(A) (1) A contract is an agreement between two or more parties with the intent to be legally bound. There are four elements of a contract: mutual assent (agreement), consideration (obligation, competent parties, and legality of purpose. If one of these elements is missing from a contract, the contract is void and is not enforceable. The town requires that all contracts be in writing and implied or oral contracts will not be permissible.
(2) Contracts are to be used for all types of purchases when the services or labor portion is the greater amount of the transaction and the amount paid to the vendor will exceed $5,000 with a business entity, corporation or governmental entity or will exceed $600 with an individual, including an individual or partnerships engaging in a business or under an assumed name or doing business as (dba). This is done by obtaining a W-9 form.
(3) Services shall not begin until a fully executed contract is in place and reviewed by Town Manager and Town Attorney before agreeing and signing. Before a contract can be processed for payment, all required forms must be completed, but not limited to accounts payable vendor forms, W-9, and certificate of insurance has been completed and returned.
(4) If both goods and services are included in the same contract, the "predominant aspect" test is applied. This test is a question of purpose and not necessarily the relative prices of goods and services covered by the contract or which purpose is the most. Examples: aerial photography and images/maps: you cannot get the images/maps without the aerial service. The aerial service is the predominant aspect of the contract.
(5) Multi-year contracts, defined as more than 12 months or crossing fiscal years (local government fiscal year runs from July 1 thru June 30 of the next year), requires Town Manager approval.
(6) Each year of the contract must be in budgeted and approved through the budget process in order for funding to be carried over. This is called an appropriation of funds (for definition, see § 33.23) which is the act of setting aside money for a specific purpose and local governments appropriate money in its budget-making processes.
(B) Required contract elements. Contracts should define who, what, where, when, why, how much, and what happens if either party defaults. All town contracts are required, at a minimum, to address the following:
(1) Scope of services - this section provides a detailed description of the services that will be provided by the vendor.
(2) Term (length of time) - this section specifies both beginning and ending dates or a project start and completion schedule.
(3) Maximum amount payable - this section specifies the amount that the contract payments cannot exceed. Uncertainty as to the amount of the final obligation under a contract does not excuse the contract from containing a maximum amount payable.
(4) Relationship of parties - this clause clarifies the nature of the relationship between Town of Wilkesboro and the vendor. This clause confirms that the contract does not and should not be deemed to create a partnership or joint venture.
(5) Cancellation - this clause gives both parties the right to terminate the contract upon the occurrence of specified conditions or events.
(6) Indemnification - this clause protects the town from any legal issues related to the vendor performing the contract.
(7) Non-appropriation clause - non-appropriation clauses must be included in any town contract requiring expenditure of town funds and entered into for terms longer than the then current fiscal year.
(8) Non-assignment - this clause prohibits the assignment of specific rights or of the entire contract to another party without the consent of the town.
(9) Governing law - this clause specifies that any dispute resulting from the contract shall be determined in accordance with the laws of North Carolina.
(10) Certificate of insurance - in order to control risks arising from the activities resulting from a business contract, the town requires all contractors have the following insurance at all times during the term of the agreement (exceptions may be granted on a case-by-case basis):
(a) Provide and maintain in force commercial general liability insurance covering bodily injury (including death) and property damage (including contractual liability covering the undersigned's indemnity obligations), together with worker's compensation, automobile, and employer's liability insurance in such amounts as shall be required by law.
(b) All such insurance shall contain an endorsement naming Town of Wilkesboro as additional insured.
(c) The insurance shall be primary with respect to any claim arising from or related to the performance or non-performance of the obligations under the terms of the agreement.
(d) A certificate from an insurance company licensed to do business in the State of North Carolina shall be delivered to Town Clerk at Wilkesboro Town Hall evidencing the required insurance coverage, which certificate shall state that such insurance coverage may not be materially changed or cancelled without at least 30 days prior written notice by certified mail to Town of Wilkesboro, identifying the person/office to be notified.
