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What is a Contract?

A contract is an agreement between two or more parties who intend to be legally bound. At a basic level, the terms of a contract will state what the parties have agreed to, which usually means that it sets forth what the parties have agreed to exchange. Goods or services will often be exchanged for money. Educational institutions enter into a number of additional types of contracts, such as internship agreements and affiliation agreements, where money may not change hands, but with which the institution must still comply.

Contracting parties can be individual people, a business, an organization, a government agency, a university, or any other legal entity. The UNT System is an agency of the State of Texas, and can enter contracts, as can the University of North Texas and the University of North Texas Health Science Center. At this time, the University of North Texas Dallas Campus is not a separate entity that is capable of contracting on its own, and the UNT System will enter into agreements on its behalf. University departments, centers, colleges, or divisions cannot be party to a contract, as they are not individual legal entities. Instead, the UNT System, the University of North Texas, or the University of North Texas Health Science Center must enter into contracts on behalf of their respective divisions or departments. In order for a contract to be properly entered into by the UNT System or one of its institutions, it must be signed by an individual with appropriate signature authority. Please see the section on Delegated Authority on this website or located at page 20 of the Contracting Handbook for more information.

Generally, a contract is formed when one party agrees to do something or give something to another party in exchange for some other action or object. Contracts can be based on intentional actions, be entirely verbal, or be written, either using formal or informal terms. An informal, verbal contract arises, for example, when you engage a babysitter. You tell the babysitter to come over at 7pm and to stay until you get home. In exchange, you will pay the babysitter five dollars per hour. The babysitter agrees. If the babysitter comes over at 7pm and stays for three hours, you are contractually obligated to pay fifteen dollars. A formal, written contract arises when you purchase a car from a dealership, and all your obligations are set forth in that contract, as well as what you’re getting in exchange, including what type of car, any features it may have, and relevant warranties.

It is critical to note that all contracts involving any UNT System entity must be in writing and signed by an individual with appropriate signature authority. The University of North Texas System Board of Regents has adopted Regents Rule 03.900, Delegation of Authority for Contracts and Agreements that mandates that all contracts entered into by any System entity must be in writing. This means that any time a UNT System entity will be contractually obligated to do anything, from purchasing a certain number of pencils to renovating a building, or engaging the services of a speaker or consultant, the agreement must be in writing. In addition, all written contracts must be signed by an individual with appropriate signature authority to bind his or her respective institution. If not appropriately signed, a contract may not be legally binding on a UNT System entity, and the individual who signed the contract without having the authority to do so may be individually responsible for fulfilling the obligations required by the contract.

In order to simplify the contracting process for making purchases, while still complying with the policy that all contracts must be in writing, almost all purchases made by the UNT System and its entities are made using Purchase Orders. A Purchase Order is a standard contract used by a purchasing department to clearly set out the terms of an entity’s agreement with a vendor. The relevant terms include the vendor, the product names, how many of each product is being purchased, and at what price. In addition, there are terms and conditions set forth in the Purchase Order that govern the contract, such as how much interest will be paid to the vendor in the event that payments are not made on time, and what will happen if there is a dispute over the contract. It may be beneficial to enter a written contract in addition to a Purchase Order, as a written contract will include terms and conditions in addition to those set forth in the Purchase Order (i.e. warranties, guarantees, or limitations of liability).

If a contract does not involve a purchase, for example, affiliation agreements, facility use agreements, or other types of revenue agreements, a Purchase Order will not be issued, and a written contract is required. Written contracts are beneficial to both parties, as they clearly set forth the obligations of each party, and may provide recourse in the event that the relationship does not proceed as expected. Written contracts are considered the final disposition of each party’s intentions, and any terms of the agreement that are not included in the written contract will not be legally binding. Therefore, it is important to make sure that all important items are included in an agreement.

If one or both parties fail to satisfy their obligations under a contract, the contract has been “breached.” The party who has committed the breach is called the “breaching party” and may be required to compensate the other party for any damages arising out of the breach. It is important to clearly set forth in a contract what each party is obligated to do, so that there will be no question about whether the parties have fulfilled their obligations.

UNT System entities entering into contracts, regardless of whether the contract involves a purchase, must comply with requirements imposed by the state constitution and statutes, which may require or prohibit the inclusion of certain language. Problematic terms can usually be modified to comply with state requirements, or they may need to be deleted altogether. Please see the Contract Checklist and the State Contracting Requirements for more information.