Written Contracts

Applicable or Related Code Sections

• Ohio Constitution Article II.22 Appropriations

• Ohio Constitution Article VIII - Public Debt and Public Works

• 2 CFR Part 200.317 - Procurements by States

• 2 CFR Part 200 Appendix II

• OAC Section 126-1-02 - Rates and requirements for reimbursement of travel expenses of state agents

• ORC Section 3.12 - Personal liability of officer making contract without authority

• ORC Section 9.24 - Findings for recovery

• ORC Chapter 102 - Public Officers - Ethics

• ORC Section 109.02 - Duties as chief law officer

• ORC Section 109.04 - Powers and duties of first assistant attorney general

• ORC Section 109.07 - Special counsel

• ORC Section 125.01 - Department of administrative services - office services definitions

• ORC Section 125.035 - Requisite procurement programs

• ORC Section 125.111 - Construction contracts to contain discrimination provisions - affirmative action program

• ORC Section 125.25 - Debarment of vendor from contract awards

• ORC Section 126.07 - Certification of balance statement in all contracts

• ORC Section 126.30 - Interest on late payments for goods and services

• ORC Section 126.30 - Interest on late payments for goods and services

• ORC Section 126.31 - Travel and other expenses

• ORC Section 127.16 - Purchasing by competitive selection

• ORC Section 131.33 - Unexpended balances

• ORC Section 149.43 - Availability of public records for inspection and copying

• ORC Section 1302.04 - Formal requirements - statute of frauds - UCC 2-201

• ORC Section 1703.01 - Foreign corporation definitions

• ORC Section 1703.31 - Registration of corporate name

• ORC Section 2743.02 - state waives immunity from liability

• ORC Section 2743.14 - Representation of state

• ORC Section 2743.15 - Settle or compromise civil action against state

• ORC Section 2921.42 - Having an unlawful interest in a public contract

• ORC Section 3517.13 - Failure to file statements

• ORC Section 5513.06 - Debarring vendor from consideration for contract award

• ORC Section 5739.02 - Levy of sales tax - purpose - rate - exemptions

• ORC Section 5739.021 - Additional sales tax levied by county

• ORC Section 5739.023 - Transit authority tax levy

• ORC Section 5739.026 - County sales tax for specific purposes

• ORC Section 1306.06 - Electronic record or signature satisfies legal requirements

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Purpose

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.

A state agency 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, the Office of Budget and Management (OBM) issues this policy to provide guidance to agencies and minimum requirements for agency contracts pursuant to its expenditure review authority in Section 126.07 of the Ohio Revised Code (ORC). This policy applies to contracts originated 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.

Scope

This policy applies when a written contract is required. A written contract is required when an agency purchases goods or services from a supplier using state or federal funds. This policy does not apply to grant agreements or 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 the 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.

Definitions

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 - All documents (1) created in the accounting system of the state (known as the Ohio Administrative Knowledge System [OAKS]) containing information from approved requisitions which authorize orders under (ORC Section 125.01) and encumber funds for goods and services; and (2) sent or (dispatched) to suppliers as a request for the goods and/or services. A purchase order typically includes the good or service being procured, quantity, price, discounts, supplier, and ship-to information.

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. "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, containing 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.”

General Information

Contracts generally consist of three elements:

• An offer – An affirmative act of a buyer inviting a supplier to sell goods or services that can be done in any manner and any medium reasonable to the circumstances.
• An acceptance – The supplier’s unambiguous acceptance of an offer, which can be conveyed through words or deeds or performance.
• Consideration – Something of value exchanged between the parties to the contract. Typically, consideration consists of the goods or services in exchange for payment. Consideration may however consist of mutual promises when no goods or services or payment is offered or received.

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 purchase goods without a written contract, any purchase of goods equaling $500 or more should be evaluated to consider any risk assumed by the agency.

Thresholds and Agency Responsibilities

Written Contracts: All contracts for purchases must be in writing. Because a contract can technically be formed via oral agreement, state employees, including contracting officers, shall not inadvertently commit the state to a contract. Electronic signatures are acceptable. A contract or signature may not be denied legal effect, validity, or enforceability solely because it is in electronic form. Electronic signatures are therefore subject to the same legal scrutiny of authenticity that applies to paper documents.

Agency Responsibility: All agencies shall determine that required and appropriate terms and conditions are contained in written contracts.

