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303 Contract Term and Value Determination

General

Certain approval processes are outlined in other areas of this manual. These processes differ depending on the contract term or contract value. The definitions below are provided to assist in the determination of this information.

Definitions

Contract Term: The expected length of time from the beginning to the end of the contract, if the University takes no action on its part to either extend or reduce the contract's length, by evoking cancellation or renewal provisions.

Contract Value: The estimated value of purchases by, or commission to, the University during the "contract term" as determined above.

Examples

Contract term commences on a specified date and terminates on a specified date. The value of the contract is calculated as the total of the stated costs for the specified time period. Contract language example: "The term of this contract shall be from January 1, 2009, through December 31, 2009." If the consideration is $5,000 per month, the calculation of the value of the contract is $5,000 x 12 = $60,000.

Contract is for a specified period, unless cancelled. Because no action is required for the contract to continue, it must be assumed that the contract will run its full period. The value is calculated as the total of contract costs for the entire period. Contract language example: "Term of this contract shall be January 1, 2007, through December 31, 2009, unless cancelled in writing by either party with sixty (60) days notice. If the consideration is $60,000 per year, the calculation of value is $60,000 x 3 = $180,000.

Contract is for a stated period, and can be renewed for subsequent periods by written notification.Because action is required on the part of the University to renew the contract, the value of the original contract is calculated up to the first renewal. Each subsequent renewal period is valued as an individual contract. Contract language example: "The term of this contract shall be from January 1, 2009, through December 31, 2009, and may be renewed for additional one-year terms by written notification sixty (60) days prior to expiration." If the consideration is $60,000 per year, the calculation of value of the contract is $60,000 x 1 = $60,000.

Contract renews automatically for successive, but finite, periods unless terminated. Contract term is calculated as the original term plus allowable renewal periods. Contract language example: "Term of this contract shall be January 1, 2009, through December 31, 2009, with up to two automatic annual renewals unless terminated by either party in writing sixty (60) days prior to renewal date." If the consideration is $60,000 per year, the calculation of value is $60,000 x 3 = $180,000.

Contract renews automatically for successive one year periods unless terminated. Continuation of the contract requires no action on the part of the University to renew; therefore, the contract is considered to be a multi-year contract. To determine the value of the contract the reasonable life expectancy of the contract should be considered. Contract language example: "The term of this contract shall be from January 1, 2009, through December 31, 2009, and automatically renews annually unless terminated by either party in writing." Following is an example if the reasonable life expectancy of the contract is ten (10) years. If the consideration is $50,000 per year, the calculation of value is $50,000 x 10 = $500,000. This type of language should be used with discretion and only used when determined by procurement to be in the best interest of the University. Documentation regarding the reasonable life expectancy must be included in the contract file. Board approval is required only if the contract was not competitively awarded.