(11) G.S. § 22B-2 real property improvement dispute venue - prohibits making a contract subject to the laws of another state or setting exclusive venue in other state.
(12) G.S. § 22B-3 forum selection - prohibits requiring prosecution of an action or arbitration of a dispute in another state.
(13) G.S. § 22B-10 jury trial waiver - prohibits requiring a party to waive its right to a jury trial (does not prohibit mutually agreed to mediation, arbitration, or other alternative dispute resolution processes).
(14) Incurring third party debt - constitutional limitations on local government indemnifying obligations of other parties (incurring debt), N.C. Const. Art. V, Sec. 4.
(15) G.S. § 143-133.5 organized labor restrictions - prohibits discriminating against a bidder or contractor for adhering or not adhering to an organized labor agreement.
(16) G.S. § 160A-20.1(a) employment- related and public accommodation requirements - prohibits cities and counties from imposing employment-related requirements on bidders and contractors as a condition of bidding on a contract G.S. §§ 160A-20.1(a) for cities); 153A-449(a) for counties.
(17) G.S. § 143-133.3 e-verify - prohibits local governments from contracting with contractors and subcontractors not compliant with the state's e-verify hiring requirement G.S. § 143-133.3. Contractor shall verify, by affidavit, compliance with the terms of the section upon request by the town.
(18) G.S. § 147-86.60 Iran Divestment Act - prohibits local governments from contracting with an entity that has been identified by the NC State Treasurer's Office as engaging in Iranian investment activities.
(19) G.S. § 147-86.82 Israel Boycott Contracting Prohibition - prohibits local governments from contracting with a company that has been identified by the NC State Treasurer's Office as boycotting Israel.
(20) G.S. § 22B-1 construction indemnity agreements - prohibits a party from insulating itself from its own negligence.
(21) Does the contract comply with applicable local policies, grant rules, and federal regulations?
(22) G.S. § 14-234(d1) small jurisdiction exception - if it applies, have all required procedures for contract approval been followed?
(23) G.S. § 14-234 conflicts of interest - do any conflicts of interest exist that would render the contract void?
(24) G.S. § 159-28(a) preaudit also see § 33.23.
(a) North Carolina General Statutes require that if an obligation is evidenced by a contract or agreement requiring the payment of money or by purchase order for supplies and materials, the contract, agreement or purchase order shall include on its face a certificate stating that the instrument has been pre-audited to ensure compliance G.S. § 159-28(a).
(b) Preaudit certificate must be affixed to all written contracts.
(c) Preaudit certificate must be signed by Finance Officer or Deputy Finance Officer.
(d) Contract not containing a valid preaudit certificate is void by operation of statute.
(e) Some question about preaudit certificate requirement if fiscal obligation is in future year (Meyers v. Town of Plymouth, 135 N.C. App. 707 522 S.E.2d 122 (1999)); safest course is to always include preaudit certificate as violation can result in personal liability for employee/officer disbursing funds.
(C) Electronic form and electronic signatures. If in electronic form, is the form valid and if an electronic signature is used, is it in proper form?
(1) Most forms of electronic transactions are valid if the parties agree - Uniform Electronic Transactions Act - Article 40, Chapter 66.
(2) Electronic signatures defined and authorized, and procedural requirements for use Article 11A, Chapter 6.
(D) Legal reviews. Contracts for the purchase of goods and/or services create legal obligations of the town. There are some types of contract provisions that are prohibited or disfavored. It is the town policy for the Town Attorney to be consulted and to review of contracts obligating the town before agreeing, signing, and processing.
(E) Interlocal agreements. Interlocal agreements are joint efforts with other governmental units that are intended to address only complicated or lasting joint relationships or joint endeavors, such as joint funding, development and/or operation of a program of facility G.S. § 160A-461. All interlocal agreements require Town Council approval prior to execution. These agreements must contain the following elements as set forth in G.S. § 160A-464:
(1) The purpose or purposes of the contract or agreement.
(2) The duration of the agreement.
