Basics of Contracts
This document provides a summary of the law in this area and answers questions frequently asked of attorneys in the Office of General Counsel. However, the information presented here is intended for informational purposes only and nothing in this document should be construed or relied upon as legal advice. The Office of General Counsel or your Campus Legal Counsel should be consulted regarding the specific facts and circumstances associated with any legal matter.
This section gives general information about contracts at University of Wisconsin System institutions. All contracts must be reviewed by a contracts or grants specialist prior to signing. This section is NOT a substitute for review by contracts and grants specialists or by legal counsel. Only individuals who have direct written authorization to sign contracts and agreements on behalf of the Board of Regents may sign contracts and agreements.
What is a contract?
A contract is any agreement where there is:
- a mutual exchange of promises
- with reasonable, understandable terms and conditions
- that binds the parties to performance of the responsibilities described.
A contract should contain certain basic information necessary to understand the intent of the parties, such as:
- the names of the parties,
- the dates or term of the agreement,
- a clear description of the responsibilities and obligations of the parties,
- the terms of payment (if applicable),
- a procedure for termination or renewal of the agreement, and
- a signature line for the authorized individuals executing the agreement.
Is a "memo of understanding" or an "agreement" a contract?
Yes. The word "contract" is not necessary for an agreement to be a contract. For example, an agreement negotiated by an exchange of letters can be a contract. A document called "memorandum of understanding" is a contract. Contracts will vary in their complexity based on the nature of the goods or services at issue or the monetary value of the contract. If there is any doubt about whether an agreement is a contract, contact the institution's contracts or grants specialist or System or Campus Legal Counsel.
What laws apply to a contract or an agreement?
Contract laws vary from state to state. This body of law addresses what constitutes a contract and what remedies are available if a contract is broken or "breached." Contracts and agreements with any UW System institution or unit must be interpreted according to the laws of Wisconsin. If a contract attempts to make the agreement subject to another state's laws, the contract must be changed.
Who can sign a contract for a UW System institution or unit?
The UW employee who signs a contract does so on behalf of the Board of Regents of the University of Wisconsin System or one of its institutions. Therefore, only specified UW System or institution administrators have signature authority from the Board of Regents and the UW System to sign contracts. Signature authority is delegated by official policy and action and is conveyed in written documents authorizing named individuals to sign specific types of agreements for the institution and Board.
Only UW System employees who have written delegated authority to sign certain contracts are able to sign those contracts. If there is any doubt, contact your grants or research office, or System or Campus Legal Counsel. Signing without authorization can lead to personal liability not covered by the state's risk fund.
Why would this lead to personal liability?
Any contract or agreement that places any obligations on a UW System institution or any of its programs or sub-units is actually entered into on behalf of the Board of Regents of the University of Wisconsin System. The state of Wisconsin is self-insured for risk and damages for actions of its employees, including contractual obligations. However, this risk insurance is available only where the individual who signs the contract or agreement has clear, written delegation of authority to sign the specific type of contract at issue. These individuals have the responsibility to review the agreements for clarity, appropriateness and legality.
What are the most troublesome problems that arise with review of contracts?
Many proposed contracts seek to have the University assume all responsibility for any liability arising out of the contract or products of the contract. Wisconsin law does not permit this assumption of liability because the State (and, therefore, the University) is self-insured only for acts and omissions of its own employees and agents. It cannot assume responsibility for acts and omissions of others. Therefore, institutions must delete contractual clauses requiring indemnification of the other party to the contract. Indemnification clauses generally require one party to the contract to reimburse the other party for losses arising out contract. The institution's grants and contracts officers and legal counsel can assist you in redrafting these clauses.
Problems also arise when the contract does not clearly describe the goods or services and the obligations of the parties. The contract itself should be clear and understandable to anyone with reasonable knowledge of the type of goods or services at issue and should protect the institution's interests. Because the "obligations" section of a contract is often closely based on language from the corresponding Request for Proposal (RFP), System or Campus Legal Counsel should also review complex requests for proposals.