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Chapter 4
Financial Management

This chapter reviews the financial management and purchasing functions of the Venus Independent School District (VISD) in the following sections:

  1. Organization and Management
  2. Planning and Budgeting
  3. Accounting and Payroll
  4. Tax Collections
  5. Purchasing Operations
  6. Contract Management
  7. Textbooks


F. CONTRACT MANAGEMENT

A contract is a legally enforceable and mutually binding agreement between two or more competent parties that obligates one party to furnish an item of value and the other party to provide payment. Contracts usually are awarded as an outcome of negotiations. The contract negotiation process ensures that the district awards contracts to bidders that offer the best available goods and services at the most competitive prices with terms that are favorable to a district. The negotiation process also ensures the proper evaluation of terms and conditions stipulated by district finance or purchasing staff and allows board members to receive substantive input prior to voting on whether to approve a contract.


FINDING

VISD does not have a formal contracting process to ensure that a legal expert thoroughly reviews all its contracts. The district does not maintain a centralized depository or file for district contracts. This makes it difficult to determine exactly which contracts the district maintains. The district has no policy requiring business staff to review all contracts or requiring legal review of contracts prior to execution. This creates a higher risk of entering into contracting arrangements that are advantageous to a vendor, but not in the best interests of the district. For example, a VISD contract includes a clause where the district signed a hold harmless agreement in favor of the vendor, such as the third party administrative services agreement for the Internal Revenue Service (IRS) Section 125, Cafeteria Plan.

The review team requested copies of district contracts. District staff had a difficult time identifying current contracts and providing copies of some contracts. The staff could not find the original cafeteria plan document for the IRS, Section 125 Plan or the contract for the dental plan. When contacted regarding the dental contract, the vendor stated it did not have anything in its file signed by the district. An employee said that the district cleaned out the files when the former superintendent left the district. The review team contacted the third-party administrator for the cafeteria plan to identify benefits offered to employees under the cafeteria plan. The district does not have separate contracts for the individual benefit plans sold to employees under the cafeteria plan by the third-party administrator. The review team was able to identify the benefits marketed under the cafeteria plan through a monthly invoice.

VISD does not manage its existing contracts well. For example, the board renewed the custodial services contract on July 19, 2001 for an additional three years at $298,000 a year without requesting competitive bids. The former superintendent signed the contract, but the district copy does not include the vendor’s signature. The contract is vague and lacks many critical elements. It does not include performance measures, explain how the contractor will report to the district, designate who the contractor will be accountable to on a daily basis, describe the number of custodians the vendor will provide to the district or require employee criminal background checks and proof of insurance.

In addition, the custodial vendor’s company has opted out of the Texas Workers’ Compensation System. Workers’ compensation insurance covers workers who incur work-related injuries or illnesses. The coverage is not required for most Texas employers but it is mandatory for political subdivisions like school districts. An employee of the vendor will not be protected under the Texas Workers’ Compensation Act because the vendor opted out of the system. The Workers’ Compensations System would provide medical and disability benefits to custodial vendor employees if injured on the job. An injured employee may sue the vendor and possibly the district. The contract does have an indemnification clause that releases the district from liability, but the vendor has not signed the district’s copy of the contract.

Other contracts that did not have complete signatures on file with the district include the Multi-Regional Child Nutrition Co-op Interlocal Agreement, the Resolution of the Board of Trustees approving the Interlocal Agreement between Region 4 and the Texas Cooperative Purchasing Network and the Johnson County Sheriff’s Office School Resource Officer Memorandum of Understanding.

VISD cannot ensure its contracts are executed properly if it does not maintain, manage or monitor its contracts. When entering into a contract, districts often:

  • employ legal counsel to draft or review the final contract prior to signing it;
  • identify how the district’s liability is addressed in the contract;
  • review terms and conditions of the contract;
  • identify who has the authority to enter into the contract on behalf of the district;
  • attach all supporting documents to the contract;
  • retain an original contract with signatures of all district parties;
  • describe the specific services to be performed;
  • identify when and how the contractor will report to the district;
  • identify a clause for changing the contract;
  • describe the cost to the district and any changes that may occur;
  • describe how the district may terminate the contract and under what conditions;
  • identify how the vendor’s performance will be reviewed and documented; and
  • describe remedies for a contractor’s failure to perform services.

Recommendation 30:

Develop a contract management policy and procedure that requires legal review and input prior to final board approval.

Developing a contract management plan and supporting guidelines will reduce the district’s exposure to liability, help monitor contract performance, track contract expiration dates and ensure that all contracts are completed and enforced.

After a contract is awarded, VISD should have a process to evaluate services rendered or products provided under the contract to ensure proper execution of contract terms. The monitoring process should also ensure that the district has a position responsible for representing the district as a final authority for contract disputes that may arise. The monitoring process should also have a mechanism to evaluate a vendor’s performance and provide feedback or implement corrective action if, or, when warranted.


IMPLEMENTATION STRATEGIES AND TIMELINE

1. The superintendent directs the business manager to develop a contracting process that includes contract review, authorization and monitoring. September 2003
2. The business manager develops a centralized filing system for all district contracts. September 2003
3. The business manager seeks input from the district’s legal counsel and TASB on contracting policy. October 2003
4. The superintendent submits the contract management plan and procedures to the board for approval. November 2003
5. The superintendent and business manager trains school and central office administrators to use the contract management plan. December 2003


FISCAL IMPACT

This recommendation can be implemented with existing resources.