A long-term care facility can execute contracts with many different vendors including food product and service vendors, laundry and linen providers, IT companies, and others. Whether working for a single-site operator or a multi-facility system, a thorough review of all contracts and a careful consideration of the “what-ifs” are crucial steps. Too often, the language and terms of a contract are only carefully reviewed after an issue arises. By then, it may be too late. Not all problems can be prevented but there are steps that you can take in the contracting process to reduce risks. Below are eight key tips to help with your contracting process.
Define the contract. A contract can be a single piece of paper, a hundred or more pages, or even an oral agreement. It is important to remember that a contract, in whichever form, is an agreement that creates a legally enforceable obligation in exchange for a benefit. With vendors, this most often is the supply of a product or a service in exchange for payment by the long-term care facility.
While one form of a contract may be more appropriate than others in certain situations, facilities should always reduce the contract to written form. When the contract is in writing, it is easier to identify and define the terms. This will help reduce any uncertainties and confusion. Also, do not agree to a vendor’s request to “work it out later.” You should insist that all terms be in place and in writing for review before signing the contract.
Contract Intake. Facilities should have an established policy that includes the procedure for contract review and the individuals in the organization who need to be involved. The procedure should include a specific process for the intake, initial review, and advancement of all contracts through the organization. In addition, all facilities should designate a person to conduct the initial review of a contract.
At this stage, there is also an opportunity to involve legal counsel as necessary, depending on the complexity of the contract being reviewed.
Own the review process. When reviewing a contract, never forget that the details matter. This includes often overlooked items such as names and dates. When these are omitted, it’s difficult to tell when the contract term begins and, sometimes, even if it’s enforceable.
Make sure to clarify the legal name of the entities that are involved with the contract, especially when a “Doing Business As” or “DBA” title might apply. It is important that the legal name of a company be set out. Remember, the contract is a legally enforceable agreement so you want to be sure the parties are properly identified.
Verify that the dates reflect when the obligations and benefits of the agreement become effective. Work with the vendor to assure clarity for the dates and this will help reduce the potential for uncertainty later. A discrepancy can easily become an issue later when you least expect it.
Many contracts start with areas pre-filled, and those should be carefully reviewed. A vendor might claim that certain terms cannot be changed. However, question and seek to negotiate changes when the terms are not suitable to the facility’s needs.
In addition, after you receive the complete contract signed by all parties, always take another look at the final copy to make sure that no unwanted or unexpected extras have appeared.
Who has authority? It is important that a facility knows who is and is not authorized to sign a contract on behalf of the organization. This can be different people based on the type of contract. However, it is important that the facility has designated those individuals so that the established procedures can be followed.
Please note that a contract, even when signed by a person without authorization, might still be enforceable against the organization. This emphasizes the importance of having policies and procedures in place to assure that the contracting process is followed and contracts are reviewed and signed by authorized individuals.
Pay attention to the length of the contract term. The contract term is the stated period of time the contract covers. At the conclusion of the term, the contract expires unless the parties renew the contract, negotiate an extension, or enter into a new contract. Beware, however, because some contracts contain “automatic renewal” provisions, meaning that unless one party gives notice of nonrenewal within a defined time frame, the contract automatically renews for a defined period or periods of time.
When reviewing the contract term, consider how long you might need the service or product and how long you want to remain obligated by the contract. For instance, a contract with a longer term can provide a facility with certainty because it has secured the services of the vendor for a specific period at a specific cost or rate. However, a long-term contract also locks in the facility and it could be forced to remain with a poorly performing vendor. On the other hand, a contract with a short term provides less certainty for the facility but avoids a lengthy relationship without the need to determine the contract based on poor performance.
What are the termination provisions? Another contract provision to pay careful attention to are the termination provisions. A termination clause provides the method for a party to end a contract prior to its expiration. There are generally two types of termination provisions: for cause and without cause.
Generally, a termination for cause occurs when one party is non-compliant with terms of the contract which causes the other party to want to end the contract. A termination without cause or for convenience on the other hand is when one or both parties simply want to end the contract early.
Both for cause and without cause termination provisions generally have notice requirements. This means that the party seeking to terminate the contract must provide notice a certain number of days in advance to the other party. The respective notice periods for termination can differ, and the exact language should be consulted before giving notice. Never assume that notice periods are the same.
When reviewing these provisions, pay close attention to the termination provisions so that you know when you and the vendor may end the contract. Also, it is important to be aware of the length of the notice period so that you have enough time to locate and secure another vendor but not so long that you might have to continue dealing with a troublesome vendor for an inconvenient period of time.
Dispute resolution and venue. These provisions will most likely only arise when there is a dispute between the parties. Hopefully these provisions will not be used, but it is wise to be aware what restrictions or provisions are in place regarding how and where dispute would be resolved if a problem does arise.
For instance, check to see if the contract specifies where a dispute must be resolved, or the venue. If you and the vendor are not based in the same area, then the venue, or location for the dispute resolution, could be complicated. The vendor would most likely want the venue to be in a location close to its headquarters which might not be close or convenient for the facility.
With dispute resolution, the provision could require a party to use arbitration instead of filing a lawsuit. The vendor preparing the contract might have boilerplate language associated with dispute resolution and venue, however, this should be considered negotiable in review and preparation of the final contract. It is important to be familiar with these provisions when entering a contract in the event issues arise.
Organize, Organize, Organize! Once the contract has been signed by all parties and is in effect, it is important to conclude your contract procedures with the filing and storage of a fully executed copy. In the event questions or issues arise with the other party’s performance, you want to have access to a complete and legible copy of the contract.
Secure digital solutions are becoming a must for storage, especially when replacing outdated paper storage. In addition, all facilities should maintain a contracts calendar to include payment schedules, termination dates, renewal and notice deadlines, and any other important dates relevant to the context of the contract.
Conclusion. When it comes time to contract with a vendor, it is important for you to follow your facility’s policies and procedures for contracting, take time to review the contract, and verify that it reflects all the negotiated terms before signing. Some of these practices seem simple and straightforward, but it is important to have a consistent and thorough process to identify contract issues and to help minimize any problems. These reminders will help reduce surprises and avoid costly mistakes. If you have any questions during the review of a proposed or existing contract, seek guidance from legal counsel.