Download GEORGIA MANAGEMENT INFORMATION SCIENCES (GMIS

GEORGIA MANAGEMENT INFORMATION SCIENCES (GMIS) OUTLINE OF HELPFUL HINTS ON
CONTRACTS WITH AN EYE TO MANAGE RISKS
Prepared By: Murray J. Weed , J.D. , M.P.A.
Carl Vinson Institute of Government, University of Georgia
INTRODUCTION
As GMIS members are well aware, IT contracts are a breed of their own. In addition however, there are
other layers of important clauses that are required in IT contracts that are exclusively oriented towards
Georgia local governments. While every IT contract has nuances, there are some clearly identifiable
important concepts the GMIS member should be aware of in Georgia governmental contracts that relate
to state statutory requirements. This review purports to examine these areas in bullet form to provide
the GMIS member a solid list of items to be conscious of as IT related contracts are prepared so that the
reader can better manage risk.
LOCAL CONTRACT RULES OF WHICH GMIS MEMBERS SHOULD BE WARY
This outline does not address local budgeting or purchasing rules. However, GMIS members should
consistently make sure that whatever contracts they sponsor: comply with the local budget, utilize the
local purchasing policy, are adopted/passed by the Commission and/or Council under the relevant
enabling legislation or city charter, and that local legal counsel be advised of the contract and given the
opportunity to perform an adequate legal review. For example, some local city charters actually require
the city attorney to “approve as to form” each contract and sign the same. If these steps are not taken,
in violation of the charter or enabling legislation, then the contract may be void or voidable. Once the
reader has reviewed the local rules you may conclude that there are far more “bear traps” for the
unwary found in local documents and policies that those you might ever encounter from state statutes.
AUTHORITY TO CONTRACT LOCALLY
The Constitution of the State of Georgia provides that Georgia counties and municipalities enjoy the
benefit of home rule. Home rule is the concept that the legislature of the state, through the state’s
Constitution, can delegate certain enumerated powers and decision making to local elected officials.
Some of the powers specifically given to counties include: ordinance drafting and regulating the county’s
property and affairs. See Constitution of the State of Georgia Art. 9, Sec. 2, Para. 1. Constitutional case
law clearly supports the position that counties can adopt contracts. Price v. Fulton County Comm., 170
Ga. App. 736, 318 S.E. 2d 153 (1984). Municipalities share a similar provision. Constitution of the State
of Georgia Art. 9, Sec. 2, Para. 1. Both governments share the ability to enter into intergovernmental
contracts with each other and other governmental entities pursuant to Article 9, Sec. 2, Para. 9 of
Georgia’s Constitution. Intergovernmental contracts do not have to comply with the multi-year
contracts statute which is detailed below. Rather, these types of contracts can be entered into for a
period of up to 50 years. However, there remain limits under the intergovernmental contract clause and
these agreements must be limited to contracts for “joint services, for the provision of services, or for
joint or separate use of facilities or equipment: but such contracts must deal with with activities,
services or facilities which the contracting parties are authorized by law to undertake or provide.”
Constitution of the State of Georgia Art. 9, Sec. 3, Para.1 (a). The courts have taken this clause most
seriously in recent years and voided a contract the City of Decatur had entered into with DeKalb County
to fund municipal capital needs as invalid “tax sharing.” The court found the agreement was invalid
because it did not pertain to the limited number of purposes allowed for intergovernmental contracts.
City of Decatur v. DeKalb County, S11A0354 (July 5, 2011). In summation, GMIS members need to
carefully consider whether or not their entity has the power to enter into the contract. The good news is
that most of the time such a power will exist. However, if the contract is an intergovernmental contract
the entities need to be cautious to make sure it is one that is within the bounds of the
intergovernmental contracts clause set out in the Georgia Constitution.
CONSTITUTIONAL CONCERNS -- THE ANTI-GRATUITIES CLAUSE AND RESTRAINTS OF TRADE
As GMIS members perform a preliminary contract risk assessment they should consider at least two
other Georgia Constitutional concerns. First, the anti-gratuities clause comes from Art. 3, Sec. 6, Para. 6
of the Constitution of the State of Georgia. This provision holds that no government can donate, grant a
gratuity, or forgive a debt to the public unless the Constitution otherwise allows the same. Thus, there is
an expectation in any governmental IT or other contract that there will be a true quid pro quo exchange
(something for something) with meaningful consideration for the mutual obligations. As such, GMIS
members should strive to make sure that the terms of IT contracts accurately reflect the exchanges and
that the exchanges have some real, rather than de minimis (little), value.
