Prohibited Contract Terms for State Agencies

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. § 50-5-64.1(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.

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. § 50-5-64.1(a)(1)(B)).

The Attorney General has exclusive authority and control over all matters of litigation or potential litigation involving state agencies. (Ga. Const. Art. V, Par. III, Sec. IV; O.C.G.A. § 45-15-3). The Department cannot enter into a contract that provides for a person other than the Attorney General to serve as legal counsel for the Department. (O.C.G.A. § 50-5-64.1(a)(2)(A)).

Any and all contracts with the Department must be governed by the laws of the State of Georgia. (O.C.G.A. § 50-5-64.1(a)(2)(C)). Contracts shall not contain a term that provides for the contract to be construed in accordance with the laws of another state. Any such provision in a contract shall be deemed void and the contract shall be otherwise enforceable as if it did not contain such term.

The Department is subject to the Georgia Open Records Act (O.C.G.A. § 50-18-70 et seq). 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. § 50-5-64.1(a)(3)). Additionally, the Department of Administrative Services generally considers pricing information to be subject to public disclosure. See State Rd. & Tollway Auth. V. Elec. Transaction Consultants Corps., 306 Ga. App. 487 (2010). These open records obligations cannot be superseded by contract.

The Department may not enter into an agreement which states that the venue for any action or dispute is any court other than the Superior Court of Fulton County. (O.C.G.A. § 50-5-64.1(a)(2)(B); O.C.G.A. § 50-21-1).

The Department cannot agree to pay attorney’s fees, court costs, or other litigation expenses in the event of a dispute. Such payments pledge the credit of the State in violation of Ga. Const. Art. VII, Sec. IV, Par. VIII and would be a violation of the gratuities clause as stated in Ga. Const. Art. III, Sec. VI, Par. VI.

The Department cannot agree to clauses providing for binding arbitration. (O.C.G.A. § 50-5-64.1(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 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.

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.

State agencies are prohibited from agreeing to pay late payments or cancellation charges, as 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)). Agreeing to pay such charges would also pledge the credit of the State in violation of the Constitution. 1974 Op. Att’y Gen. 74-115.

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.

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)).

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, as well as an improper pledge of the credit of the State. (Atty. Gen. Position Paper, dated August 8, 1978; Bentley v. State Board of Examiners, 152 Ga. 836 (1922)).

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.

As a general rule, the Department cannot accept risk of loss until the receipt of the items or goods.

As a State entity, the Department does not have the authority to 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).

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.

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).

Pursuant to O.C.G.A. §50-5-85, the Department cannot enter into a contract with a total value of $100,000 or greater with a company that employs more than five persons, unless the contract includes a written certification that such company is not currently engaged in, and agrees for the duration of the contract not to engage in, a boycott of Israel.

The Department will not agree to contract provisions that incorporate additional obligations by reference, such as policies located at a specific web address, as these provisions may be unilaterally changed. 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.

Pursuant to O.C.G.A. § 13-10-91, the Department cannot enter into a contract for the performance of services unless the supplier registers and participates in the federal work authorization program. If a supplier is providing services under a contract with a total compensation amount of $2,500 or greater, (even if such services will be performed outside of the State of Georgia), the Department requires a notarized affidavit from the supplier. Additional information on the State’s E-Verify requirements can be found at: https://www.audits2.ga.gov/resources/other/immigration/?rpage=get-help.