Personal Services Contracts
A personal services/performance contract is used to purchase services to be performed by a firm or individual as an independent contractor. Use of the personal services contract is most appropriate when purchasing professional services such as, consultants, architects, engineers, performers, speakers, etc.
The Banner Encumbrance/Reservation Maintenance Form FGAENCB is required to initiate a personal services contract before services begin. At least 20 days are required for contract processing. The personal services contract process, approval and signatures are accomplished through the Human Resources Office (209 Taylor Hall). Contracts for more than $25,000 must be processed through the bidding process; please contact the Purchasing department. Encumbrances of $5000 or more will also require approval by the Purchasing department.
On the webpage you will find the following information and links:
DEFINITIONS
- "Personal service"
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the furnishing of labor, time, or effort acquired for the state's direct benefit in its operations. Individuals or firms performing personal services are considered independent contractors and are not considered employees of the State.
- "Contract"
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generally, an agreement between two or more parties that is enforceable at law. A State Contract is a formal, legally binding agreement between two State Agencies or one State Agency and another party which ultimately results in the disbursement of funds. For the purpose of State Fiscal Rule, State Contracts include, but are not limited to Outsource Contracts, Personal Service Contracts, Purchased Service Contracts, and Settlement Agreements, and does not include purchase orders. A State Contract is distinguished from purchase orders and other approved forms of commitment vouchers for purposes of form and approval requirements.
- "Prior approval"
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a fully executed (all original signatures affixed) contract document must be received in the Human Resources Office before any service performance begins. "No person shall incur or order . . . any obligation against the state . . . for any expenditure not authorized by . . . approved commitment voucher" (purchase order, contract, advice of employment, etc.). "Any such obligation so raised in contravention of this section shall not be binding against the state but . . . every person incurring or ordering . . . such obligation . . . shall be . . . liable therefor." (CRS 24-30-202(3), C.R.S.)
POLICY
Colorado statutes, fiscal rules, Trustee and College policy require that contracts are signed prior to commencement of work. Except in an extreme emergency situation, good management and planning dictate that requests for contracts shall be submitted at least twenty (20) working days in advance of the date work is to commence in order to allow ample time for contract preparation and signatures. The College is subject to serious liability risk, Internal Revenue Service penalties, and State Controller's Office review when persons are permitted to work without first having signed a contract. Individuals who knowingly work to commence without a signed contract may be held personally liable.
The state statute covering "Contracts for Personal Services" can be found at CRS 24-50-501 et seq. The Department of Personnel rules and administrative procedures for "Personnel Service Agreements" are found in Chapter 10 of 4 CCR 810 (copies available in Human Resources or the Library).
USES
Personal services contracts are written generally for single occurrence or short-term services usually requiring only one-time payment. The personal services contract is used for: professional fees, consultants, honorariums, guest lecturers and speakers fees and expenses; or, special performers or entertainers (including the entertainment groups or individuals sponsored by the Program Council). Services of a College employee's business, unrelated to their normal duties, may be compensated by using a personal services contract. An employee's business is viewed as that of any other independent contractor. Payments are made outside the regular payroll. The Human Resources Office will determine whether an employment contract or a personal services contract will be processed.
Personal services contract MAY NOT BE USED for services that will directly or indirectly result in the separation of State classified staff or for services available within the State classified system; to compensate employees on the College's payroll performing services related to or similar to their job duties or duties performed under their employment contract; nor to compensate any student for services (unless services are as performer or entertainer sponsored by Program Council).
Personal services under $25,000 may be purchased using a purchase order if the purchase order terms and conditions adequately protect the interest of the State. A purchase order does not carry the signature of the contractor, so there is no agreement between the contractor and the College before services are performed.
STATEWIDE APPROVAL WAIVERS
Certain types of services have not been waived by the State to individual agencies. These are services offered by other state agencies or employees and, therefore, impact the classified personnel system. Before a personal services contract for any of these services can be issued, the Human Resources office must obtain a written waiver from the affected agency. Encumbrances will not be approved by HR until the waiver has been received. These services are:
Staff Training Services
Collection Services
Communication Services (Telecom)
Data Entry Services
Legal Services
Moving Services, Flags & Signs
ADVANCE PAYMENTS
It is the policy of the Colorado State Controller that the state shall not make advance payments. Vendors/independent contractors of the state are expected to have adequate resources or working capital in order to provide goods and/or services to the state. An advance payment requires issuing a state warrant and account for the advance payment which incurs additional costs for the state. Further, an advance payment results in a loss of interest earnings for the state and the risk of loss of the funds advanced because of vendor bankruptcy or non completion. Should an advance payment be made, it potentially places the state in a difficult negotiating position with the vendor if the goods and/or services received are not adequate. This is because the state is unable to withhold payment pending resolution of the matter.