The other provision that GMIS folks should be mindful of is the Georgia Constitutional prohibition
against the government being able to authorize any agreement which may have the effect of defeating
or lessening competition or encouraging a monopoly. Constitution of the State of Georgia Art. 3, Sec. 6,
Para. 4 (c). The concept here is that such contracts are void because they are against public policy. Thus,
GMIS members need to be vigilant regarding trade secrets and may find that even if the agreement is
otherwise not problematic constitutionally it may prove risky for some other reason such as it
containing clauses relating to trade secrets and confidentiality. The subject of trade secrets and
confidentiality clauses, when reviewed under the Georgia Open Records law, is detailed further below.
WHEN DOES THE STATE CARE ABOUT MY LOCAL CONTRACT RELATING TO IT WORK?
Despite the numerous citations listed in this outline, rarely does state law address local government
contract issues from the point of inception. In other words, as a general rule, the Georgia statutes focus
little on when contracts are required and when they are not. The current state statutes that provide
specific rules for when contracts are necessary mainly deal with large public works and road projects.
For example, O.C.G.A. Sec. 39-91-1 et seq. provides that public works construction projects worth at
least $100,000 or more require contracts and bids or rfps (requests for proposals). See O.C.G.A. Sec. 3691-20(a) (contracts), 36-91-2(5) (bids) and 36-91-2(c)(1)(C) requests for proposals (rfps) generally.
As to highway projects the reader is referred to O.C.G.A. Sec. 32-4-63 (counties) and 32-4-113 (cities).
The reader is wise to refer back to the rules of local applicability most often found in charters, enabling
legislation, local ordinances, and purchasing policies even though the state statutes are not directive
except in limited areas.
BIDS AND RFPS – THE DISTINCTION WITH A DIFFERENCE
The two most common means of acquiring software, vendor services, hard ware, etc. relating to IT
functions comes in the form of bids and requests for proposals (rfps). Under Georgia law, there is a
good deal of distinction between the two different processes although lay persons and elected officials
often use the two terms interchangeably. A bid is an award of work or service or object presented to the
lowest responsive, responsible bidder. See O.C.G.A. Sec. 36-91-2(5), generally. An rfp is a different
animal entirely in that it can be awarded to the entity that provides the work, item, etc. to the entity
that the government deems is “most advantageous…” O.C.G.A . Sec. 36-91-21 (c )(1)(C). Neither concept
automatically applies to the work of GMIS members, usually. Instead, local rules and policies will kick in
to trigger whether or not a bid or rfp is required. Except when the public works and highway thresholds
and similar subjects are reached as to expenditures, few statutes will affect the local transaction.
However, all of the local rules will apply and an rfp or bid may be mandated based on local monetary
expenditure, capital improvement program rules, purchasing, or other similar thresholds.
MULTI-YEAR CONTRACTS CLAUSES
The Georgia Constitution has a debt limitation clause applicable to local governments. See Constitution
of the State of Georgia Art. 9, Sec. 5, Para. 1. Further, any obligation of a Georgia government that
exceeds a calendar year is deemed to be a debt. Austin-Western Rd. Mach. Co. v. Fayette County, 99
F.2d 565 (5th Cir. 1938) and Barkley v. City of Rome, 259 Ga. 355, 381 S.E. 2d 34 (1989). Also, local
governments entering into debt require elections. Constitution of the State of Georgia Art. 9, Sec. 5,
Para. 1 (a). In order for governments to more efficiently function, the legislature adopted O.C.G.A. Sec.
36-60-13. This section is generally known as the multi-year contracts statute. The statute contains
mandatory and some permissive multi-year contract clauses that need to be included in every
governmental service contract in order to make the agreement binding on the government. First, the
multi-year contract provisions apply to contracts for multi-year lease, purchase, or lease purchase
contracts of all kinds for the acquisition of goods, materials, real and personal property, services and
supplies. O.C.G.A. Sec. 36-60-13(a). The author recommends to the reader that for more legal detail on
this topic and the topic immediately below see, Boards Binding Successor Boards The Long and the
Short of It by Bill Linkous (2011).
