A Third Party Contract is one in which a state agency enters into a contract with another entity (the “State Contractor”) where the primary or exclusive responsibility of the State Contractor is not, as it normally is, to provide goods or services (directly and/or through subcontractors); but rather, is to procure such goods or services for the State through a contract with a third party (the “Third Party Contractor”). In many cases, these contracts between the state agency and the State Contractor create an agent-like relationship whereby the State Contractor acts as a procurement conduit and enter into contract(s) “for” the state agency. In such situations, the third-party contract(s) entered into between the State Contractor and the Third Party Contractor for those goods or services are contracts “for” the State and are subject to OSC approval under section 112 of State Finance Law. In addition, in such a situation, the third-party contracts must be let in accordance with the procurement statutes applicable to the originating state agency, except where the use of the State Contractor is specifically provided for by law.

It is important to emphasize that most third-party contracts (such as true subcontracts) under arrangements that do not create an agent-like relationship are not contracts “for” the State and therefore are not subject to these requirements. Only those third-party contracts deemed to be “for” the State are subject to approval by the Comptroller under section 112 of State Finance Law.

Section 112(2)(a) of the State Finance Law provides that “[b]efore any contract made for or by any state agency, department, board, officer, commission, or institution, shall be executed or become effective, whenever such contract exceeds fifty thousand dollars in amount, it shall first be approved by the comptroller and filed in his or her office” [emphasis added]. Contracts “for or by” the State University of New York, City University of New York, Office of General Services and hospitals operated by the Department of Health may be subject to higher thresholds or exempt from the State Comptroller’s approval altogether.

Process and Document Preparation:

A third-party contract entered into by a State Contractor is a contract “for” the State where the primary role of the State Contractor is to procure goods or services for the State of New York. In such instances, the State Contractor usually acts merely as a conduit for payment to the Third Party Contractor, with little or no liability or responsibility for the provision of such goods or services or for cost overruns. In such cases, the State Contractor is, in essence, an agent “for” the State or the state agency. It is important to emphasize, however, that it is the nature of the relationship between the state agency and the State Contractor that governs - not the presence (or absence) of a formal designation of the State Contractor as an “agent.”

Contracts “for” the State are particularly likely to occur where the State Contractor is closely affiliated with, related to, or controlled by the state agency.

There may also be situations where a State Contractor has direct responsibility and liability for the provision of certain goods and services under a contract, but with respect to other additional goods or services under the same contract, is responsible only to procure such additional goods or services for the state agency with little or no responsibility or liability regarding the provision of such goods or services.

In such situation, only that portion of the contract for which the State Contractor bears little or no responsibility will be deemed a contract “for” the State.

EXAMPLE 1

A contract is entered into between a state agency and a State Contractor where the State Contractor agrees to procure, on an as-needed basis, various types of administrative training for the state agency. The State Contractor solicits for the training, but prior to entering into third-party contracts with the training organizations, the State Contractor must obtain the state agency’s approval of the proposed training organizations. The proposed training organizations are responsible to the state agency for effective delivery of the curriculum, with the State Contractor facilitating the payments from the state agency to the organization delivering the training. Although the State Contractor may assess an administrative fee for the acquisition of the services, the training organizations are responsible to the state agency for effective delivery of the training. The arrangements between the State Contractor and the training organizations are third-party contracts “for” the State and are subject to OSC approval and the requirements of state procurement statutes.

EXAMPLE 2

A state agency awards a contract for a specific service, and the State Contractor is financially and programmatically responsible for the delivery of such service. After the contract is executed and approved, the agency identifies an urgent need for different goods or services that are not substantially related to the scope of the original contract. The state agency is able to justify an amendment to the existing contract as an emergency award that can be made without a new competitive process (as would otherwise be required) and amends the existing contract to require that the State Contractor procure the additional goods or services for the State. In this example, the third-party contracts let pursuant to the contract amendment are contracts “for” the State and are subject to OSC approval and the requirements of state procurement statutes, but any third-party contracts let in furtherance of the original contract scope would be true subcontracts, which would not be contracts “for” the State.

