Source: https://generalcounsel.uncg.edu/alternative-contract-clauses/
Timestamp: 2019-07-20 16:15:32
Document Index: 51185623

Matched Legal Cases: ['§ 22', '§ 32', '§ 114', '§132', '§14', '§ 1232', 'art 99', '§132', '§75', '§75', '§ 143', '§ 114', '§ 114']

Negotiating Prohibited Clauses and Alternative Contract Clauses | Office of General Counsel
Negotiating Prohibited Clauses and Alternative Contract Clauses
The University is prohibited by law from agreeing to certain contractual terms because it is a State entity. If you find such prohibited terms in a contract proposed by another party, it is advantageous to begin contract negotiations by explaining these limitations to the other party. The key is to determine early on in the negotiations whether a certain term might be a deal-breaker before you put in too much time and effort in negotiating other terms.
Below are examples of the types of clauses or provisions that are prohibited and legal language that you can use in negotiating these provisions out of contracts. If you have questions or are unsure about how to use the information below, contact the appropriate contracting office.
Contract Checklist Number I.1, Number I.2, and Number I.6
Insert the following language at the end of any clause providing that the University will take assumption of risk, have responsibility, hold harmless, save harmless, or indemnify, or a clause subjecting the University to liability beyond the limits of the Tort Claims Act (including attorneys fees), the clause must be removed. In negotiating the removal of such clauses, you may use the following language to explain the University’s limitations:
“North Carolina laws and regulations provide that contract provisions such as limitations on the other party’s liability, waivers of the limits of the University’s liability, and hold harmless or indemnification clauses in favor of the other party are contrary to public policy and are therefore void. Specifically, under the North Carolina Tort Claims Act (N.C. Gen. Stat. 143-291 et seq.) a State entity cannot waive the State’s sovereign immunity and assume liability for actions not covered by the Tort Claims Act, in a forum other than the Industrial Commission, for an amount greater than the Tort Claims Act ($1,000,000), or for liabilities different from the liabilities allowed under the Tort Claims Act (such as attorney’s fees). Agreeing to such terms in violation of the Tort Claims Act would render that agreement void. A December 12, 1990 advisory letter from the North Carolina Attorney General to David N. Edwards, Jr., UNC General Administration, supports this determination.”
If you are unable to negotiate such a clause out of the contract altogether, an alternative (although not favored) approach is to insert the following language at beginning of of each sentence providing that the University will take assumption of risk, have responsibility, hold harmless, save harmless, or indemnify, or a clause subjecting the University to liability beyond the limits of the Tort Claims Act (including attorneys fees):
“Only in the manner and to the extent permitted under North Carolina law, including but not limited to the NC Tort Claims Act, GS 143-291, et seq., and without waiver of its sovereign immunity,….”
Contract Checklist Number I.3
If the Contract contains clauses that would make it subject to either the substantive law or the jurisdiction of another state, either:
Remove the clause; or
Remove the clause and add a clause making the Contract subject to the law and jurisdiction of the State of North Carolina, such as:
“This Agreement shall be construed, governed, and enforced by and in accordance with the internal laws of the State of North Carolina. Each party expressly consents to the jurisdiction of the Superior Court of the State of North Carolina should litigation arise between the parties.”
In negotiating the removal or change of a jurisdiction or choice of law clause, you may use the following language in a letter to explain the University’s limitations:
“Clauses requiring the University to consent to litigation in a jurisdiction other than North Carolina are prohibited under N.C. Gen. Stat. § 22B-3. Clauses permitting suit in another state implicate the State’s sovereign immunity and the Attorney General’s authority to represent the State agency. Therefore, the University, as a State agency, cannot agree to a clause subjecting the University to either the substantive law or the jurisdiction of another state. In addition, choice of law provisions implicate the State’s right to assert sovereign immunity and limit negligence claims to the Tort Claims Act. Therefore, they are tantamount to unauthorized waivers of sovereign immunity.”
Contract Checklist Number I.4
If the Contract requires binding arbitration or any mandatory dispute resolution other than legal action in North Carolina courts, either:
Remove the clause and add a clause requiring mediation in North Carolina, such as:
“Any dispute arising under this Agreement may be settled by mediation in the State of North Carolina in accord with such procedures as may be acceptable to the parties.”