As an overview, there are four required clauses that must be in every mutli-year contract to which the
statute applies. The most important of the required clauses is the first. This clause provides that the
contract must “terminate absolutely and without further obligation on the part of the county or
municipality the close of the calendar year in which it was executed and at the close of each succeeding
calendar year for which it may be renewed…” O.G.C.A. Sec. 36-60-13 (a)(1). The other three clauses
provide that, in turn, the contract can automatically renew unless some positive action is taken by the
government entity and specified in the contract. Id at (a)(2). The total obligation of the government for
the year of execution and for each year of renewal must be set out. In other words, how much the
government is going to pay or what the government is given in exchange for the contract must be set
out. Id at (a)(3). Lastly, the final mandatory clause is that “title to any supplies, materials, equipment, or
other personal property shall remain in the vendor until fully paid for by the government. Id at (a)(4).
The non-mandatory clauses are also important for the GMIS member to think about. For example, the
additional clauses restate the law that if funds become unavailable to to satisfy the governmental
obligation the contract can be terminated. Id at (b)(1). It must be noted however, that there is an
important exception (other than making sure contracts never exceed a single calendar year) to the
multi-year provisions. The statute provides in O.C.G.A. Sec. 36-60-13 (j) that contracts drawn up
pursuant to a government’s proprietary functions are not covered by the mutli-year clause.
What then is a governmental function as opposed to a proprietary function? While there are dozens of
cases on these subjects and no bright line rule, Bill Linkous has identified a good list of governmental
and proprietary functions. He posits, based on the current case law, that governmental functions include
contracts involving: local government money -- including financial appropriations, budgeting, rate fixing
and fee setting, employee pay, collection of taxes or fees, zoning, and preserving public health.
However, after committing to build a road, which a governmental function, the steps to do so are
proprietary functions. Further, standard leases for real consideration such as leasing property for use as
an airport, is proprietary. See Linkous, Boards Binding Succeeding Boards The Long and the Short of It
(2011).
In conclusion, it is safer for GMIS members to use the rule that if the contract goes over a calendar year
it will most likely require the inclusion of the mule-year clauses. As such, it is often easier to negotiate
short term contracts.
ONE GOVERNMENT IN POWER CANOT BIND A FUTURE GOVERNMENT
In addition to the multi-year contract clauses there is found in the Georgia statutes the rule that one
government cannot bind a future government . This rule comes from O.C.G.A. Sec. 36-30-3. The rule is
set out that “one council may not, by ordinance, bind itself or its successors so as to prevent free
legislation in matters of municipal government.” The statute does not however encapsulate the entire
subject however. First, interpretive case law has expanded the rule to include counties. Madden v.
Bellew, 260 Ga. 530, 397 S.E.2d 687 (1990). Likewise, the concept has also grown beyond a restriction to
ordinances, it also includes contracts, which is important for our purposes here. See Aven v. Steiner
Cancer Hospital, 189 Ga. 126, 5 S.e.2D 356 (1939) and Screws v. City of Atlanta, 189 Ga. 839, 8 S.E.2d 16
(1940). Retired University of Georgia law professor, Perry Sentell has noted that the original concept
came from Georgia case law and that the “case law origin had a liberating lilt.” Sentell, Binding
Contracts in Georgia Local Government Law; Configurations of Codification 24 Ga. L. Rev. 95 (1989). For
GMIS members who work for authorities this concept does not apply. See City of Jonesboro v. Clayton
County Water Authority, 136 Ga. App. 768, 222 S.E.2d 76 (1975). The take away point in this for GMIS
members is that with the exception of a contractual agreement, one governmental entity cannot bind
another, generally. However, even with a contract, IT and related work done under contracts with
governments can be deemed to violate the no-binding rule where: the financial terms are unreasonable,
the agreement violates the terms of a charter or enabling legislation as to limits on the power to
contract held by the government, or if the time frame is unreasonably beyond the terms of the office of
those who approved the contract. See City of McDonough v. Campbell, 289 Ga. 216, 710 S.E.2d 537
(2011). Thus, it is important that IT and related agreements be formalized in contracts and the terms
specified if the same are meant to be binding on the parties. The terms must be reasonable and in
keeping with the permitted functions of a government.
TRADE SECRETS AND CONFIDENTIALITY CLAUSES AND THE OPEN RECORDS LAW
The Georgia Open Meetings law may also come into play for GMIS members in their contracts. Many IT
and related agreements will include provisions dealing with confidentiality and trade secrets. Very often
these types of clauses are difficult to enforce in Georgia under the existing Open Records law. O.C.G.A.
