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A Contract
Guide For the
PurposeDriven But
Easily Bored
A. What is a
Contract?
Will Reeses Pieces always have that little
piece at the bottom that sticks to the
wrapper? Undoubtedly. Can Hotel California
by the Eagles be listened to without indulging
in an air-guitar solo? ABSOLUTELY NOT. So
you see, some things simply cant exist
outside the forms we associate with them.
But contracts arent one of those things.
Unfortunately, theres a misconception that
contracts have to mimic encyclopedias in
complexity and size. This just isn't true.
Simply put, a contract is a pinky swear. You
promise to do something; I promise to do
something in return. Best case scenario?
Theres an outline of what those somethings
are, although youll learn thats not always the
case. We call this two-step process Offer and
Acceptance. Without getting into the weeds,
there must be Offer and Acceptance for a
contract to exist.

As we talk about contracts, keep this

overview in mind: You agree to something,
and I agree to something in return.
Remembering this helps tremendously in the
long run.
Also keep in mind that a contract (technically)
doesnt exist until I offer you something and
you accept. Naturally, youre wondering,
Well how I accept?but thats a whole
different animal for an entirely different day.
Suffice it to say, there are many different
ways. For our purposes, if I act as if Im cool
with what youve offered, it means Ive
accepted.
Why does this matter? Well, because you
dont have to have an intention to accept in
order to have accepted. Confused yet?
For example, if you offer me a service
through email (say, to sell me coffee) and I
respond with K (which I wouldnt because I
dont say K but roll with me) then this could
be seen as acceptance. This is why you have
to be careful with what you say and how you
act. But Ill talk about that later. Just bringing
it up now so it's on your radar.

B. What Counts As a
Contract?
Does a contract have to be in writing?
Absolutely not. Contracts can be spoken into
existence. Sometimes, the law simply implies
that a contract exists.

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This is why it's so important to watch what
you say and to get final contracts in writing. If
someone sends you a quote that you need to
meditate on, make that clear.
First, you want no ambiguity about whether or
not a contract exists. Second, you want to
know your exact obligations under the
contract. Its easier to glance at sheets of
paper and refresh your memory than to
remember every word youve ever spoken on
the topic.

I.

The "Four
Count

Corners"

Once you enter into a written contract, what

counts as a part of the contract? Simply put,
a written contract consists of the terms
outlined within a contracts 4 corners.
When I say 4 corners, Im referring to the 4
corners of the paper a contract is printed on.
But dont overthink this. What it means a
contractual relationship is only bound by
whats in the contract. Not the preliminary
emails sent back and forth. Not the scrap of
Publishers Clearing House envelope you
hastily wrote details on. Just the actual
contract. There are exceptions, of course, but
they typically happen when the contractual
obligations arent clear. Which leads back to
my point about the importance of clear,
written contracts.

C. Purpose of this
Paper
My purpose isnt to make you a contractsavant. Youll have to suffer through 3 years
of law school for that.
In reading this light introduction, I do hope
you grow more comfortable with what a
contract is and what to watch for. I also want
to underscore the not-so-fun consequences
of taking contracts lightly.
To keep this paper from running 300 pages, I
cant and wont cover everything. Nor can I go
into too much detail, which Im sure youre
sad about. Dont worryIll cover everything
you need to think about when implementing a
contract, along with language to consider and
structures to keep in mind.
A quick note: Im writing from the perspective
of nonprofit contracts. (Not that there are
special, encrypted templates for nonprofit
organizations.) To clarify, I'm writing from the
perspective of a nonprofit organization using
contracts, keeping in mind the unique space
these organizations occupy, along with the
expectations and requirements they struggle
with. Why? Because when Im asked about
contracts, it's usually within the context of
nonprofits. But the same principles discussed
here apply to all purpose-driven organizations
(associations,
non-charitable
social
enterprises, etc.) that deal with similar
pressures. And honestly, the same concepts
of contracting apply just as easily to for-profit
corporations.

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D. Questions to Ask
Before Entering Into
a Contract
Because this is from the perspective of
purpose-driven organizations, here are a few
questions to ask before entering into a
contract.

