Integrated CSU Administrative Manual

CSU POLICY

Section:   CSU POLICY MANUAL FOR CONTRACTING & PROCUREMENT

Section 5000 Policies

Policy Number:  5233.0

Policy Title: Risk Allocation and Performance Assurance

Policy Effective Date:  April 20, 2004

Last Revision Date:  
(see revision history)

POLICY OBJECTIVE

This policy articulates the CSU’s requirements related to risk allocation and performance assurance to ensure procurement and contracting activities are in compliance with applicable regulations.

POLICY STATEMENT

Contracts should be formed to insure the fair and reasonable allocation of risk and to assure satisfactory performance by the contractor. Such risks include unanticipated events which substantially increase the cost or time for completion or make performance impossible.

Risk mitigation should be addressed when planning procurements and during contract formation. Risks may be allocated by the contract general provisions as well as the parameters that define successful contract performance. Each contract should be reviewed to determine the proper contract provisions to mitigate CSU risks. Standard clauses expressly provide the rights and remedies for the CSU should various contingencies occur or if conditions are not as expected or represented. Substantive changes to the standard General Provisions or acceptance of contractor’s contract terms should be done with care and, if necessary, include review by CSU legal counsel.

The requirements for successful contract performance should be clearly defined within the contract documents. Risks to the CSU may be reduced by the proper selection of contract type along with performance specifications that define and require successful completion of the contract work. One type of completion contract is the Firm Fixed Price contract. Under a Firm Fixed Price contract the contractor has full responsibility for the successful delivery of goods and/or completion of services at a set total contract price. The contractor is also responsible for the associated performance costs and the resulting profit or loss.

As opposed to a completion type contract, a level of effort type contract increases the allocation of risk for the CSU and should be used only when a completion type contract is not appropriate. One type of level of effort contract is the Time and Materials contract. Under a Time and Materials contract, performance is based on a description of the work required in terms of the level of effort to be expended by the contractor. In this type of contract, the contractor receives the compensation upon expenditure of the required hours of effort regardless of whether the anticipated work is completed. As a result, Time and Materials contracts may not protect the CSU from cost overruns since contract value is not keyed to completion of specific deliverables.

Regardless of the contract type, all contracts should clearly state the maximum amount payable for performance under the contact.

 

APPLICABILITY AND AREAS OF RESPONSIBILITY

 

REVISION HISTORY

  • January 31, 2014 (Annual Review conducted with no change to policy.)

RESOURCES AND REFERENCE MATERIALS

Useful Guidelines:

 

Related Principles:

 

Sound Business Practices:

 

Laws, State Codes, Regulations and Mandates:

  • Education Code 89036

COGNIZANT OFFICE(S)

CO Manager:

Tom Roberts
Director, Contract Services & Procurement
CSU Office of the Chancellor
troberts@calstate.edu

Subject Expert:

Tom Roberts
Director, Contract Services & Procurement
CSU Office of the Chancellor
troberts@calstate.edu

Affinity Group:

Procurement and Support Services Officers

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