Sec. 50-18-72(b)(1), provides that the burden is on the government to protect trade secrets that fall into
the governments records. The reader will recall that, as a general rule, most records in the possession of
a Georgia government are discoverable under the Open Records law and there is a broad immunity for
erring on the side of disclosure. See O.C.G.A. Sec. 50-18-73(c) (immunity) and 50-18-72(g)(exclusions
from disclosure narrowly interpreted). The Georgia Municipal Association (GMA) in their publication
Government in the Sunshine by Ed Sumner (2004) notes in the commentary on this issue that trade
secrets should be appropriately marked. However, under the case of Georgia Dept. of Natural Resources
v. Theragenics Corp., 545 S.E.2d 902 (2001) the court found that the record holding government entity
needs to make a good faith effort to look at the documents to determine if they contain trade secrets,
whether or not all have been marked. GMA recommends that the record holder inform the entity that
might hold a trade secret of the Open Record request and ask if all trade secrets have been marked. In
contracts relating to IT, software and other programming issues the contracting agency should be made
aware of the Georgia Open Records law and appropriate clauses should be included in the contract to
cover trade secret and confidentiality issues. Otherwise, the provider may be giving away “more than
they bargained for.” Do not forget however, that if records are provided in good faith the immunity
provisions should protect the GMIS member disclosing the records. See Theragenics at 904.
WARRANTY DISCLAIMERS
Often software and other vendors will attempt to limit or disavow any warranty for the program or
material being used or licensed. This means that the government that receives an item purchased or
licensed that fails to perform to the industry standard will usually have only the remedy of the
contractor providing another version of the same item. Warranties are worth arguing about. Whenever
possible, attempt to negotiate a real warranty that specifies exactly what remedies will be available to
the government if the item fails to function as promised. However, at a minimum, try and negotiate a
warranty for “fitness of merchantability.” This concept is essentially that every item purchased/licensed
should be obtained with a minimum expectation that the item will be reasonably fit for the purpose for
which it was delivered.
LIABILITY TRANSFERS FOR SECURITY BREACHES AND INDEMNIFICATION
Often IT service vendors for software and other items will include in their licensing contract that the
government shall be liable for security breaches and that the government will indemnify the contractor
for breaches but also for other harms that may arise for the use of the item. Governments often enjoy
immunities from suit under the theory that if the government were not immune it would cease to
perform services for fear of constant liability. Constitution of the State of Georgia Art. 9, Sec. 2, Para. 9
(cities) and Art. 1, Sec. 2 Para. 9 (counties). There are occasions when these immunities can be waived
but those occasions are very specific. See generally, O.C.G.A. Sec. 36-33-1 (city waiver based on
purchase of liability insurance) O.C.G.A. Sec. 33-24-51 (county and city waiver by purchase of motor
vehicle insurance). Thus, GMIS members need to consult with legal counsel to see what, if any,
immunities might apply. Likewise, a Georgia municipal government cannot indemnify another entity
under CSX Transportation, Inc. v. City of Garden City, 277 Ga. 248, 588 S.E.2d 688 (2003). Therefore,
take a hard look at any security breach or other liability, hold harmless or indemnification clause found
in the contract. Like warranty disclaimers these clauses bear scrutiny and hard negotiating.
ELECTRONIC RECORD RESPONSIBILITIES
GMIS members may be called upon to help their governments deal with electronic record keeping issues
in contracts. As IT related contracts are being developed the member should consider the state’s
Retention Schedules for Local Government Paper & Electronic Records document published by The
Georgia Archives via the Georgia Secretary of State’s Office. Perhaps the most important element to be
aware of relating to IT oriented materials is to be mindful of whose responsibility it will be to deal with
record retention issues. Bear in mind that under Georgia’s Open Records law the ultimate responsibility
for records retention will rest with the governmental entity. The government will be required to
produce the records. Case law has plainly set out that no exemption is created by records being housed
“off-site” if the records are those of the government. See Hackworth v. Board of Education for the City
of Atlanta, 214 Ga. App. 17, 447 S.E.2d 78 (1994). However, no record that is not already in existence
must be created nor is it required that Internet access be created to allow access where the government
is not already providing the same. Jersawitz v. Hicks, 264 Ga. 553, 448 S.E.D2d 352 (1994). The GMIS
member should look to the content of the item in determining which records retention applies and,
wherever possible, should have the costs of retrieval and the burden of finding and producing the
record placed on the shoulders of the contractor. The GMIS member does not want to fall victim to
having to inform his government that costs of retrieval are in addition to costs otherwise paid to
vendors/providers for record retrieval when such situations can be dealt with contractually from the
outset.
