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Maryland Procurement Manual – 8. Contract Administration Process

8.1 Kick-Off Meeting with Procurement Officer, Contract Monitor, Program staff and Contractor
8.2 Contract Performance
8.3 Payment for Accepted Goods and Services
8.4 Contract Renewal Options and Modifications
8.5 Re-procurement Plans
8.6 Contract Close Out/Transition

 

The contract has been executed.  The contract monitor should be familiar with the mandatory terms and conditions and contract requirements in the scope of work in order to oversee contract performance.  The procurement officer along with the contract monitor and program staff set-up a kick-off meeting to discuss everyone’s role in completing the requirements of the contract.

If issues and problems arise during the contract administration phase, all parties to the contract must understand their rights and obligations under the contract and how to approach difficult situations and resolve problems.  Any issues or problems that arise should be identified as soon as possible and communicated to all parties to obtain a resolution.

8.1 Kick-off Meeting with Procurement Officer, Contract Monitor, Program staff, and Contractor

8.1.1 Conduct a Kick-Off Meeting
This meeting is led by the procurement officer to turn over the contract to the contract monitor.  The Agenda for this meeting typically includes a discussion of:

  • The scope of work, schedule of deliverables, MBE and VSBE commitments and pricing for invoicing.
  • The specifications, terms and conditions to clarify performance and payment.
  • The relevant policies and procedures, especially for making changes to the contract that must go through the procurement officer.
  • The need for written modifications and open communication between all parties.
  • The reporting requirements.
  • Any specific pressing issues key to the success of the subject contract.

At the completion of the meeting, any meeting notes should be kept in the contract file by the contract monitor.  (See 8.1.2 below.)

8.1.2 Set-up a Contract File
The contract monitor should keep a contract administration file apart from the procurement officer’s procurement file.  The location and contents of the file should be readily available to the agency procurement and contracting leadership to ensure continued contract monitoring during staff transitions.

The contract administration file contains information to demonstrate contractor performance.   The contract administration file should contain the following documentation:

  • Executed contract and Notice to Proceed;
  • Copies of task orders issued;
  • Copies of insurance documentation;
  • All correspondence, including letters, emails, phone call notes, status reports, schedules, and any other communications;
  • Justification (notes to file) detailing decisions including stop work orders or claims;
  • Information on change orders or other modifications;
  • Copies of invoices; and
  • Close-out related documents.

8.1.3 Develop a Contract Monitor Work Summary
As a best practice, the contract monitor may want to create a work summary to readily monitor the contractor’s performance of milestones during the contract.  The summary could include:  target dates (schedules); performance obligations (what is considered success); review and acceptance/rejection of deliverables; invoicing (pricing); and reporting requirements.

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8.2 Contract Performance

8.2.1 Manage Contract Compliance
The contract monitor should ensure contractor compliance in all aspects of the contract requirements.  Some requirements to be monitored are:

  • Quality, quantity, and timeliness of performance and deliverables;
  • Reporting;
  • MBE participation goals and sub-goals;
  • VSBE participation goals;
  • Any ongoing contractor certifications; and
  • Ongoing insurance verification.

8.2.2 Corrective Action Plans
If the contract monitor identifies any deficiencies in a contractor’s performance, the contract monitor in consultation with the procurement officer and the MBE Liaison officer where applicable, may request a corrective action plan from the contractor.  The procurement officer should provide a draft cure notice for internal and AAG review before release.  If the deficiencies are considered material, the contract monitor and procurement officer may require a corrective action plan prior to imposing liquidated damages or performance guarantees, based upon the requirements of the contract.

8.2.3 Assessing Liquidated Damages or Performance Guarantees
A contract may contain a liquidated damages provision, performance guarantees or service level credits in connection with contractor performance failures or shortfalls.  The solicitation document incorporated into the contract will define how and when these are applicable.  However, all contracts with MBE participation goals must have a liquidated damage provision that applies if the contractor fails to comply in good faith with the MBE laws or pertinent terms of the contract consistent with guidance issued by GOSBA.[78]  The procurement officer should contact their AAG before utilizing any of these tools.

8.2.4 Applying Bonds
Before taking any action in relation to submitting a claim on a bond held by the State, consult with your AAG to ensure that everything is done properly.

8.2.4.1 Bid Bonds
Examples of when a claim on a bid bond can arise include where the bidder refuses to enter into the contract, or after the bidder is awarded the contract, if the surety declines the issuance of the performance bond.

8.2.4.2 Performance Bonds
Performance bond claims arise when the contractor is in default of the contract’s terms and conditions.