In negotiating the removal of an arbitration clause, you may use the following language in a letter to explain the University’s limitations:
“Any contract between the University and another party includes by implication the existing law of the State of North Carolina. The waiver of sovereign immunity therefore is limited to the waiver of immunity for contracts that include the law of North Carolina. To preserve its sovereign immunity the University may not agree to waive provisions of North Carolina law. A clause requiring binding arbitration or any mandatory dispute resolution other than legal action in North Carolina courts change the law under which sovereign immunity for breach of contract was waived. Therefore, the University, as a State agency, cannot agree to binding arbitration or any mandatory dispute resolution other than legal action in North Carolina courts.”
Contract Checklist Number I.5
If the Contract allows the other party to assign its right to payment to a third party without subjecting the third party to all the defenses and claims the University would have against the original contracting party, modify the Contract by removing the assignment language and inserting the following clause:
“This Contract is not assignable by either party.”
In negotiating the removal of an assignment clause, you may use the following language in a letter to explain the University’s limitations:
“An assignment clause constitutes a waiver of defenses and recourse and implicates the exclusive emoluments clause because the assignee receives State funds without providing public service. It might also change the assumption that the State will always have its regular contract defenses available to it. Therefore, the University, as a State agency, cannot agree to an assignment clause.”
Contract Checklist Number I.8
If the Contract includes a “non-compete” clause, which requires, for instance, that the University may not contract with a similar service or product provider for a specified length of time after the expiration or termination of the Contract, you may use the following language in a letter to explain the University’s limitations:
“State agencies are bound to comply with competitive bidding requirements under State law. Therefore, if the University determines that it needs a particular service, it is required to competitively bid for that service, and cannot agree to a non-compete clause that prohibits such bidding.”
Contract Checklist Number II.1
In negotiating the removal of clause limiting the other party’s liability, you may use the following language in a letter to explain the University’s limitations:
“Limitations on the other party’s liability for nonperformance implicate the Constitutional prohibition on exclusive emoluments. N.C. Constitution Art. I, § 32. It also implicates the Attorney General’s obligation to exercise duties regarding civil litigation. N.C. Gen. Stat. § 114-6. Therefore, the University, as a State agency, cannot agree to clause limiting the other party’s liability.”
Contract Checklist Number II.2
In negotiating an acceleration clause out of the contract, you may use the following language in a letter to explain why the University cannot agree to such a provision:
“Acceleration clauses implicate the State’s obligation to operate within a fixed budget, forcing the University, as a State agency, to make payments for which no money has been appropriated or budgeted and are not due in a particular fiscal year. Therefore, the University may not enter into an acceleration clause.”
Contract Checklist Number II.4
In negotiating the removal of a clause providing less than three years for the University to file a legal claim or sue for breach of contract, you may use the following language in a letter to explain the University’s limitations:
“Any contract between the University and another party includes by implication the existing law of the State of North Carolina. The waiver of sovereign immunity therefore is limited to the waiver of immunity for contracts that include the law of North Carolina. To preserve its sovereign immunity the University may not agree to waive provisions of North Carolina law. A clause requiring less than three years for the University to file a legal claim changes the law under which sovereign immunity for breach of contract was waived. Therefore, the University, as a State agency, cannot agree to a clause providing less than the statutory three years for the University to file a legal claim or sue for breach of contract.”
In negotiating the removal of a clause providing that breach would cause irreparable harm and justify injunctive action, you may use the following language in a letter to explain the University’s limitations:
“Any contract between the University and another party includes by implication the existing law of the State of North Carolina. The waiver of sovereign immunity therefore is limited to the waiver of immunity for contracts that include the law of North Carolina. To preserve its sovereign immunity the University may not agree to waive provisions of North Carolina law. A clause requiring that breach would cause irreparable harm and justify injunctive action changes the law under which sovereign immunity for breach of contract was waived. Therefore, the University, as a State agency, cannot agree to a clause providing that breach would cause irreparable harm and justify injunctive action.”
In negotiating the removal of a clause providing for liquidated damages or cancellation fees to be paid by the University, you may use the following language in a letter to explain the University’s limitations:
“Any contract between the University and another party includes by implication the existing law of the State of North Carolina. The waiver of sovereign immunity therefore is limited to the waiver of immunity for contracts that include the law of North Carolina. To preserve its sovereign immunity the University may not agree to waive provisions of North Carolina law. A clause requiring liquidated damages or cancellation fees to be paid by the University changes the law under which sovereign immunity for breach of contract was waived. Therefore, the University, as a State agency, cannot agree to a clause providing for liquidated damages or cancellation fees to be paid by the University.”