I. Will there be an official

"something" to refer to?
Realistically, after you sign a contract, it really
doesnt come into play again unless theres a
lapse in memory or a dispute. Refreshing
everyones memory is easy enough. Its
disputes that can get tricky, bringing with
them new parties or mediators.
If there's a dispute, the chances of an
outsider knowing the context behind a
contract are nil. So how does someone like a
judge make a decision? Using everything
and anything in front of them, which could
good news or bad. You see, the biggest
consequence of not having a written contract
is the chaos that comes during a dispute.
Let's say there's a dispute about whether a
vendor delivered flowers on time. A little
background: You ordered flowers for a gala
and wanted them delivered early on the
morning of the event. But just your luck, the
vendor not only delivered the flowers an hour
before the event, but they werent even the

colors you expected. Fantasticyou couldnt

even use them.
If this arrangement wasnt outlined in a
written contract, then in the case of a dispute,
every little detail surrounding the transaction
gets dragged in to give the judge or mediator
context. The same is the case for a written
contract with missing pieces; perhaps the
delivery date or variety of flowers wasnt
included. Those emails you sent back and
forth deliberating the color, the chats, and
even text messages everything is subject
to getting dragged in. This can be good or
bad for you, it all depends on the content of
those emails, chats, and texts you never
intended to be bound by.
This is why clear, written contracts are the
real MVPs. If you intend to be bound by
something, get it written down. Then have the
person you want to bind sign-off.
(A quick asidedont depend on someone
elses purchase orders or delivery receipts.
These often have peek-a-boo terms and
conditions printed on the back of them.)

II. Are we being asked to do

something counter to our
mission?
This isnt a contract issue, per se, but it is a
special concern for whose tax status
depends on its actions.
A contract should never involve obligations
that run counter to transparency or integrity,

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aren't in the best interests of your
stakeholders or in furtherance of its mission.
That a contract conflicts with any of these
may not always be apparent. For example, if
you purchase branded coffee for sale, the
vendors supplying that coffee (also called the
supply chain) may involve people or practices
that run counter to your mission. Do your
homework. Its essential to ask about the
supply chain and do your homework. These
could include the types of laborers a vendor
uses, the wages they pay, or how they exploit
raw resources. Have you looked into the
vendor to see if there's been any accusations
of human rights violations? Is the region
known for destructive harvesting? And if so,
have you inquired into how what you're
purchasing is harvested?
Why do I point out this issue? Because
organizations
sometimes
forget
that
accountability doesn't end with books and
accounting. Organizations are expected to
embody their mission statement, and simply
not knowing isn't a good excuse in this age of
information.
You might find yourself wondering, who will
know? Remember, there are instances where
contracts have to be filed publicly. It isnt
completely outside the realm of possibility
that others will see these contracts, or even
look them up purposely. So before you worry
too much about language, seriously consider
whether the contracting company is one that
deserves your organization as a client.

III. Does a contract require

we take on more risk than
is
appropriate
for
our
organization?
Each type of contract has standard language
or arrangements. In other words, baggage.
Vendors like to limit the total amount of
damages they're responsible for to the
amount(s) you pay for their goods or
services. Depending on what you buy, this
number can be incredibly low. Oftentimes
vendors require you to take responsibility for
damages or costs to handle an issue caused
by what you've bought. For example, if a
product breaks and hurts someone.
But regardless of what standards may exist,
always ask yourself whether a contract has
obligations you can, or should, take on. More
accurately, obligations that you can take on
responsibly.
The
charters
for
public/government
institutions (schools, government agencies,
etc.) typically limit how much risk each
institution may take on. Those lucky dogs.
Other organizations may not have charters
that make the decision easy, but there are
still ways to ingrain how much risk to accept.
Foremost, look at all the factors that may
impact how much risk you can handle. For
example, insurance may only cover up to a
certain amount. That threshold will be
important, because you may be responsible
for anything over that out of pocket. Not
something you probably want to do, right?
Speaking of out of pocket, just how much of a

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cash reserve do you have? The smaller a
reserve, the less sense it makes to take on
the brunt of risk.
Ultimately, how much risk an organization
can accept is one of those really important
board and management convos that must
take place. Set aside some time at the next
retreat, or have a special meeting on the
topic, giving everyone a chance to collectively
meditate on, decide, and communicate a
decision.