8.2.4.3 Payment Bonds
Payment bond claims arise when the contractor fails to pay its subcontractors.

8.2.5 Contract Claims
A contract claim is a complaint by a contractor or by a procurement agency relating to a dispute in connection with a procurement contract.[79] The filing of a claim and responding to a contractor’s claim require significant coordination with the procurement agency’s legal team.

Generally, the process when the State files a claim is as follows:

  1. State must issue written notice of claim to the contractor.[80]
  2. Within 30 days of receipt of written notice of claim, the contractor must submit a written response.[81]
  3. If the contractor fails to submit a response, provides an inadequate response, or denies the claim or the relief sought in whole or in part, and the claim is not otherwise settled, the State must issue a final decision on the claim.[82]
  4. Within 30 days of receipt of the final decision, the contractor may file a written notice of appeal to the MSBCA.[83]

Generally, the process when a contractor files a claim is as follows:

  1. The contractor must issue a written notice of claim with the appropriate procurement officer within 30 days after the basis for the claim is known or should have been known, whichever is earlier.[84]
  2. The contractor must timely submit the claim to the appropriate procurement officer.[85]
  3. Unless otherwise resolved, the State must issue a final decision on the claim. The final decision must be reviewed and approved by the reviewing authority, typically the agency head or designee, preferably after consultation with the AAG.[86]
  4. Within 30 days of receipt of the final decision, the contractor may file a written notice of appeal to the MSBCA.[87]

8.2.6 Termination for Default (for Cause)
The Termination for Default provision is a mandatory provision for all procurement contracts.[88]  This provision allows the State to terminate a contract when the contractor fails to perform its contractual obligations.  This provision allows the State to terminate the contract but does not provide the same right to the contractor.  While a contractor may submit a contract claim against the State, as described above, it cannot terminate the contract.

Termination for Default is a powerful provision, the exercise of which may have significant legal and operational consequences.  The procurement officer should seek guidance from their AAG before exercising this right.

8.2.7 Termination for Convenience
Even when no event of default exists, the State has the right to terminate “for convenience” if such termination is in the State’s best interest.[89]  Similar to the Termination for Default provision, the Termination for Convenience provision is a unilateral State right.  Exercising the State’s right to terminate a contract for convenience may have significant legal and operational consequences.  Accordingly, the procurement officer should seek guidance from their AAG prior to exercising such right.

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8.3 Payment for Accepted Goods and Services[90]

8.3.1 Invoicing
In order to receive payment for goods or services provided under a State contract, the contractor must submit a Proper Invoice to the contracting agency.

A “Proper Invoice” is defined as a bill, written document, or electronic transmission, readable by the agency, provided by a vendor requesting an amount that is due and payable by law under a written procurement contract for property received or services rendered.[91]  The Proper Invoice must include the following information, without error: (a) the contractor’s federal employer identification number or Social Security number, (b) the procurement contract or purchase order number or another adequate description of the procurement contract; and (c) any documentation required by regulation or the procurement contract.[92]

Review of invoices received, including timing and procedures for processing, is governed by regulation.[93]

8.3.2 Prompt Payment
Unless payment is deferred, delayed, or set-off per regulations, payment under a State contract must be made within 30 days after the day payment becomes due under the contract, or if later, after the day on which the agency receives a Proper Invoice.[94]

8.3.3 Interest on Late Payments
“Late Payment” means any amount that is due and payable by law under a written procurement contract, without deferral, delay, or setoff per regulations, and remains unpaid more than 45 days after an agency receives a Proper Invoice.[95]

The State is required to pay interest on late payments if a contractor submits an invoice for late payment interest within 30 days after the date of the State’s payment of the amount on which the interest accrued, and a contract claim has not been filed.[96]

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8.4 Contract Renewal Options and Modifications

8.4.1 Contract Renewal Options
“Option” means the unilateral right of the State under a contract to extend the contract for an additional period of time, or to purchase delimited additional goods or labor, or to purchase materials or facilities that have been leased.[97]

A valid contract option is one where the State alone holds the power to exercise the option and the option price is fixed in, or is objectively ascertainable under the terms of the original contract.  This principle applies to options to extend the period of performance, as well as to other types of options such as extra quantities, add/deduct alternates, etc.

The exercise of a contract option must be approved and awarded before the initial term, or any previously-awarded option term, expires.  A contract, which has expired, may not be reinstated through modification, or the exercise of options.