The State Controller has waived the requirement of a written request from an agency or institution and SCO approval, prior to entering into an agreement that requires an advance payment in certain specifically-identified limited circumstances. In these instances, the VP Finance & Administration shall determine whether the situation complies with the State Controller's policy and requirements.
INDEPENDENT CONTRACTOR
Mistakenly classifying an employee as an independent contractor can result in severe fines and penalities from the IRS and Colorado Department of Revenue, as well as jeopardizing qualified benefit plans for existing employees. In theory, you should only be concerned with the results of the work, not the way in which it is performed. A questionnaire for Independent Contractor Verification (MSWord fill-in form) may be required from the requestor for the Human Resources office to make a final determination as to status. This questionnaire is based upon the factors used by the IRS to determine independent contractor status and are intended as a guide.
All current staff must use the supplemental employment contract process for additional services which are completely outside of their existing scope of services -- not a personal services contract unless the employee can provide proof of independent contractor status which meets the IRS' Employment Tax Regulations sections 31.3121(d)-1(c); 31.3306(i)-a; and 31.3401(c)-1. Proof must be provided before the encumbrance can be approved. Please have the employee contact Cheelone directly. All students must use an institutional work-study contract.
Independent contractors will be required to complete a W-9 (sent with the contract), if not already on file. According to IRS guidelines, a form 1099 will be annually provided only to those contractors who are paid $600 or more during the calendar year. Under federal law, non-resident aliens (as determined by US residency rules) are subject to withholding taxes of up to 30 percent of the total contract amount. If the country of origin has a signed tax treaty with the United States, a Form 8233 must also be completed and returned to VP Finance & Administration officefor any full or partial exemptions from the tax withholding requirement.
COLORADO PERA RETIREES
Beginning July 1, 2006, state statutes were amended to require that all agencies of the state of Colorado are subject to employer contributions – but not member contributions – for services performed by PERA retirees in an individual capacity or of any entity owned or operated by a PERA retiree or affiliated party. This includes not only work performed as an employee or contract employee, but also services as a consultant, independent contractor or through any other arrangement.
If the independent contractor is retired from the Colorado Public Employees Retirement Association, or an entity owned or operated by a Colorado PERA retiree or affiliated party, the subject employee or principle who is a Colorado PERA retiree will be required to complete a “PERA Retiree Returning to Work for a PERA Employer” form. This form will be sent to the independent contractor once the retiree SSN is verified from the Colorado PERA member/retiree database.
If a PERA retiree works as an employee or as a private contractor for a PERA-covered employer during their first month of retirement, this can will result in a reduction of their monthly PERA pension amount. It is the retiree's responsibility to be sure that he/she is complying with all PERA retirement requirements as set out in the PERA Working After Retirement information brochure available in the Human Resources office, in their retirement information packet, or available on the web at: http://www.copera.org/PERA/retiree/inretirement/workingafter.stm .
If the requestor is aware of that an independent contractor is a PERA retiree or is otherwise affiliated with a PERA retiree, please include that information and the retiree's SSN in the encumbrance text information. If it is verified that any employer PERA contributions are due, they will be deducted from the same budget as the encumbrance.
PERSONAL SERVICES CONTRACT PROCESS
The personal services/performance contract process requires a minimum of 20 days from start to finish -- assuming there are absolutely no glitches along the way. To help you understand the timing factor, here is a synopsis of the process.
- Department negotiates for services with contractor
- Department enters encumbrance into Banner
- Completed encumbrance enters all required approval queues (minimum of 30 minutes - longer if Cheelone is gone)
- Reviewed by Human Resources for compliance (if disapproved, returned to Department for correction)
- Encumbrance information to Human Resources Office for contract generation (minimum of 24 hours - depending upon workload)
- Contract & certification sent to DoP for approval (except those that have receivedn pre-approved waivers)
- Contract mailed to contractor for signature (up to 4 days for regular mail PLUS whatever additional time for the contractor review & approve, PLUS up to 4 days for return by regular mail)
- If no corrections & required W-9 is complete and received, then contract is forwarded for
President's signature (up to 2 days) - Signed contract along with completed W-9, DoP approval, and any required insurance certificates to approved designee of the State Controller for signature (minimum 24 hours if everything is in order)
- Electronic approval of encumbrance is entered in Banner by HR. One original of contract is mailed to contractor, one original goes into the College's files, and photocopies are sent to Accounts Payable and to the originating Department
- ONLY THEN MAY THE CONTRACTOR BEGIN WORK OR PERFORM SERVICES
- Accounts Payable will process for payment on the Tuesday following the completion of services for payment the next day
Encumbrances which are received in the Human Resources approval queue with less
than three weeks before the scheduled start of services will be mailed to the contractor by Federal Express mail
at the expense of the Department that entered the encumbrance. Note: Our experience has been that most of the contractors returned the contract signed within
12-20 days from the date it was mailed; out-of-state
contractors generally required an additional week.