IV. Will we have to send in,

or report, our contract
anywhere?
The answer to this question depends on:
(a)
(b)
(c)
(d)

the type of contract being signed,

where the contract is being signed,
where the contract is being used, and
who is using it.

someone in a different state on any type of

fundraising or solicitations.
If you do have to disclose a contract, its
important to understand the details around
the disclosure before signing. Any hiccup
could unravel the disclosure itself. So you
need to know where to make the disclosure,
how to make the disclosure, and to what
extent the disclosure has to be made. Insofar
as the last statement, when I say, "to what
extent," I'm referring to exceptions or
permitted redactions. Are there some types of
information that don't require disclosure? Yes,
there are. For example, addresses, social
security numbers, trade secrets, confidential
information, etc. And if youre allowed to
leave out information, what's that process
look like? More often than not, the rules for
leaving out information can be tricky, because
they require multiple steps to be done very
specifically.

Contracts hiring fundraisers are typically

caught in the crosshairs of reporting
requirements, because many states require
such contracts to be filed with local agencies.
The same is true for partnership contracts
with corporations. And work for the Federal
Government might also require some
contracts be made public.

Also, look into what your obligations are once

the contract is filed. No sense going through
all this trouble just to botch it up on the
backend! Are periodic updates required? Are
you required to send through amendments?

How will you know whether filing, reporting or

otherwise publicizing your contract is
necessary? Well that's the fun partwhether
or not this is a requirement is something you'll
have to actively research. Reason Numero
Uno why an attorney at the ready isnt a bad
idea. Especially when contracting with

You probably won't include language about

this in the contract itself. But it's another one
of those things, much like your mission, you'll
want to plan for.

V. Are there conflicts of

interest?

If a contract is tied in with a transaction

involving a conflict of interestand you have

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a conflict of interest policymake sure
processes are embedded in the contract that
allow you to comply with the policy.
(Brief asidebecause you can't open a
resource these days without someone
screaming, "Get
a Conflicts of Interest
Policy!" I assume you have one in place. If
not, get a Conflicts of Interest Policy.)
Now, to see how this would play out, imagine
an ED wants to hire a consulting firm on
aerospace education. The only problem is,
the firm the ED likes has a board members
wife as a VP. But the ED ran an RFP and no
one else really does this type of consulting.
Not to mention, the pricing is right at market.
The ED decides to take the next step with the
firm and asks that it sign a Letter of Intent.
Before the ED signs it, she needs to make
sure she's covered insofar as the Conflicts of
Interest Policy is concerned. One way to do
this is to make contract signatures contingent
on board approval. That way, the ED is able
to get approval as required by the board,
while also moving forward with negotiations.
I'm not saying this is necessarily how the
process has to go. In fact, I'm not a big fan of
Letters of Intent, for various reasons. But I
see them often, and the process outlined
above offers a good example of how an
organization can cover themselves.

VI. Are there any issues

with
confidentiality,
privacy, and IP?

Negotiating a confidentiality section is tricky.

Vendors present this language as if it's a
templated section, but that's far from the
truth. Especially for organizations in the
business of collecting sensitive information,
which, in these days, are most.
When I say sensitive information, what am I
thinking about? I'm thinking about credit card
numbers,
account
numbers,
emails,
addresses, financial information, health
information, ages, you name it. Each falls
under a number of different privacy laws
laws that have a reputation for being pretty
gnarly
in
their
requirements
and
repercussions.
Organizations
that
collect
sensitive
information have to review the confidentiality
section with the organizations business and
exposures in mind.
Attention to context is key. Will privacy
dominate in a contract for coffee grinding
services? Not likelythat would rate you
pretty high on the "fancy pants" scale. On the
other hand, should your privacy-radar start
pinging on, say, a contract to hire a new
hosting vendor? Absolutely. And depending
on who that vendor typically contracts with,
the language they give you may not fit your
needs. Which will require you to adapt it to
your organizations specific needs.

While you're chatting with the other party,

have a conversation around what your "rights
" will be, too. In other words, how can you
use the "thing" (the service, product,

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software, etc.) you're purchasing. And more
importantly, do those rights match the rights
you actually need?
Or the rights you
anticipated?

funds. You definitely dont want to pay for

goods or services that don't work the way
theyre supposed to, or worse, don't work at
all.