E-VERIFY
In 2006 Georgia adopted new requirements imposed on local governments to prevent illegal
immigration. All Georgia governments were required to use E-Verify, a federal system, to verify that
employees were not illegal immigrants. Further, the law required that for any governmental contract
the contractor was required to register with the E-Verify program. At the time of this outline (2011)
Georgia’s HB 87 has further clarified this law and added new penalties for failures to comply. Some
important takeaways for GMIS members include that: E-Verify is required when contracts are for the
physical performance of services (the term is very confusing but essentially road work, labor and
construction for local governments meet the definitions), the program is to be used to verify the legal
status of new government employees, there are now new form affidavits for government use that
contractors are required to sign (see the section below for more detail), governments are now required
to turn in compliance reports each year to the Dept. of Audits and Accounts, and local governments may
now incur hefty penalties for violations. In turn, contractors who are caught violating the affidavit and
verification rules can be blacklisted by the Commissioner of Labor and prevented from entering into
public contracts for 12 months. See O.C.G.A. Sec. 13-10-91 et seq.
PUBLIC BENEFIT AFFIDAVITS
The new immigration law in HB 87 (2011) now requires local governments to police the private sector’s
policies on illegal immigrant labor by requiring that the government cannot issue occupation tax receipts
(business licenses) unless the business has provided an affidavit to the government swearing the
business is in compliance with immigration/citizenship laws. This may prove relevant to GMIS members
in that your future contracts may need to contain another affidavit if the contractor happens to be a
local contractor that would be required to pay occupation tax in your community. Likewise, the contract
itself is most likely a public benefit. The required form affidavit can be found at the Attorney General’s
website after January 1, 2012 when this part of the law comes into effect. As noted in the section above
the contractor’s affidavit required to show the government that it is not dealing with someone who
employs illegal labor is found at the Department of Audits and Accounts’ website and has been up since
August 1, 2011.
SAVE
Local governments are also required to use the Systematic Alien Verification of Entitlement (SAVE)
federal program. The program is designed to check the immigration status of persons who are applying
for public benefits. Important to GMIS members is that the payment of occupation taxes or the receipt
of a license of some type necessitates the contractor be checked on the SAVE system. There is a form
affidavit, found on the State Dept. of Audits and Accounts website for local use. Upon providing the
affidavit the benefit receiver is required to show a verifiable document to help make it easier to run the
person through SAVE starting January 1, 2012. See O.C.G.A Sec. 50-36-1( e) (1). The takeaway for GMIS
members is that IT contracts will need to be carefully scrutinized and all of the now required affidavits
will need to be attached. The author recommends to the reader Rusi Patel’s paper Immigration
Mandates on Local Governments in Georgia (2011) for much more detail and depth than this review can
provide on E-Verify, SAVE and related topics.
SPREADING CONTRACTS ON COUNTY MINUTES AND CITY RECORDS REQUIREMENTS FOR CONTRACTS
GMIS members who work for counties need to be mindful of O.C.G.A. Sec. 36-10-1 which requires that
all county contracts be in writing and spread upon the minutes of the county. Although case law has
expanded this concept to now allow some incorporation by reference, it is important that the GMIS
member make sure the contract, once properly entered into, is handled correctly thereafter. As such the
GMIS member should develop a rapport with the County Clerk and other record keepers to make sure
that at least one original is located in the official minutes of the government. Cities are not quite so
restricted. However, the basic concept that the city should retain one original for the Clerk remains
viable. The charter may have other specific rules dealing with documents. Lastly, O.C.G.A. Section 50-1870 seems to require that the Clerk have access to the original documents and the Georgia records
Retention Schedules expect the same. See generally O.C.G.A. Sec. 50-18-99.
TALK TO YOUR LAWYER
The most important take way from this article is that the author hopes he has convinced GMIS members
to consult regularly with their lawyers about the issues and form affidavits required in each contract as
outlined above. This outline does not constitute legal advice and the author strongly encourages the
reader to regularly consult with their legal counsel. Hopefully, this review can be used by GMIS members
to review contracts so that some important issues that reoccur can be addressed.
CONCLUSION
The purpose of this article is to provide GMIS members a concise list of items that they might regularly
encounter in their contacts. The basis for the ability to enter into contracts, some required terms for
multi-year agreements, cautions about the Open Records and retention laws, and the multiple form
affidavits and processes that will be required in contracts dealing with immigration issues have been
highlighted for the reader in an attempt to help the GMIS member be on the watch for risky contract
issues that may arise. The days of “signing the other guy’s contract” in Georgia are over. Take the time
to study the documents provided and contact your legal counsel so as to manage IT oriented contract
risks.