PAPERLESS PROCESSING
An expedited process can be used for certain personal services contracts of $5000 or less (somewhat like the prepay process is used in place of requisitions/purchase orders). It eliminates the need to generate a four-page, hard-copy contract, in duplicate, and then the processing time for mailing and obtaining signatures. It greatly reduces the number of after-the-facts resulting from contractors not returning contracts prior to the start of services; and, it has also resulted in cost savings in postage, supplies and copying. Effective April 1st, the following service areas will be processed as paperless contracts:
- cooperating student teacher supervisors
- athletic officials/referees
- accompanists, choreographers, musical directors, costumers, art models
- animal welfare consultants
- most "honorariums"
The following areas will also be paperless UNLESS the requestor/responsible WSC employee specifically requests a written contract to bind the contractor to complete the services as negotiated:
- guest lecturers or guest speakers
- laboratory services or other technical analysis
- academic program review consultants
- photographic services
- some local performers
Contracts under $5000 that would STILL REQUIRE a written contract include:
- architectural or construction related services
- Continuing Education instructors
- performers and entertainers using an agent
- consultants hired as result of a formal written proposal
- services which pose a risk to employees, students, or the public
- services for which no waiver has been granted from the Dept. of Personnel
Human Resources reserves the right to require a written contract for any encumbrance, regardless of the dollar amount, if deemed necessary to protect the interests of the College. If an encumbrance is entered into Banner after-the-fact, the same explanatory memoranda will still be required before the encumbrance is approved and forwarded in Banner to the paperless payment process. The paperless processing steps are:
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Requestor inputs encumbrance into Banner (same as written contract process). For requests of $5000 or less, on the last line of the FOATEXT screen , type "PAPERLESS". If a written contract is preferred in any instance when a paperless would normally be used, please indicate "WRITTEN REQUESTED" on the last line. This will override the paperless process. Otherwise, the above guidelines will be followed.
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The contractor is sent a transmittal letter which briefly identifies the services being provided and explains that their payment will be generated without a written contract. It gives the contractor the option of requesting a written contract. If the contractor does not already have one on file, they are also sent a W-9 for completion before any payment will be processed.
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Once the W-9 is received, the requestor will be sent a paper "receiving" document. This form is printed on goldenrod-colored paper. It has a printout of the requestor's encumbrance text (FOATEXT screen) and a section for approving and "receiving" satisfactory completion of the services. Human Resources will already have signed off on the W-9. Electronic approval of the encumbrance is entered in Banner by HR.
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Upon satisfactory completion of the services, the responsible WSC employee must sign, date, and send the receiving document directly to Accounts Payable (John Gunning) in the Accounting office. Any invoices should be attached to the receiving document.
TRACKING INCOMPLETED/UNAPPROVED ENCUMBRANCES
Every Wednesday, Banner generates an automated email to those requestors who have incomplete or unapproved encumbrances as a reminder. IT IS YOUR RESPONSIBILITY TO FOLLOW UP ON THESE UNFINISHED ENCUMBRANCES.
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Contact the Budget Analyst (Leonard) in the VP Finance & Administration office if your encumbrance is "NSF".
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If there is not a "C" after the encumbrance, then you will need to go back into the encumbrance and complete it.
- If it has a "C" but is still listed, then either other persons responsible for the budget(s) on which the encumbrance is made have not yet approved it; or, required paperwork has not been returned. If it is unapproved by the person(s) having signing authority on the relevant budget (see FOAAINP instructions link below), it is up to you to contact that person(s) and have them approve the encumbrance in their FOAUAPP queue. If the encumbrance is sitting in the E000 Human Resources queue (Cheelone), this indicates that the required paperwork has not been returned.
NOTE: No services can commence until the required paperwork has been filed and the encumbrance has been approved by Human Resources in Banner.