(3) If a joint agency is established, its composition, organization, and nature, together with the powers conferred on it.
(4) The manner of appointing the personnel necessary to the execution of the undertaking.
(5) The method of financing the undertaking, including the apportionment of costs and revenues.
(6) The formula for ownership of real property involved in the undertaking, and procedures for the disposition of such property when the contract or agreement expires or is terminated.
(7) Methods for amending the contract or agreement.
(8) Methods for terminating the contract or agreement.
(9) Any other necessary or proper matter.
(F) (1) Leases. Anytime a government unit enters into a lease of a capital asset (such as leasing equipment or leasing space in a building) or any other contract or agreement involving the acquisition or construction of a capital asset, it must first determine if LGC approval is required pursuant to G.S. § 159-148.
(2) Real property leases.
(a) Real property is immovable property - it is building, land, and anything attached to the land.
(b) Lease agreements or formal contracts are not required for rental of space when the duration is brief (e.g. 14 days or less) and no property rights are conveyed.
(c) The town enters into leases of real property under two circumstances:
1. As lessee (tenant), when the town occupies leased space in order to conduct town programs or to deliver town services; and
2. As lessor (property owner), to authorize a third party to occupy town-owned property, such as when leasing space in town office buildings.
(d) Town Manager, department head, and consultation from the Town Attorney will develop and process the leases. The Town Manager can
approve these leases which have a term of one year or less, funding must be included in the departmental annual budget appropriation.
1. Leases with duration of one year or less - the Town Manager may approve.
2. Leases for a term greater than one year - the Town Council must approve.
3. Lease of town property for a term of ten years or more are treated like the sale of real property and requires special attention.
(3) Personal property leases. Personal property is movable; and is not fixed permanently to one location as with real property, such as land or buildings. Examples of personal property include vehicles, furniture, and equipment.
(4) Operating lease.
(a) An operating lease is a contract wherein the owner, called the lessor, permits the town (lessee), to rent and use an asset for a particular period which is usually a period of at least 12 months but shorter than the economic life of the asset without any transfer of ownership rights.
(b) During the rental period, the lessee typically has unrestricted use of the asset, but is responsible for the condition of the asset at the end of the lease, when it is returned to the lessor. An operating lease is especially useful in situations where the town needs to replace its assets on a recurring basis, and so has a need to swap out old assets for new ones at regular intervals.
(5) Capital lease.
(a) A capital lease is required when substantially all of the risk and benefits of ownership are assumed by the lessee. A lease must be capitalized if any one of the following four criteria exists:
1. The lease transfers ownership of the property to the lessee by the end of the lease term.
2. The lease contains a (bargain) purchase option.
3. The lease term is equal to 75% or more of the estimated economic life of the lease property; or
4. The present value of the minimum lease payments at the inception of the lease, excluding executor costs, equals at least 90% of the fair value of the leased property.
(b) A purchase option exists when the lessee can exercise the option to purchase the property sometime during the term of the lease at an amount substantially less than the estimated fair value of the property. A "lease-purchase" transaction must follow the same bidding process as a straight purchase, if the purchase option may be exercised during the first 60 months.
(6) Memorandum of understanding. A memorandum of understanding (MOU) can be used to set forth the basic principles and guidelines under which the parties will work together to accomplish their mutual goals. It is considered a preliminary document to a contract; a contract shall follow detailing the responsibilities of each party. MOUs must:
(a) Identify the contracting parties.
(b) Spell out the subject matter of the agreement and its objectives (the contract should provide more detail).
(c) Establish the terms of the agreement.
(d) Must be signed by the contracting parties. All MOUs must be processed through contract control, with a few exceptions that will be documented in writing by the Procurement Office.
(7) Real estate. Approval by the Wilkesboro Town Council is required for all real estate transactions except re-combinations of town-owned land. These transactions must be presented to the Wilkesboro Town Board at a public meeting for approval.
(Res. 2020-16, passed 8-3-2020)