A few examples: (A) You hire a speaker to

deliver a speech at your big outreach event
do you have rights to republish, rebroadcast,
or quote their speech? (B) You purchase
donor management software with the
intention of putting it on the intranet so
everyone can use it, but does the contract
allow for the software to be accessible to
anyone beyond the person purchasing it?

One good example of a protective measure is

conditioning payment on your right to perform
inspection and testing before payment is due.
Or, you can reserve the right to withhold
money for goods or services that aren't up to
snuff. Milestone payments are another good
way to hedge the risk. You might even want
to avoid payment requirements like lump sum
or upfront/capital payments.

The above are just two examples, but I see

them all the time. And because we're talking
about intellectual property, it's not safe to
assume you have certain rights. Someone
out there owns the brainwork in this thing
(software, drawing, application changes, etc.)
and by using their brainwork without asking,
you're violating their legal rights. The
consequences? You could be punished by
law and responsible for fines.

Another payment consideration is the

payment due date. The vendor may want
payment in 5 days, but is that really possible
with your organization's accounting process?
Or does it take that long for the finance
person to open an email? If it's not feasible,
negotiate that. If yours is one of the rare
organizations that are actually efficient with
accounts payable, you could negotiate
discounts for early payment.

One last thoughtif someone says they have

rights in or rights to use something, call them
on it. Always get proof (or a promise) that the
other party has the legal right to the
intellectual property they're giving you,
however you receive it.

VIII. How should payment

work?
Last, but not least, we come to payment. The
name of the game here is protection. With a
focus on protective measures to protect your

E.
Other
Logistics
with Contracts
That's it for the language-specific concerns of
contracts. Is there a ton more to think about?
Sure there is, but again, we're trying to keep
our page count below 300.
Here are a few logistical concerns to keep in
mind as you negotiate and finalize your
contracts:

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- Check section references, defined terms,

and numbers to make sure no details were
flipped around. Especially where numbers
are written out in word form.
- Check where documents (like quotes) are
attached and confirm theyre correct. Also
check for conflicts between the contract and
its attachments. If there are intentional
conflicts, outline what happens next. A good
example of this is when a contract says you
won't pay for expenses, but in an attachment,
you agree to reimburse parking fees. What
overcomes what?
- Do you actually understand everything in
the contract? And I mean everything? If there
is even one sentence that reads oddly, that
you don't understand 100%, ask about it and
have it rewritten in a way that you do
understand.

in this area are software purchases that

include the vendor doing training or an install.
The organization will get the software license,
but bupkis is mentioned about the services,
which could be a problem if the vendor
decides not to perform them. When this is the
case, make sure to add whatever is missing.
- Before you finalize, don't be afraid to ask for
concessions that are favorable to you, such
as locking in a good price for multiple years,
or capping how much the vendor can
increase pricing.

F. Takeaways
There are other aspects of contracting, like
management and administration. But I'll cover
those issues in a separate paper.

- Remember, if its not in the contract it "dont"

count. So if a vendor says you have 30 days
to get your money back for a product, make
sure that's written out in the contract.

The focus here was to provide a cursory

overview of incidentals to consider when you
receive and begin negotiating a contract. As
you might have picked up on, there are a lot
of moving pieces, not to mention several
different areas of expertise required.

- Is the contract easy to read and follow? Are

there 8 unnumbered paragraphs under a
section, making references hard? Go ahead
and number those. Page numbers? Add
those too. Did you attach documents?
Somewhere in the main body of the contract,
outline what they are, so theres never any
question of what attachment goes where.

Don't be afraid to include your team when

you have questions. Run tax language by
your accountant. Have your attorney look
over the final document to make sure the t's
are crossed. At some point, you may even
find it more cost effective for your attorney to
draft a template that you understand and can
use over and over again.

- Make sure the contract covers everything

you plan to buy. Where I typically see a lapse

However you choose to approach it,

contracting is not a passive event. Take

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control of the process by understanding what
your contracting philosophy is, exploring the
nuances of each contract on a case-by-case
basis, and making sure you protect yourself
and your interests.
Erin McClarty, PLLC helps drive the purpose
driven further. With legal counsel, tools,
resources and training that are easy to
understand and afford.
Like this paper? Sign up for our newsletter at
www.emcclartypllc.com for more resources.