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The purpose of this policy is to establish a clear understanding of when written contracts are required. Understanding what constitutes a written contract and when a written contract is required mitigates the risks assumed by the State of Ohio (the State) when engaging in procurement activities, and promotes consistent procurement methods and accurate reporting.

 

The Office of Budget and Management (OBM) and the Department of Administrative Services (DAS) jointly acknowledge that it is the State Agency (Agencies/Agency) that is primarily responsible for the pre-audit and approval of expenditures and all contracts and underlying terms of those expenditures. In order to create consistency in the procurement process and expenditure obligations of Agencies, OBM issues this policy to provide guidance to Agencies and minimum requirements for Agency Contracts pursuant to its expenditure review authority in ORC Section 126.07 of the Ohio Revised Code (ORC). This policy applies to contracts created by Agencies, but does not apply to purchases referencing state contracts established by the Department of Administrative Services (DAS), purchases from other Agencies, or purchases from requisite procurement programs as defined in ORC Section 125.035. An Agency may impose internal policies containing more restrictive requirements and/or thresholds than those set forth in this policy, so long as at minimum, the provisions of this policy are followed.

 

Definitions used in this policy

Award or Sub award – Also known as subsidy. State or Federal financial assistance consisting of money or property. An award can be provided to a recipient or sub recipient to carry out a state or federal program.

 

Contracting officer – Any individual with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings. The term includes certain authorized representatives of the contracting officer acting within the limits of their authority as delegated by the contracting officer.

 

Electronic Signature - An electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.

 

Goods – Includes products and supplies as defined in ORC Section 125.01.

 

Purchase – As defined in ORC Section 125.01, to buy, rent, lease, lease purchase, or otherwise acquire supplies or services. "Purchase" also includes all functions that pertain to the obtaining of supplies or services, including description of requirements, selection and solicitation of sources, preparation and award of contracts, all phases of contract administration, and receipt and acceptance of the supplies and services and payment for them.

 

Purchase Order - Documents created in the accounting system of the State (known as the Ohio Administrative Knowledge System [OAKS]) containing information from approved requisitions which authorize Orders (ORC Section 125.01) and encumber funds for goods and services. Purchase orders are sent (dispatched) to suppliers as a request for the goods and/or services listed. A purchase order typically includes the good or service being procured, quantity, price, discounts, supplier, and ship-to information. When a written, fully executed contract is required by this policy, a purchase order alone does not fulfill that requirement.

 

Services – As defined in ORC Section 125.01, the furnishing of labor, time, or effort by a person, not involving the delivery of a specific end product other than a report which, if provided, is merely incidental to the required performance. This includes purchased personal services or labor charges. "Services" does not include services furnished pursuant to employment agreements (i.e. employee-employer relationships) or collective bargaining agreements.

 

State Agency - Includes every organized body, office (including boards and commissions), or Agency established by the laws of the State for the exercise of any function of state government. State Agency does not include the elected state officers, the general assembly or any legislative agency, a court or any judicial agency, or a state institution of higher education.

 

Written contract – A mutually binding legal document signed by both parties obligating the supplier to furnish the goods or services purchased by the State Agency buyer; contains a description of the goods or services being purchased, the price of such goods and services, the term for which the contract is effective, and all terms and conditions agreed to by the parties to the agreement. For purposes of this policy, a State of Ohio purchase order alone does not constitute a written contract. A written contract does not include a state or federal award or sub award; and “agreement” is synonymous with the word “contract.”

 

Scope

This policy applies and a written contract is required when an agency purchases services and a supplier financially benefits and/or the Agency receives and consumes goods or services purchased with state or federal funds. However, this policy does not apply to the distribution of state or federal awards or sub awards when a recipient or sub recipient benefits from the use of the funds, instead, the legal document between the Agency and recipient or sub recipient will be a grant agreement. This policy also does not apply to transactions solely between state agencies requiring a memorandum of understanding, interagency agreement, data sharing agreement, etc.  

