot usurp his authority by agreeing in advance to control the way litigation would be managed in the event of a dispute. We cannot agree that we would submit to the laws or jurisdiction of another state, that we would waiver formal service of process, or to binding arbitration. It doesn’t mean, for example, that we would absolutely refuse to arbitrate a dispute if one arose. It simply means that decisions of that nature are reserved for the Attorney General and we cannot sign a contract that would usurp his constitutional authority. The text of Art. 5, Sec. 3, Par. 2 is attached to this letter as Exhibit “D.”

Exemption From Payment of Taxes
Universities owned by the State Board of Regents are exempt from payment of taxes. No money shall be withheld by either party for the payment of taxes as required by law.
Unknown Terms and Conditions
UNG is not authorized to be bound by terms and conditions that are unknown at the time of signing the agreement. As a practical matter, entering into contracts that call for an unspecified sum of money to change hands would be void as a matter of State law.

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