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you accept. Naturally, youre wondering,
A Contract Guide
For the Purpose-
Driven 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
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.
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 Corners" Count
Once you enter into a written contract, what
counts as a part of the contract? Simply put,
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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.
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.
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.

C. Purpose of this Paper I. Will there be an official

"something" to refer to?
My purpose isnt to make you a contract-
savant. Youll have to suffer through 3 years
Realistically, after you sign a contract, it
of law school for that.
really doesnt come into play again unless
theres a lapse in memory or a dispute.
In reading this light introduction, I do hope
Refreshing everyones memory is easy
you grow more comfortable with what a
enough. Its disputes that can get tricky,
contract is and what to watch for. I also want
bringing with them new parties or mediators.
to underscore the not-so-fun consequences
of taking contracts lightly.
If there's a dispute, the chances of an
outsider knowing the context behind a
To keep this paper from running 300 pages, I
contract are nil. So how does someone like a
cant and wont cover everything. Nor can I
judge make a decision? Using everything
go into too much detail, which Im sure youre
and anything in front of them, which could
sad about. Dont worryIll cover everything
good news or bad. You see, the biggest
you need to think about when implementing a
consequence of not having a written contract
contract, along with language to consider and
is the chaos that comes during a dispute.
structures to keep in mind.
Let's say there's a dispute about whether a
A quick note: Im writing from the perspective vendor delivered flowers on time. A little
of nonprofit contracts. (Not that there are
background: You ordered flowers for a gala
special, encrypted templates for nonprofit
and wanted them delivered early on the
organizations.) To clarify, I'm writing from the morning of the event. But just your luck, the
perspective of a nonprofit organization using vendor not only delivered the flowers an hour
contracts, keeping in mind the unique space before the event, but they werent even the
these organizations occupy, along with the colors you expected. Fantasticyou couldnt
expectations and requirements they struggle
even use them.
with. Why? Because when Im asked about

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,
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
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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
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) the type of contract being signed,
(b) where the contract is being signed,
(c) where the contract is being used, and
(d) who is using it.
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.
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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 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.
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?
V. Are there conflicts of interest?
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.
If a contract is tied in with a transaction
involving a conflict of interestand you have
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
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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,
software, etc.) you're purchasing. And more
importantly, do those rights match the rights
you actually need? Or the rights you
anticipated?
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?
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.
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
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.
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.
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.
E. Other Logistics with
Contracts
That's it for the language-specific concerns of
contracts. Is there a ton more to think about?
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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:
- 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.
- 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.
- 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.
- Make sure the contract covers everything
you plan to buy. Where I typically see a lapse
in this area are software purchases that
include the vendor doing training or an install.
The organization will get the software license,
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but bupkis is mentioned about the services, Like this paper? Sign up for our newsletter at
which could be a problem if the vendor www.emcclartypllc.com for more resources.
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.

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.

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.

However you choose to approach it,

contracting is not a passive event. Take
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.