 

For further guidance on state or federal awards or sub awards and whether a written contract is required, contact your Agency legal counsel and OBM.

 

Exclusions

OBM State Accounting will publish within OAKS FIN Account Code Table  those account codes that are deemed to be excluded or exempt from this policy. Account codes related to travel reimbursement are only exempt to the extent the expense supports reimbursement to an employee or board member or is made on behalf of the employee or board member that would have otherwise been entered for reimbursement.

 

Policy

Contracts generally consist of three elements:

As a result, a contract can technically be formed via oral agreement. State employees, including contracting officers, must be aware of this to ensure they do not inadvertently commit the state to a contract. For all purchases requiring a contract, the State requires that those contracts be in writing. Agencies shall not intentionally split purchases to circumvent  any provision of law or thresholds set forth in this policy. Electronic signatures are acceptable. A contract or signature may not be denied legal effect, validity, or enforceability solely because it is in electronic form. This statement provides that electronic signatures and records are just as good as their paper equivalents, and therefore subject to the same legal scrutiny of authenticity that applies to paper documents.

 

Thresholds and Agency Responsibilities

Purchases of goods: The Statute of Frauds in the Uniform Commercial Code (UCC), and as adopted by the State of Ohio in ORC Section 1302.04, dictates that contracts for the sale of goods for $500 or more are not enforceable unless they are in writing and signed by the party against whom enforcement is sought. Therefore, while Agencies may make purchases of goods without a written contract, any purchase of goods equaling $500 or more should be evaluated to consider any risk assumed by the agency.

 

Agency Responsibility: All Agencies are required to determine that appropriate terms and conditions are contained in written contracts and assess the risk of purchases without a written contract.

 

All Agencies shall prepare written contracts for purchases totaling $2,500 or more, unless the purchase is pursuant to an existing state contract established by DAS or deemed excluded from this policy.

 

OBM requires Agency legal counsel assess the need for a written contract for purchases totaling $2,500 or more.  When entering a requisition for those purchases not excluded from this policy, Agencies must attach either the executed contract or a Written Contracts Policy Waiver used by the Agency to document that a contract was not necessary. In lieu of a Written Contracts Policy Waiver, an Agency may decide to issue a blanket waiver for specific suppliers or types of purchases of an agency. The blanket waiver should be documented in memo form and provide specific details such as type of transaction and/or supplier, as well as, the fiscal year of the waiver. Blanket waivers stand in place of the Written Contracts Policy Waiver and should be done in consultation with Agency legal counsel and completed by an Agency authorized representative. Blanket waivers are required to be attached to the requisition.

 

OBM Responsibility: For purchases or invoices that include labor charges for personal services over $2,500, OBM will review requisitions to determine the following:

For instances where an Agency attached a Written Contracts Policy Waiver or Blanket Waiver, OBM will review for reasonableness.

 

General Requirements

In addition to the elements of offer, acceptance, and consideration explained above, the following requirements must also be met to create a written contract for the State:

 

Authority: Certain state officers and employees, including contracting officers have authority to enter into, administer, or terminate contracts and make related determinations and findings. They may bind the State only to the extent of the authority delegated to them, and should receive from the delegating authority clear instructions in writing regarding the limits of such authority.

 

Pursuant to ORC Section 3.12, contracting officers and other employees who authorize certain contracts without appropriation or authority are personally liable for the amount of the contract. Additionally, contracting officers and employees who authorize contracts in excess of the Controlling Board limits without competitive selection or the approval of the Board are personally liable for the amount of the purchase pursuant to ORC Section 127.16.

 

Appropriate Contract Term: Pursuant to Ohio Constitution Article II.22 and ORC Section 131.33, no Agency is permitted to incur an obligation exceeding its current appropriation authority. In other words, contracts cannot have financial obligations that extend beyond the end of the state fiscal biennium in which they become effective, because an appropriation does not exceed that timeframe. In general, any contract will need to terminate no later than June 30th of the current state fiscal biennium, though the contract may provide for renewal, subject to appropriation authority, at the discretion of the Agency.

