The Legal Context of Contract Administration
Apart from bid protests, most legal issues that pose financial risk to a public entity arise during contract administration and spawn contract clauses to deal with that risk. An understanding of common liability scenarios informs the development and use of clauses in solicitations and contracts. Contract clauses permitting the entity to direct changes or suspend work provide useful flexibility, but raise questions about how to compensate the contractor for delay and other increased costs. The freedom to contract permits parties to frame their relationship, but even agreed-upon contract modifications are constrained in terms of scope by competition policies. Inspection, acceptance, and warranty clauses address legal issues in the finality of acceptance and rights that exist with respect to defective services. Termination provisions define rights surrounding situations where services are no longer needed or they are seriously deficient. Overlying contract administration is the prospect of waiving requirements where a party does not enforce them. Finally, procurement professionals need a basic understanding of various liability allocation principles in order to effectively work with legal counsel about how best to negotiate indemnification, exclusion of damages, and limitation of liability provisions.