10 Things A Non-profit Should Include In Its Contracts
Too often non-profits do business on a hand-shake and a wink. Doing this not only places the organization at risk but the person “contracting” too. In some states, being too reckless could leave the person entering into these oral agreements personally responsible.
But I attribute the inability, or refusal, to implement contracts to a belief that they have to be perfect. When in reality, contracts don’t always have to resemble the size and readability of an illuminated bible. The important thing is to get a basic transaction down on paper and signed.
What follows is not intended to be legal advice (there goes my disclaimer for the day) but an exercise to get you thinking. Ten things an organization should consider including in a contract from here on out. Note, these aren’t in any particular order and this list isn’t all inclusive.
1. Force Majeure Clause: This protects you from breaching the contract if something happens outside of your control. It also helps if the other party causes a delay. You’ll want to refer to other agreements to see what type of events or occurrence’s should be covered here.
2. Termination: Work out when the contract will end. When possible, think twice about evergreen clauses (where the contract constantly renews until you cancel within a certain amount of time). Use this section to cover what each party will be responsible for if there is a termination. And talk about what happens if the other party breaches or terminates the contract (i.e. make sure you come out whole if the contract ends because of the other party).
3. Scope: One of the first things that should be laid out is the scope of the agreement. What will it apply to and what role will each party play?
4. Governing Law: Be clear on what law should reign over the contract and in what “forum” (county, city and state) disputes will take place. Keep in mind, the law in each state may be different on this. How disputes play out in court may also differ state to state as well. So this section can be important. Lastly, (not to get too legal eagle) read up on what to disclaim, like conflict of laws, to make sure this section plays out the way you hope.
5. Price & Payment: Work out pricing and payment. You don’t necessarily need specifics if the agreement will cover multiple transactions. If the contract is a framework, consider laying out the default position so there’s a general understanding. Things like price changes and invoicing. With payment, make it clear when payment is due by using milestones or installments. Make sure payment doesn’t have to be made unless you’re “reasonably satisfied” with the product or service. Include the right to hold on to payment if it isn’t.
6. Intellectual Property: Even though non-profits are run small at first, it’s never too soon to start protecting intellectual property. When I say intellectual property, I’m talking about copyrights, trademarks and patents. These are all as much an asset as a savings account. If you’re hiring a contractor to create something , include language to cover who owns the intellectual property created in the resulting work. If you want to own all IP, then add language that all work is “a work made for hire” (the US copyright office’s website has more on this). Where the work doesn’t fall under a work made for hire, make sure all IP made under the agreement is assigned to you. Also, be thinking about this if you’re contracting someone to do something like give a speech. Work out things like licenses or ownership that allows you to use the speech and re-publish it if you’d like.
7. Risks: Assigning risk (i.e. who is responsible for what when things go wrong and the extent they’re responsible) for things like property damage or personal injury. And do this ahead of time. Especially when you or someone in your organization will be at risk, like working on someone else’s property.
8. Confidentiality provision: This is important in that it covers information that should be held in confidence. Such as a donor list. Cover basic things like what information is “confidential”, how to protect that information and when that information may be disclosed.
9. Severability: This is more formal but great to have. It protects the rest of your contract from being invalidated if a section or two is found illegal. Along these same lines, consider including an “Entire Agreement” section to make sure that promises/paperwork created outside the contract doesn’t come into play. Only that written in the contract and signed should be considered.
10. Delivery: Talk about how the product or service will be delivered. This is another one that doesn’t have to lay out all the specifics if multiple transactions will take place. But establish a default position. If you’re getting goods, cover the place of delivery, when title transfers and who will be responsible if something is lost.
Other things you should think about are:
- Say what you mean and mean what you say. No need for the “art thou for here to going’s.” Write out how you want the transaction to go and make it happen in the agreement.
- Work out all the defaults. Don’t leave anything up to chance. In doing so, you leave your contract in the hands of a judge. A total stranger to the transaction.
If you’re looking for assistance in drafting up your own contract here are some great websites to check out:
- Common Contract Provisions
- Sample Governing Law Provisions
- A Sample Termination for Convenience Provision that allows parties to terminate at any time.
- Sample Non-Compete Provision
- Sample Force Majuere Clause
Not all of these may fit your transaction or even your industry. But they help show you what the standard clauses look like and help better tailor language. That is, if you insist on drafting all of your own contracts. Of course I recommend using an attorney, in which case these will help you come up a plan as to what issues you want the contract to cover; saving you time and money in the end.
Posted by Erin | 6 comments