Binding agreements between parties can be written or verbal and can take many forms including bills of sale, purchase orders, real estate leases, and offers for employment. Agreements may also be in a form and format that may not, on the surface, appear to constitute a formal contract such as an acknowledgment between two researchers to maintain a degree of confidentiality when exchanging data sets. Contracts binding the University and an outside provider to perform certain services or deliver a specific item should, and typically do, contain terms and conditions that describe the obligations of each party and the process and mechanisms by which negative outcomes of the transaction will be managed.
Adverse events arising from a legally enforceable contract can impose significant financial consequences on the at-fault (negligent) party in the form of cost to remedy the hazardous condition, lost scope of services fulfillment from a regulator’s order to cease and desist, compensation to an aggrieved third party for direct damages (to person or property), lost business income from failed project deliverables, potential fines/penalties due to regulatory breaches, and possible legal expenses to defend against a claim for indirect damages incurred by third parties.
Contractual risk transfer clauses are one way to manage these underlying risks and consequences – the most common clauses, indemnification/hold harmless, limitation of liability, and mandatory insurance coverages, are intended to clarify each party's (risk management) duties in the event of a dispute or failure-to-perform by either party. They achieve their purpose primarily by assigning mitigation responsibilities (financial and otherwise) for risk exposures to one party or the other.
While the Department has extensive experience in evaluating alternative contract risk financing and insurance strategies, we strongly urge TUB buyers consult with the Office of the General Counsel and/or Office of Strategic Procurement in negotiating terms and conditions, finalizing acceptable agreement language, and evaluating risk transfer alternatives including methods to verify compliance with recommended University standards. Utilizing either group in drafting provider contracts has two benefits: first, the procuring TUB no longer has to consult with the Risk Financing and Insurance department seeking a review/approval of particular contract wording and therefore is likely able to expedite agreement execution. Second, each is able to, based on local business needs and risk factors, modify the standard contract risk allocation and insurance language (dealing with limitation of liability, waivers of subrogation, indemnification/hold harmless, and minimum insurance coverages) that would normally be expected to apply. As of April 2015, the Risk Financing and Insurance department will no longer be evaluating these aspects of any vendor, contractor or consultant agreements, instead will refer all such inquires to the OGC or Strategic Procurement for incorporating of the noted risk and insurance standards. However, the Risk Financing and Insurance department remains available to any University department or affiliate for contract consultations to assist with risk analysis efforts and advising on appropriate risk financing treatments. Be aware, these types of reviews typically take between 5-7 days to complete after we receive the necessary background information. If you would like assistance on contract risk financing options, please send an email request to firstname.lastname@example.org along with a copy of the complete agreement and any background materials needed to determine its context.