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Saturday, June 29, 2013

Standardizing commercial goods and services but not contract terms

How often do you read the terms of your, say, phone contract, or equipment rental agreement? Are they even negotiable? Your standard commercial purchases come with industry standard terms, and you usually have the choice of taking it or leaving it.

Not so if you are a monopsony. The federal government is one, but small government entities most often are not. I am amazed at the way large manufacturers jam their own contract terms down the throat of our local government.

Lawyers Michael D. McGill and C. Peter Dungan from the firm Hogan Lovells have provided a note on the federal government's start to pushback on this idea. You should read the whole article at the link below.

New procurement rule is intended to limit the Government’s acceptance of standard commercial terms of service for social media applications
The interim rule, which is effective immediately, is specifically aimed to curb the practice of contracting officials agreeing to open-ended indemnification provisions in standard contracts for web-based social media applications. The Government will not agree to certain contract terms that are standard in the commercial space, and even when its officials agree to those terms, some of them may be unenforceable.

The impetus for this rulemaking can be traced back to a June 2011 letter from the Department of Commerce (Commerce) to the Department of Justice (DOJ) seeking the DOJ’s views on the application of the Anti-Deficiency Act to terms of service (TOS} agreements for social media applications.The Anti-Deficiency Act generally prohibits agencies from entering into contracts or other obligations in advance of or beyond the scope of appropriated funding.

In response, the DOJ Office of Legal Counsel (OLC) issued an opinion indicating that the Anti-Deficiency Act is violated when a contracting official or other employee with authority to bind the Government agrees, without statutory authorization or an applicable exception, to an open-ended, unrestricted indemnification provision. The OLC opinion, and the Commerce letter that prompted it, focused specifically on web-based TOS agreements, such as “clickwrap” and “browsewrap” agreements. The Opinion describes a situation in which a Government official holding a purchase card consents to an online TOS agreement containing an open-ended indemnification clause in the course of registering for an account with a commercial social media service, and the Government, under the TOS, holds the service provider harmless for damages caused to a third party when the Government uses the application. The contracting officer’s agreement to such TOS creates an immediate Anti-Deficiency Act violation insofar as the agency, upon agreement to the indemnification provision, is legally liable—or at least potentially legally liable8—for an amount in excess of appropriations.
I think there is plenty of scope to expand this concept to other one-sided contract terms, many of which are found in the "standard" contract terms found in the GSA Schedule contracts. Certainly smaller governments may want this kind of protection by law, because they will rarely if ever get it by negotiation.

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