 

Maximum Dollar Amount: All written contracts shall clearly establish the maximum dollar amount for which the Agency is obligated within the term of the contract (Ohio Attorney General (OAG) Opinion 96-060).

 

Certification of Available Funds: Pursuant to ORC Section 126.07, no state contract involving the expenditure of money chargeable to an appropriation shall be valid and enforceable unless the Director of OBM first certifies that there is a balance in the appropriation not already obligated to pay existing obligations, in an amount at least equal to the portion of the contract to be performed in the current fiscal year.

 

This certification occurs when State Accounting issues a purchase order. State contracts shall contain a clause stating that the contract is not effective until all of the funds for the contract have been encumbered pursuant to ORC Section 126.07. This clause shall be added to a supplier's preprinted agreement or as an amendment thereto.

 

Elections and Ethics: Ohio Ethics Laws within ORC Chapter 102 and ORC Section 2921.42 prohibit state employees from having a personal interest in the contracts of their agency and warn against unlawful conflicts of interest with respect to agency duties. Additionally, ORC Section 3517.13, prohibits Agencies from awarding contracts to suppliers who have exceeded campaign contribution thresholds set by that statute. Therefore, all State Agency contracts should contain a provision requiring the supplier to certify that the supplier and the employees engaged in the administration or performance of the contract are knowledgeable of and understand the State of Ohio Ethics Laws (including conflicts of interest) included in ORC Chapter 102 and Campaign Contribution Limitations pursuant to ORC Section 3517.13, and will not perform any act that is inconsistent with those laws.

 

Supplier Travel: Pursuant to the OBM Travel Rule (OAC Section 126-1-02) promulgated under ORC Section 126.31, agencies desiring to pay for travel of agency suppliers should negotiate those terms within the cost of the contract and are not permitted to negotiate to pay for travel expenses at a rate higher than those authorized by the Travel Rule.

 

Open Trade:  Pursuant to Ohio Revised Code 9.76 (B) no Agency shall award or renew a contract to a supplier unless the contract declares that the supplier is not boycotting any jurisdiction with whom the State of Ohio can enjoy open trade, including Israel, and will not do so during the contract period.

 

Terms and Conditions: All written contracts shall contain all terms and conditions agreed to by the parties to the agreement. The terms and conditions must be in compliance with all applicable sections of the ORC and Ohio Administrative Code (OAC), Executive Orders, and all applicable guidance issued by the AGO, DAS, and OBM. Agencies are responsible for knowing and incorporating any applicable federal terms and conditions.

 

The Attorney General has compiled a list of generally non-negotiable terms for state institutions of higher education, these terms are also generally non-negotiable terms for state agencies. Standard terms and conditions used by DAS in state contracts can be used as a model for Agencies to use when drafting their own contracts.

 

Agencies may also use the non-IT goods and services solicitation template and accompanying guidance document to create their own contracts. This document, as submitted and signed by the supplier and accepted by the agency, constitutes a written contract.

 

Pursuant to State law and Executive Order, Agencies are also required to include the following terms and conditions in any State contract prior to signing the contract:

 

Terms and Conditions to Remove from Supplier-Prepared Contracts: Pursuant to state law and AGO opinions, Agencies are not permitted to agree to certain terms and conditions. Prior to signing a written contract or other procurement-related document prepared by a supplier, if necessary, review and remove these unallowable terms from the document(s) prior to signing.

 

Supplier Background: Agencies should check the following elements of a supplier's background prior to making an award to verify they are in compliance with state law:

 

Agencies should also not contract with any person or company appearing on the Federal List of Excluded Parties Listing System.

 

Questions regarding registration should be directed to the Ohio Secretary of State Website.

 

 

Method of Payment and Method of Procurement

The contracting requirements contained in this policy shall be followed regardless of the payment method. Method of procurement and method of payment are independent of one another.

 

Written Contracts Toolkit

Agencies are encouraged to consult the Agency procurement toolkit, available at State of Ohio Procurement, Agency Procurement Tools, when creating written contracts in accordance with this policy.