What to do when vendors don’t do what they said they’d do…

Second Annual

Statewide Contract Manager’s Conference

October 5, 2011 – Texas Capitol Extension Auditorium

Presenter

Wes Ogilvie, Assistant General Counsel, Texas Procurement and Support Services, Texas Comptroller of Public Accounts

The first two steps

• Review the contract and supporting documents.

“What does the contract say?”• Documentation, documentation,

documentation.

“If you don’t write it down, it never happened.”

Next step…

• Talk to the vendor. • Equally important, talk to the right

person! Does the contract identify key personnel on both sides?

• If you don’t hear what you want, escalate the problem to someone else…with the authority to resolve the problem.

• The vendor also needs the appropriate contacts at the agency

Vendor Performance

• Why?– Required by rule– Documentation of the problem– Vendor is supposed to respond to

Vendor Performance Report– Provides rationale for awarding/not

awarding future contracts– Shares information with other

agencies

Contract Management Office

• TPASS Contract Management Office– Provides management of all TPASS

contracts– Investigate vendor performance reports– Serve as an intermediary between the

agency and the contractor

Referral to Counsel

• Consider involving agency counsel

• Shows the vendor that the problem has been escalated internally

• Allows agency counsel to provide advice on options

• Involve counsel early

Corrective Action Plan

• “Probation” for your contractor/vendor

• Should provide for specific steps to remedy defects or non-performance

• Consider incorporating the plan as a contract amendment

• Ensure the plan has measurable, enforceable goals

Liquidated Damages

• Must be specified in the solicitation/contract

• Only allowed when ordinary damages are difficult to calculate

• Cannot be used as fines or penalties

• Requires significant attorney involvement in drafting liquidated damages provisions

Cure Notice

• Newsworthy cure notice

• Provides a set period of time for the vendor to fix the problem before termination of the contract

• Actually, a cure notice may be considered “pro-vendor”

• If you’re at this point, it may be time to think about lead time to get an alternate vendor

Paying the Bill

• Disputing the invoice

• Partial payment– Must be an actual dispute

• Set-off– Rarely used, not favored in state

contracts

Termination

• Cause

– Usually immediate

– Must have a reason

– Cost of cover

• Convenience

– Usually, but not always 30 days in state contracts

– No reason required

• Funding

– Funding out clause

Non-Renewal

• When to consider?

• Neutral on its face

• Negative – need to be thinking about re-procurement well in advance

Uncommon Remedies

• Audit– Performance or financial audit of the

vendor– State Auditor’s Office

• Calling the bond– Performance bonds– Payment bonds

Debarment

• Severe remedy

• Provided for by statute and rule

• Investigation by TPASS

• Decision made by TPASS Director with appeal to Deputy Comptroller

• Agencies may request a debarment investigation

Calling the Cavalry

• Attorney General referral– Requires significant management and

legal buy-in– Uncertain process– Ordinarily requires significant damages

to make it worthwhile

• Criminal investigation– Rarely used, most commonly for fraud,

particularly in invoicing

An Additional Caution

• Offers to remedy almost always require involvement from program staff, procurement staff, and legal counsel

• Danger of waiving remedies for breach