Contract Checklist Number III.9
If there is a provision for notification of default and a method to cure such default, but no specific steps are provided for notice to parties, add the appropriate version of the following clause:
“Notwithstanding any other provisions of this Agreement, should PARTY [fail to make any payment due hereunder or] in any material respect violate or fail to keep or perform any covenant, condition, or undertaking of this Agreement, then and in such event University shall have the right to cancel and terminate the Agreement by written notice to PARTY if PARTY has failed to cure any such breach within 30 days of receipt of written notice from University describing such breach. [The right of PARTY to cure a breach will apply only to the first two breaches properly noticed under the terms of this Agreement, regardless of the nature of those breaches. Any subsequent breach by PARTY will entitle University to terminate this Agreement upon written notice to PARTY without an opportunity for PARTY to cure such breach.].”
(Modify party names to conform to party names as they appear in contract.)
Contract Checklist Number III.13
If the Contract is for personal services by an out-of-state person or entity in the form of a performance, an entertainment or athletic event, a speech (including an academic lecture), or the creation of a film, radio, or television program, add the following clause:
“If PARTY is not a resident of North Carolina and is not otherwise exempt from federal income taxation or exempt under N.C. General Statute 105-163.3, UNIVERSITY shall withhold a 4% nonresident income tax from payment(s) greater than $1,500 to PARTY during any one calendar year for personal services in the form of a performance, an entertainment or athletic event, a speech (including an academic lecture), or the creation of a film, radio, or television program, in accordance with N.C. General Statutes 105-163.1 and 105-163.3. If PARTY is exempt from federal income taxation, PARTY must provide to UNIVERSITY a copy of its determination letter from the IRS, which indicates that PARTY has been granted tax exempt status, which must accompany this Agreement when PARTY signs and returns this Agreement to UNIVERSITY.”
Contract Checklist Number III.14
If the Contract does not include an “act of God” or “force majeure” clause, and you determine that acts of God are likely to impact the Contract, insert the following clause:
“If either party’s performance of obligations under this Agreement is materially hampered, interrupted, or interfered with by reason of any fire, casualty, lockout, strike, labor conditions, unavoidable accident, riot, war, or act of God, or by the enactment, issuance, or operation of any municipal, county, State, or federal law, ordinance or executive, administrative, or judicial regulation, order or decree, or by any local or national emergency, the affected party shall be excused from performance of this Agreement.”
Contract Checklist Number III.15
If the Contract contains a confidentiality or non-disclosure clause, insert the following language at the end of that clause:
“. . . unless disclosure is required by law.”
Contract Checklist Number III.21
If the Contract provides for payments beyond the current fiscal year, add the following clause:
“Any payments by UNIVERSITY under this Agreement that are due beyond the current fiscal year are conditioned on appropriation from the State of North Carolina of sufficient funds to cover the purposes set forth in this Agreement.”
Contract Checklist Number III.22
If the Contract provides for the University to provide Contractor with Social Security numbers, personal identifiers, or FERPA-protected student information, add the following clause:
“If University provides Contractor with personal identifiers as listed in N.C.G.S. §132-1.10 and in N.C.G.S. §14-113.20(b) or any other legally confidential information including “personally identifiable information” from student education records as defined by the Family Educational Rights and Privacy Act, 20 U.S.C. § 1232g, and the implementing regulations in Title 34, Part 99 of the Code of Federal Regulations (“FERPA”), Contractor hereby certifies that collection of this information from University is necessary for the performance of Contractor’s duties and responsibilities on behalf of University under this Agreement. Contractor further certifies that it will maintain the confidential and exempt status of any Social Security number information, as required by N.C.G.S. §132-1.10(c)(1), and that it will not re-disclose personally identifiable information pursuant to FERPA or by other State and Federal laws. Failure to comply with the provisions of this section or otherwise to fail to abide by legally applicable security measures and disclosure and re-disclosure restrictions may, in University’s sole discretion, result in the interruption, suspension and/or termination of the relationship with Contractor for a period of at least five (5) years from date of violation. If Contractor experiences a security breach concerning any information covered by this Agreement, and such breach is covered by N.C.G.S. §75.61(14), then Contractor will (a) fully comply with Contractor’s obligations under the NC Identity Theft Protection Act, (b) immediately notify University with the information listed in N.C.G.S. §75-65(d)(1-4), and (c) fully cooperate with University in carrying out University’s obligations under said Identity Theft Protection Act. Contractor will indemnify University for any breach of confidentiality or failure of its responsibilities to protect confidential information, including by not limited to, the cost of notification of affected persons as a result of its accidental or negligent release of University data provided to Contractor pursuant to the Agreement.”