All agencies shall prepare written contracts for purchases totaling $5,000 or more, unless the purchase is pursuant to an existing state contract established by DAS or deemed excluded from this policy.

Agency legal counsel shall assess the need for a written contract for purchases totaling $5,000 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 ("Waiver") used by the agency to document that a contract was not necessary. In lieu of a 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 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.

Agencies shall not intentionally split purchases to circumvent any laws or policies.

OBM Responsibility: For purchases or invoices that include labor charges for personal services over $5,000, OBM will review requisitions to determine the following:

• That a written, fully executed contract, Waiver, or Blanket Waiver is attached.

• Rates on the requisition match the contract; and

• The supplier on the contract matches the requisition.

OBM will review all waivers submitted by an agency for reasonableness.

Written Contract Requirements and Required Terms

In addition to the general elements of a contract, 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 shall not bind the state to any obligation without 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. Contracts cannot have financial obligations that extend beyond the end of the state fiscal biennium in which they become effective. 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 must 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 Rule 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 ORC 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 comply with all applicable sections of the ORC and Ohio Administrative Code (OAC), Executive Orders, and all applicable guidance issued by the Attorney General of Ohio (AGO), Department of Administrative Services (DAS), and OBM. For any contracts an agency enters into on or after September 30, 2021, the agency shall ensure that all invalid terms and conditions identified in Ohio Revised Code 9.27 have not been included. 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.

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:

• Disclosure of Location of Services and Data: On contracts for services, agencies must require suppliers to affirm that they understand and will abide by the requirements of Executive Order 2019-12D and Executive Order 2022-02D and disclose:
  • • The location(s) where all services will be performed.
    • The location(s) where any state data applicable to the contract will be accessed, tested, maintained, backed-up, or stored.
    • Any shift in the location of any services being provided; and
    • The principal location of business for the supplier and all subcontractors of the supplier.
  • This affirmation should take place via the Standard Affirmation and Disclosure Form.
  • During the performance of the contract, the supplier must not relocate outside the country where services are performed or relocate outside the country where the data is maintained or made available without prior written approval of the agency.
  • Such disclosure is not required for site-specific service contracts not involving state data (e.g., laundry service, pest control, and food service).
• Affirmative Action: All suppliers are required to complete an affirmative action plan or accept the state's plan and affirm that they are in compliance with the requirements of ORC Section 125.111 prior to being awarded a contract. Suppliers should be directed to the Affirmative Action Program Information on the Department of Development’s website. While it is a supplier’s responsibility to ensure compliance with this requirement, agencies should also exercise due diligence and verify that an affirmative action plan is in place before making a contract award.

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, the agency must review and remove these unallowable terms.

