Local Government Resource Desk Administration Contracts and Agreements Introduction A written contract should be used any time an organization is buying, selling, or lending substantial goods, services, or real estate. They should also be used when employing professionals such as consultants or accounting firms, or when entering into an agreement with another governmental entity to provide services. In order to contract in the name of an entity, such as a second class city, the entity must first be formally organized with the authority to commit resources under the contract. For example, once a community is incorporated as a municipality, it can enter into contracts in the name of that municipality. Narrative Contracts are legal documents containing promises made between two or more parties. Here is some clarification on related terms: Parties: The contract must state the persons or entities who agree to the contract. Promises: The contract must describe the promises or performance being agreed to by the parties, generally goods or services. Consideration: The contract must specify the price to be paid for providing the goods or services. Time for performance: The contract must also state a time when services will be performed or goods delivered, and state when payment is to be made. Contracts are generally enforceable by the courts if the parties making the contract: are legally competent; have expressed their agreement and consent in a definite manner; have made mutual promises that are supported by reasonable return; and have not agreed to do something that was impossible to perform at the time of the agreement, or that is illegal or violates public policy. Contracts should be in writing and signed by the persons who are authorized to agree to the contract on behalf of their respective party/organization. This should be documented by a written delegation of authority authorizing that person to sign on behalf of the organization. For a municipality, the person authorized to sign would usually be the mayor or manager; check your local ordinances, bylaws, and personnel policies to find out who exactly has such signing authority in your organization. There is a legal test for deciding whether an enforceable contract exists, which is known as a "meeting of the minds". The test requires a showing that each party fully understood the terms and fully agreed to the terms. Frequently Asked Questions Do contracts need to be in writing? Yes. All agreements should be in writing, no matter how minor they seem, to ensure that each party understands what they are agreeing to, and to document that the agreement has indeed been made. Under State Law AS 45.02.201 governing commercial transactions, the sale of goods valued at more than $500 must be in writing. Contracts can be made verbally by speaking the intent of both parties; however, verbal contracts are more difficult to enforce in the courts. The fact that an agreement was not put in writing is not proof that a contract was not made. We recommend not relying on spoken agreements, since they may later be remembered differently by each party. Does an attorney have to write the contract? No. In some cases involving simple transactions, such as a rental agreement or simple time purchase agreement, it is not necessary to have an attorney write the agreement. It is, however, a good idea to have an attorney prepare contracts that cover complicated transactions. A contract is a legal document that commits each party to perform under the terms spelled out in the agreement. For this reason, it is very important that each party to the agreement knows and understands what is being agreed to. If you don't understand the terms of a contract, don't sign it until it is made clear. It is also a good idea to have an attorney periodically review standard contracts like purchase orders or equipment leases that are routinely used in municipal operations. Doing so will help ensure they are up to date with any contract provisions that may have come into effect after the contract was drafted. If the other party to a contract fails to perform or breaks the contract, how long does a municipality have to sue? Under AS 09.10.053, if someone does not perform under a contract, it is called a "breach of contract". A person generally has three years from the date of the breach of the contract to sue for any damages that may have occurred. However, under AS 09.10.120 municipalities may have six years to bring an action for a breach of a contract. This special law does not apply to all contracts, so review the contract carefully and/or talk with an attorney about the particular contract that is being broken. Can one party force the other party to perform under the contract? Going to court to force the other party to perform is called "suing for specific performance". Frequently, the courts will not enforce specific performance because it is messy and can continue the problem. Rather than enforce the performance of the contract, courts may require one party to pay another for the damage they incurred. "Awarding damages" requires the payment of cash to the party who has not breached the contract for any inconvenience caused by the breach. In cases where there is no money available to award, or where there is collateral involved such as a real property contract, the court is more likely to enforce specific performance. Once a breach has occurred, it is advisable to contact an attorney, particularly if the contract is complicated or involves large sums of money. Additional Resources Sample Documents: Sample Contract Sample Equipment Lease Recommended web site search topics Sample contracts for employment/services/real estate Applicable Laws and Regulations Alaska Statutes AS 09.10.053 Establishes a three-year statute of limitation for a person to bring a legal action to enforce a contract. AS 09.10.120 Establishes a six-year statute of limitation for a municipality to bring a legal action. AS 09.10.210 Explains when counting time on past-due debt begins. AS 29.35.010 Conveys a general power to municipalities to contract. AS 29.35.010 Authorizes a municipality to sue or be sued. AS 45.02.103-.105 Definitions, and an index of definitions. AS 45.02.106 Definitions: contract, agreement, contract for sale, present sale, conforming to contract, termination, cancellation. AS 45.02.201 Formal requirements of a contract. AS 45.02.204 Contract form, agreement provisions. AS 45.02.205 Term of offer. AS 45.02.206 Offer and acceptance, lapse. AS 45.02.207 Offer and acceptance with additional terms. AS 45.02.208 Relevance of performance in construing the contract. AS 45.02.209 Modification, rescission, and waiver; exclusions. AS 45.02.210 Delegation of performance, assignment of rights, exclusions, prohibitions. AS 45.02.319-.322 FOB and FAS terms, CIF and C&F, shipment, delivery of goods. AS 45.02.601-.616 Breach, repudiation, excuse. AS 45.02.701-.725 Remedies, standing, statute of limitations. Updated 3/10/2015