See BPW Advisory 1998-3 Contract Options for additional information.  http://www.bpw.state.md.us/Pages/adv-1998-3.aspx

8.4.2 Contract Modifications
“Contract modification” means any written alteration in the specifications, delivery point, date of delivery, contract period, price, quantity, or other provision of any existing contract, whether accomplished in accordance with a contract provision, or by mutual action of the parties to the contract.  It includes change orders, extra work orders, supplemental agreements, contract amendments, or reinstatements.[98]

A contract modification to a delegated contract that individually increases or decreases the contract value by more than $50,000 must be submitted to the BPW on an Action Agenda for approval.

Any modification to a delegated contract that causes the overall value of the contract to exceed $200,000 (or appropriate lesser amount for capital equipment, sole source, or competitive procurements when a single bid or proposal was received) must be brought to the BPW on an Action Agenda for approval.

Any proposed modification, notwithstanding the value of the modification, that would materially change the scope of a delegated contract must be brought to the BPW on an Action Agenda for approval.

As a general rule, goods or services that are outside the scope of a contract must be procured through one of the source selection methods prescribed in COMAR Title 21 (for example, sole source; CSB; CSP) rather than by modifying an existing contract.  To determine whether a proposed modification is outside the scope of an existing contract, consider whether the modification could have affected the competition at the time the original solicitation issued.

Procurement officers and contract monitors should seek guidance from the AAG when deciding if proposed work may be accomplished through a contract modification or requires a new contract action.

See BPW Advisory 1995-1 Contract Modifications for additional information.  http://www.bpw.state.md.us/Pages/adv-1995-1.aspx

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8.5 Re-procurement Plans

When there is an anticipated ongoing need for the goods or services provided by a contract beyond the term of the current contract, the procurement officer should begin working on a timeline to begin the next procurement.  Refer to Manual Section 3.5 for Planning the Solicitation.  A new contract with an anticipated ongoing need for goods or services that does not contain renewal options should be accompanied by a re-procurement plan when submitted for approval.  A contract that contains renewal options should include a re-procurement plan when the final renewal option is submitted for approval. For a contract with renewal options that may not be exercised, the decision to re-procure for goods or services or exercise the renewal option must be determined early enough to allow ample time to conduct the re-procurement.

Planning for complex procurements or those historically requiring extra time because of protests, transition periods, or cancellations will warrant earlier re-procurement planning.

Best Practice Tip:  Document desired changes for the next iteration of the solicitation in the procurement file of the existing contract.

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8.6 Contract Close Out/Transition

A procurement officer should take steps to prepare for the end of a contract and, if necessary, the transition from an outgoing contractor to an incoming one.  Among these steps, reviewing the contract documents to ensure the contractor has satisfied its obligations and to note any end-of-contract responsibilities are essential to preparing for the end of a contract.  The new contract may provide a for a start-up period by the incoming contractor to obtain documents, data files, testing, etc. from the outgoing contractor or the State before commencing performance of the new contract.

8.6.1 Prohibition of a Non-Compete Clause
The procurement officer should be aware of any language in the current contract prohibiting a contractor from having non-compete agreements with its employees. The State’s prohibition of non-compete clauses would allow an incoming contractor to hire the personnel of an outgoing contractor, which may help ensure a successful transition of services between contractors.

8.6.2 Record Retention
A procurement officer must also be mindful of record retention obligations of both the procurement officer and the contractor relative to the expiring contract, which may survive the contract expiration. The contractor’s obligations can be found in the contract, COMAR, and, if applicable, other contract documents such as the solicitation.  In addition, the procurement officer’s retention obligations are drawn from various reporting and auditing requirements.

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[78] COMAR 21.11.03.10(E).

[79] COMAR 21.10.04 provides specific guidance on how to process a contract claim.

[80] COMAR 21.10.04.05(A) identifies requirements for the notice of claim.

[81] COMAR 21.10.04.07 identifies requirements for the contents of the response.

[82] COMAR 21.10.04.08(C) identifies requirements for the content of the final decision.

[83] COMAR 21.10.05 identifies the appeal process.

[84] COMAR 21.10.04.02 (A)

[85] COMAR 21.10.04.02(B) identifies requirements for the timing and content of the claim.

[86] COMAR 21.10.04.04(B) identifies requirements for the content of the final decision; and COMAR 21.10.04.04(C) identifies specific timing provisions applicable in the context of claims under construction contracts.

[87] COMAR 21.10.05 identifies the appeal process.

[88] COMAR 21.07.01.11.

[89] COMAR 21.07.01.12.

[90] COMAR 21.06.09

[91] COMAR 21.06.09.01C

[92] COMAR 21.06.09.02

[93] COMAR 21.06.09.04

[94] COMAR 21.06.09.05

[95] COMAR 21.06.09.01A

[96] COMAR 21.06.09.06

[97] COMAR 21.01.02.01(61)

[98] COMAR 21.01.02.01(26)

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