• Arbitration: Pursuant to ORC Section 2743.02, the state can only be sued and have its liability determined in the Ohio Court of Claims, therefore, any financial settlement must be approved by that court. In addition, the AGO must approve civil court settlements pursuant to ORC Section 2743.15. Binding arbitration determines liability outside of the Court of Claims, usurps court and AGO settlement approval, and is therefore inconsistent with state law.
• Attorney fees: Attorney fees are awarded only by the Ohio Court of Claims and the state would have to pay such fees to a prevailing party only if so awarded.
• Legal Representation and Settlement Authority: As provided in ORC Section 109.02 and ORC Section 2743.14, the AGO is the chief law officer for the state and represents agencies in lawsuits brought in the Ohio Court of Claims. In addition, the AGO must approve any financial settlement per ORC Section 2743.15. Under ORC Section 109.07, only the AGO has authority to appoint outside legal counsel to represent agencies and only under certain circumstances in accordance with ORC Section 109.04. Therefore, agencies cannot agree to outside legal representation in a contract or grant authority to an outside party to participate in or make decisions related to the settlement or defense of a claim without approval from the AGO.  
• Deposits: Generally, agencies cannot pay a deposit or make any type of advance payment until after the goods and or services are provided to the agency. In lieu of a deposit, the supplier should agree to accept a purchase order which certifies that funds are available to pay for the goods and/or services upon acceptance by the agency. For exceptions, please refer to the SAFE Policy, "Vouchers and Expenditures" - "Pre-payment of Expenses" section.
• Governing law: Agencies should include a clause specifying that the contract is governed by Ohio law without regard to choice of law and conflicts of law principles. As previously stated, agencies can only be sued and have liability determined in the Ohio Court of Claims.
• Indemnification: A clause requiring indemnification (a promise by an agency to pay for the cost of future loss) or requiring the state to hold a supplier harmless or limiting supplier liability is likely unconstitutional because it creates a contingent liability that is uncertain as to monetary amount and time, which may occur beyond the biennium. As explained in Ohio Attorney General (OAG) Opinion 96-060, these terms would likely violate the debt limitation provisions included in Ohio Constitution Article VIII as well as the requirement of an agency to have current appropriation authority to incur obligations pursuant to Ohio Constitution Article II.22 Appropriations and ORC Section 131.33.
• Liability: A contract where the supplier shifts all the liability to the state is not acceptable. As stated, the state or agency can only have its liability determined in the Ohio Court of Claims. The amount of liability should never exceed the total amount of compensation contemplated by the contract.
• Liquidated damages: Liquidated damages clauses are often included in supplier drafted contracts. A liquidated damages clause is basically a stipulation containing an amount or measure of damages if one or either party breaches the contract. The state cannot agree to pay penalties or damages. Pursuant to ORC Section 2743.02, the state can only be sued and have its liability and damages determined in the Ohio Court of Claims. The state can only agree to compensate the supplier for a fixed sum equal to the cost of goods provided and services rendered prior to receiving notice that the agency terminates the contract.
• Interest: Interest owed by agencies for late payment on a proper invoice is mandated by ORC Section 126.30.  Any reference to late payment terms in a supplier’s contract that conflicts with this provision is not acceptable.
• Taxes: The state does not pay sales tax on purchases for state use pursuant to ORC Section 5739.02(B) (1), ORC Section 5739.021(E), ORC Section 5739.023(G) and ORC Section 5739.026(F).
• Terms that can Change Price: Language such as “prices subject to change without notice” or any other costs the supplier bills the agency above the stated cost of the contract are not acceptable.
• Confidentiality: In general, the terms of a state contract cannot be kept confidential. An agency must comply with the Ohio Public Records Act (ORC Section 149.43) which requires agencies to disclose records upon request. The duty to comply with such requests cannot be limited by contract. A confidentiality clause shall state that an agency is subject to the Ohio Public Records Act and that disclosure of records is mandatory.

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:

• Unresolved Findings for Recovery Verification: Agencies are prohibited from awarding a contract to any company or person against whom the Auditor of state (AOS) has issued a finding for recovery if the finding for recovery is “unresolved” at the time of the award (ORC Section 9.24). This prohibition applies to a single contract between an agency and a supplier that exceeds $25,000 and applies to contracts under $25,000 between an agency and a supplier when the supplier received at least $50,000 in compensation from the agency the previous fiscal year.
  • Agencies must check the potential awardee’s name by visiting the Auditor’s website. Agencies are also required to check the Auditor’s database when renewing contracts under direct authority.
  • Once the database is checked and a contract is successfully awarded or renewed, the agency does not have to check the database before processing transactions against the contract. This includes transactions made by purchase order, credit card, and debit card, or any purchases from DAS state contracts.
  • This prohibition does not apply to:
    • Employment contracts;
    • Bonding companies;
    • Medicaid provider agreements; and
    • Contracts where federal law dictates that a person is eligible for the contract.
  • Other exceptions may apply (see Attorney General Opinion 2004-014). For more information regarding the findings for recovery database, visit the Auditor’s website. For legal questions, consult agency legal counsel.

• Suspensions and Debarments: Agencies are prohibited from awarding a contract for goods or services to a person or company listed on any state debarment list. Agencies are required to check the following websites before awarding a contract:
  • The Ohio Department of Transportation debarred list posted pursuant to ORC Section 5513.06.
  • The state of Ohio Office of Procurement Services Debarment List posted pursuant to ORC Section 125.25.

Also, agencies shall not contract with any person or company appearing on the Federal List of Excluded Parties Listing System.

• Business Registration with the Ohio Secretary of state (SOS): Agencies should verify that suppliers are:

  • Properly registered with the SOS as a domestic or foreign entity (corporation, LLC, LLP, LP, etc.), pursuant to Title 17 of the ORC; or

  • Exempt from registration requirements of the SOS.

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

• Agency requirements: Contracting officers are responsible for working with agency legal counsel to ensure compliance with law as well as other agency-specific contracting requirements.

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 Resources and Forms, when creating written contracts in accordance with this policy.