Prohibited Contract Terms for State Agencies

State agencies have long been barred from agreeing to certain contractual terms by the State of Georgia Constitution and other state laws, regulations, and policies. Many of the prohibited contract terms were recently codified into statute in O.C.G.A. § 50-5.64.1. Pursuant to O.C.G.A. § 50-5-64.1, a contract containing a term prohibited under the law will be void and the contract will be otherwise enforceable as if it did not contain such term. A copy of O.C.G.A. § 50-5-64.1 may be found on the Department of Administrative Services’ website.

  • Indemnification and/or Hold Harmless

    The Department cannot agree to any terms that require the Department to defend, indemnify, or hold harmless another person or entity. (O.C.G.A. § 50-5-46.1(a)(1)(A)). State agencies are constitutionally prohibited from agreeing to indemnify third parties. Indemnification provisions have been determined to violate the prohibition against pledges of the State’s credit and the prohibition against gratuities by the State (Ga. Const. Art. VII, Sec. IV, Par. VIII; Ga. Const. Art. III, Sec. VI, Par. VI; 1980 Op. Atty. Gen. 80-67; Op. Atty. Gen 74-115). If a contract clause has the effect of creating an indemnity, the Department cannot agree to it even though that specific word has been removed.

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  • Uncertain Terms

    The Department cannot agree to any terms and conditions that are either: (1) unknown at the time of signing the contract; or (2) can be unilaterally changed by the other party. (O.C.G.A. § 50-5-46.1(a)(1)(B)).

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  • Representation/Governing Law/Venue

    Any and all contracts with the Department must be governed by the laws of the State of Georgia. (O.C.G.A. § 50-5-46.1(a)(2)(C)). The Attorney General has exclusive authority and control over all matters of litigation or potential litigation involving state agencies. (O.C.G.A. § 50-5-46.1(a)(2)(A)). As a result, the Department may not enter into an agreement which state that the venue for any action or dispute is any court other than the Superior Court of Fulton County. (O.C.G.A. § 50-5-46.1(a)(2)(B)).

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  • Confidentiality

    The Department is subject to the Georgia Open Records Act (O.C.G.A. § 50-18-70). The Open Records Act allows any requesting party the right to inspect and receive copies of Department records, including, documents, contracts, and communications related to the normal course of business. (O.C.G.A. § 50-5-46.1(a)(3)). Additionally, the Department generally considers pricing information to be subject to public disclosure. These open records obligations cannot be superseded by contract.

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  • Binding Arbitration

    The Department cannot agree to clauses providing for binding arbitration. (O.C.G.A. § 50-5-46.1(2)(D)). Based on the State’s sovereign immunity and the Attorney General’s authority over civil litigation, the Department is not authorized to agree to binding arbitration. The Attorney General has exclusive authority and control over all matters of litigation or potential litigation involving State agencies, and neither the 1983 Georgia Constitution nor any Act of the General Assembly authorizes the Department to limit the type or scope of judicial action, or the result obtainable therefrom by the State. Provisions which effectively waive the right of the Attorney General to bring actions on behalf of the State are prohibited.

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  • Attorney’s Fees

    The Department cannot agree to pay attorney’s fees, court costs, or other litigation expenses in the event of a dispute, as that would be considered a violation of the constitutional gratuities clause.

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  • Warranty/Guarantee

    The Attorney General has advised that warranty provisions requiring State agencies to provide a warranty or guarantee are constitutional violations of the pledges of the State’s credit and the prohibition against gratuities by the State, given that resources may have to be expended to satisfy such warranty or guarantee.

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  • Late Payment/Cancellation Charges/Interest Charges

    State agencies are prohibited from agreeing to pay late payments or cancellation charges. Such payments are considered a penalty or gratuity that the State is constitutionally prohibited from paying. (Atty. Gen. Position Paper, dated August 8, 1978; Bently v. State Board of Examiners, 152 Ga. 836 (1922)).

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  • Taxes

    The Department is exempt from most taxes and will not agree to contract language which requires the payment of taxes. The Department will not agree to reimburse the contractor for the payment of taxes.

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  • Multi-Year Terms/Automatic Renewals

    As a general rule, all of the Department’s contracts expire after one year.  Multi-year contracts are possible, but generally require an affirmative renewal option at the Department’s discretion. The Department cannot enter into agreements that have automatic renewals such that state funds are or would be obligated in subsequent years. (O.C.G.A. § 50-5-64.1(a)(2)(E)).

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  • Interest

    The Department lacks the statutory authority to enter into contracts requiring the payment of interest. The payment of interest by a state entity is considered a violation of the gratuities clause. (Atty. Gen. Position Paper, dated August 8, 1978; Bently v. State Board of Examiners, 152 Ga. 836 (1922)).

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  • Prepayment of Services/Deposit

    The Department is not authorized to make payment prior to the receipt of goods/services. Pursuant to the State of Georgia Accounting Procedures Manual, payables for normal operating expenditures should be recognized when the goods and services have been received or rendered.

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  • Insurance

    As a State entity, the Department does not have the authority o purchase commercial insurance. The Department of Administrative Services procures insurance for State entities. The Department is covered under the Georgia State Tort Claims Act (GSTCA) and the State of Georgia Broad Form Insurance that is administered by the Department of Administrative Services’ Risk Division. (O.C.G.A. § 50-1-120 et seq).

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  • Drug Free Work Place

    Pursuant to O.C.G.A. § 50-24-3 and § 50-24-4, the Department must include specific certifications regarding the provision of a drug free workplace and prohibition against engaging in certain activities relating to unlawful drug-related activities. This language is non-negotiable.

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  • Joint Ownership of Intellectual Property

    The State is constitutionally prohibited from becoming a joint owner or stockholder in or with any individual, company, association, or corporation. Therefore, the Department is prohibited from agreeing to joint ownership of intellectual property. (Ga. Const. Art. VII § IV, Para. VIII).

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  • No Boycott of Israel

    Pursuant to O.C.G.A. §50-5-85, the Department cannot enter into a contract with a total value of $1,000 or greater with an individual or company if the contract is related to construction or the provision of services, supplies, or information technology unless the contract includes a written certification that such individual or company is not currently engaged in, and agrees for the duration of the contract not to engage in, a boycott of Israel.

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  • Contract Clauses that Impose Obligations by Reference

    The Department will not agree to contract provisions that incorporate additional obligations by reference, including but not limited to, references to policies located at a specific web address. Any and all terms of the contract which are modified or amended shall be binding upon either Party so long as such changes are agreed to in writing by the Parties and executed by the designated individuals authorized to amend or modify the contract.

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