Banner instructions for checking on the status of an encumbrances can be found on the Purchasing Dept. webpage at:
- Approve a Document - FOAUAPP
- Check Unapproved Document Queue - FOAAINP
- Check Encumbrance Status & Payments - FGIENCD
AFTER-THE-FACT DOCUMENTATION
Upon application, the State Controller has designated his signing authority for personal services contracts to Western State College. As per the Attorney General's opinion issued December 23, 1997, this delegation of signing authority does not include the authority to approve commitment vouchers when a disbursement has been made in violation of CRS 24-30-202(2) or an obligation incurred in violation of CRS 24-30-202(3), and our delegation of signing authority has been amended to include this restriction. Entry of an encumbrance into the Banner system is insufficient to meet the requirements of CRS 24-30-202(3). The personal services or performance contract must be fully executed -- that is, signed by the contractor, the president and the state controller's designee, a completed W-9 on file, any required certificates of insurance on file, as well as any required supplemental IRS forms. If an encumbrance is entered for services which have already commenced or been completed, or the contractor fails to execute & return the documentation prior to start of work, then the requestor must complete a written explanation to the controller and president, which explains in full detail:
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The circumstances surrounding the making of the improper obligation, execution of the contract, and any disbursements that were made prior to approval of the encumbrance and/or full execution of the contract;
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The reasons why the proper procedures were not followed;
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A description of how the contract terms were negotiated and a reaffirmation that the prices or rates are fair and reasonable; and
- What corrective actions are being taken to prevent a recurrence by the department and the employee(s) involved.
Additionally, the Human Resources office is required to address and make changes to any current procedures contributing to the after-the-fact, AND the college administration must address what corrective actions will be taken to prevent a recurrency by the involved employee(s) and department(s). A standard After the Fact Report has been developed to formally address all these concerns and issues, Human Resources will forward this form to the responsible requestor when necessary.
THE PERSON INCURRING OR ORDERING ANY SUCH ENCUMBRANCE FOR SERVICES CAN BE HELD PERSONALLY LIABLE FOR THE FULL AMOUNT OF THE OBLIGATION. Depending upon the nature of the violation, representatives of the State Controller's Office may schedule a visit to Western State to discuss reasons for the irregularities and assist in developing effective solutions.
FRAUD: It is unlawful to knowingly and intentionally provide false, incomplete, or misleading facts or information in order to circumvent the state controller's review process for obligations incurred in violation of CRS 24-30-202(3).
BANNER FORMS INSTRUCTIONS
Instructions for encumbrances are available on Purchasing Dept. webpage at:
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Vendor Search - FTIIDEN (remember that you must still enter the vendor name & address on the FOATEXT screen even if you pull it into the encumbrance on the first page as the information does not show during the approval process & will hold up your contract)
MESSAGES IN BANNER's "GUAMESG"
If an encumbrance is denied or disapproved in Banner for any reason, a message in the "General Message Form - GUAMESG" will be sent to the person who entered the original encumbrance. Banner will notify you when you have a message. While this will not affect future processing of the contract once corrected and reapproved, the message will remain in the GUAMESG screens until removed. To delete, highlight the message you wish to delete, click on "Record" on the top function bar, then click the "Remove" option. You may have to repeat this process a second time for the message to disappear.
INSURANCE & LIABILITY REQUIREMENTS
When requested, independent contractors shall procure, at its own expense, and maintain for the duration of the Contract, the following insurance coverages:
- Standard Workers' Compensation and Employer Liability, as required by State statute including occupational disease, covering all employees involved in the project.
- Federal or State unemployment insurance as may be required.
- General Liability, (Public Liability and Property Damage), (minimum):
- Combined single limit - $600,000 written on an occurrence basis.
- Any aggregate limit shall not be less than $1 million.
- Contractor must purchase additional insurance if claims reduce the annual aggregate below $600,000.
- Western State College of Colorado shall be named as additional insured on each comprehensive general liability policy.
- Certificate of Insurance shall be provided to Western State College prior to commencement of work.
NONRESIDENT ALIENS
Performers, guest speakers/lecturers, consultants, etc. who are not residents of the United States will be required to complete a W-9 which indicates this status. Residency is determined by US residency rules and the independent contractor should inform you of his/her status early on in the process. We are required to withhold 30 percent of the total contract amount for taxes and forward it to the IRS. The contractor may be required to complete additional tax forms and should consult IRS publication 515 - Withholding of Tax on Nonresident Aliens and IRS publication 519 - US Tax Guide for Aliens. Other tax forms may also be necessary.
If the non-resident alien's country of origin has signed a tax treaty with the US (see IRS publication 901 - US Tax Treaties), the taxes may be fully or partially waived from this tax requirement. The alien must complete Form 8233 - Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual and submit it to the Human Resources office. Western State is required to file this form with the IRS and there is a mandatory 10-day waiting period before any payment can be made to the contractor. Expiration of the 10 days does not constitute absolute acceptance, and requestors should be aware that Western State (and specifically the requestor's budget) may still be liable for taxes & penalties even though the non-resident alien contractor has been paid the full amount.
Requestors should note that even if a nonresident alien tells you that the other US colleges at which he/she has "performed the same services have just paid him/her & not required all this IRS paperwork", that does not mean that it is correct or legal. Western State College will require compliance with federal and state laws. If you have questions or concerns, please contact Human Resources.