Contract Checklist Number III.24
If the Contract allows the other party to use the University’s name in any advertising, endorsement, or promotion, add a clause to require advance written approval of ad content from the Associate Vice Chancellor for University Communications, such as:
“PARTY will not appropriate or make use of UNIVERSITY’s name or any of UNIVERSITY’s trade or service marks or property, in any advertising or otherwise, without prior written consent of UNIVERSITY. If UNIVERSITY grants written consent to use UNIVERSITY’s name and/or trade or service marks, for advertising, endorsement, or promotion, UNIVERSITY shall have the right to reject any such use proposed by PARTY which in UNIVERSITY’s sole discretion violates UNIVERSITY’s standards of advertising or is inconsistent with UNIVERSITY’s role and reputation as a public institution of higher education. UNIVERSITY’s permission to permit particular advertising shall not be unreasonably withheld.”
Contract Checklist Number III.25
If the Contract allows the other party to terminate the Contract, add a clause such as:
“If PARTY should terminate this Agreement for any reason prior to fulfilling all of PARTY’s obligations under this Agreement, PARTY shall repay to UNIVERSITY any amounts received by PARTY from UNIVERSITY for any obligations under this Agreement that PARTY has not fulfilled at the time of termination.”
Contract Checklist Number III.26
If the Contract requires proof of insurance, add the following clause:
“As a State Agency, The University of North Carolina at Greensboro is self-insured up to the limits of the North Carolina Tort Claims Act, N.C. Gen. Stat. § 143-291, et seq. The General Assembly has currently set those limits at $1,000,000 per occurrence. The State has not waived its sovereign immunity beyond the limits of the Act; however, the State of North Carolina has purchased excess liability insurance to cover the individual and personal liability of its employees up to $10,000,000 per occurrence and $25,000,000 annual aggregate. This coverage applies to negligent acts or omissions of State employees while acting in the course and scope of their employment.”
Contract Checklist Number III.27
If the Contract provides for the other party to provide an insurance policy to cover the University but does not provide for proof of insurance from other party within ten (10) working days of Contract execution, add a clause such as:
“PARTY shall provide to UNIVERSITY, within ten (10) working days after the execution of this Agreement, written proof of insurance meeting the requirements of this Agreement and satisfactory to UNIVERSITY.”
Contract Checklist Number III.29
If the Contract contains a clause providing that the other party will control the defense or settlement of any claims that might arise out of a dispute related to the obligations or terms of the contract:
Add the following language to their clause: “PARTY’s assertion of a right to exclusive control of any investigation, defense or settlement of any claim filed against the University of North Carolina at Greensboro is subject to the advance approval of the Attorney General of the State of North Carolina.”
In negotiating the removal of or revision to an exclusive control over litigation clause, use the following language:
“The North Carolina Attorney General is charged with representing all state agencies and institutions (N.C.G.S. § 114-2(2)). For any state agency or institution to employ private counsel, it must obtain the prior written approval of the Attorney General (N.C.G.S. § 114-2.3(a)).”
Contract Checklist Number III.32
If the contract is with a service organization to process transactions for the University that have a significant impact on University financial statements (e.g., investment managers, custodial banks, trustee banks), insert the following clause:
“[Service Organization] is required to have an annual SAS 70 audit of its internal controls. This audit must report both on controls placed in operation and on tests of the operating effectiveness of the systems that run [Service Organization’s] applications or transactions. The annual tests must correspond with the University of North Carolina at Greensboro’s fiscal year, which is the twelve-month period ending June 30. Audit reports should be sent to the University of North Carolina at Greensboro’s Office of Internal Audit and to the North Carolina Office of the State Auditor no later than 30 days after the report is issued to [Service Organization].”
Contract Checklist Number III.39
If the contract involves the disclosure or maintenance of any personally identifiable patient information, including records of medical treatment or billing for medical treatment, insert the following clause:
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