EXAMPLE 3

A State agency executes a contract with a Research Foundation ("RF") in accordance with an OSC approved operating agreement. The RF is utilized as the State Contractor in this case because of its unique relationship with the state agency. The State Contractor (RF) provides expertise and is responsible to the state agency for the delivery of certain activities under the contract. In addition, for the sake of efficiency, the state agency requests that, as part of the contractual arrangement, the State Contractor (RF), in addition to performing services directly under the contract, secure other project related resources for which the State Contractor (RF) will not be programmatically or financially responsible. The organization providing the additional resources is responsible for delivery of the goods or services to the state agency. In this instance, the third-party contracts let by the State Contractor (RF) are contracts “for” the State that are subject to OSC approval and the requirements of state procurement statutes. However, any third-party contracts let by the State Contractor (RF) in furtherance of the portion of the contract for which it is programmatically and financially responsible would be true subcontracts that would not be contracts “for” the State.

EXAMPLE 4

One typical example of a contract that is not “for” the State, and therefore not subject to OSC approval under section 112 of State Finance Law, is a subcontract under a competitively bid contract (such as a construction contract, an IT services contract or a contract for cleaning services). In these cases, a state agency contracts with a contractor (the State Contractor) via a competitive bid. The State Contractor is responsible for selecting any subcontractors they may need to perform portions of the work. The State Contractor remains responsible for performing the essential tasks required to complete the project, and remains financially liable for any cost overruns on the project. These subcontracts are not contracts “for” the State and are not subject to OSC approval.

Procurement and Contract Document Requirements:

Third-party contracts determined by OSC to be “for” the State must be submitted to the State Attorney General and the State Comptroller’s Office for approval. In addition, the third-party contracts must be let in accordance with the procurement statutes applicable to the originating state agency, except where the use of the State Contractor is specifically provided for by law. If it is determined a state contract provides for the State Contractor to enter into contracts “for” the State, OSC requires a clause in the contract, between the state agency and the State Contractor, indicating the State Contractor will be contracting “for” the state and requiring the Comptroller’s approval of all such contracts “for” the State. The required clauses can be viewed through this link.

In addition, any such contracts awarded for the State, except where the contractor has been specifically authorized by law to contract for the State, must be awarded in accordance with the provisions of the same statutes, regulations, and procedures that would govern the advertising and award of such contracts if they were awarded directly by the state agency. Appropriate notice concerning applicable competitive bidding requirements must also be included in the contract between the state agency and the State Contractor.

A modified Appendix A is required to be included by State Contractors in contracts “for” the State.

It is the agency’s responsibility, in the first instance, to determine those contracts that will result in contracts “for” the State and in such cases, to insert the required clauses in the contract with the State Contractor. Such determination is subject to review by OSC and if OSC determines that a state contract will result in contracts “for” the State, OSC will return the contract to the agency so that the required clauses may be inserted and the contract re-executed.

In addition, in such situations, it is the agency’s responsibility to oversee the State Contractor’s procurement process to assure compliance with this bulletin and all applicable state laws. Failure to submit the third-party contract(s) determined to be “for” the State and associated procurement record(s) for approval under section 112 of State Finance Law may result in the State Contractor not receiving payment under its contract with the State.

Agencies are responsible for ensuring that third party contractors have valid NYS Vendor IDs. If a NYS Vendor ID does not exist for a third party contractor, the State agency is responsible for initiating the creation of a NYS Vendor ID prior to submitting the third party contract to OSC for approval. (See Chapter X, Section 1- Guide to Vendor/Customer Management Overview of this Guide for additional information). Amendments to Third Party Contracts subject to OSC approval are also subject to OSC approval.

State agencies entering into a contract or memorandum of understanding with agencies or entities who, in turn, contract with a Third Party Contractor (a contract “for” the State) should contact OSC if they have questions relating to the procedures to be followed, or if they seek an exemption from the Contract Reporter advertising requirements that apply to the third-party procurements.

Process and Document Preparation Specific to the SFS:

Third party transactions are not directly entered into the SFS by agencies. To submit a Third Party Contract to OSC, the agency prepares a Single Transaction Summary (STS) or AC 340-S providing the minimum following information:

• Agency Business Unit and Department ID
• Vendor ID for the Third Party Contractor
• Third Party contract amount
• Begin and Expire Date of the Third Party Contract
• Description of the Third Party Contract
• NYS Contract #of the primary contract identified in the Description Field on the Single Transaction Summary (STS) or the Provision Field on the AC 340-S.

OSC will notify the state agency of approval/non-approval of the Third Party Contract via a hardcopy notice. The approval status of Third Party Contracts is not viewable by agencies in the SFS.

Guide to Financial Operations

REV. 04/24/2015