What every nonprofit CEO needs to know - Part 3: Contracts

Posted by Heidi Forland-Fetty | Feb 12, 2021 | 0 Comments

Contracts

Whether you realize it or not, your organization is constantly engaging in numerous contracts, from your internet service provider, to that new donor management platform to which you just subscribed, to the web designer you just hired to rebuild your website. All of those are contractual relationships that are governed by the law of contracts (and the terms contained within those contracts). Having a clear idea of what contracts you are engaged in and what your obligations are as a nonprofit is essential to long term success.

Term, Termination & Renewal

  • Term: the length of time of the contract
    • How long is the term? Is it in your best interest?
  • Renewal/Expiration: What happens at end of term?
    • Does the contract renew/extend, or does it expire? Watch out for auto-renewal provisions (may auto-renew several months prior to end of term)
  • Termination: Can you end the contract prior to term end?
    • Does the contract allow for termination? Termination for cause or for no cause? Notice requirement? Opportunity for cure? Payments after termination?

Indemnification

  • Definition: an undertaking by one party to compensate the other party for certain costs and expenses.
  • Indemnity provisions in contracts allow the parties to customize risk allocation related to their transaction.
  • They vary widely, but in a typical indemnification provision, the indemnifying party promises to reimburse the indemnified party from and against losses, liabilities, claims, and causes of action (recoverable damages) incurred by the indemnified party that are caused by, arise from, or are related to (nexus phrase) the specified events giving rise to the indemnity (covered events).
    • Negotiation Points
      • Mutual vs Unilateral: If provision places most risk on you, negotiate for a mutual provision.
      • Nexus phrase: Words like “related to” is much broader and will result in more indemnity than “caused by”, “solely resulting from”, etc.

Intellectual Property

  • The primary questions regarding intellectual property in contracts deal with questions of ownership and allowable use.
    • Who owns IP that is created under the contract?
    • Who can use that IP? Additional cost? Extent of use?
    • Who owns pre-existing IP used to create IP under the contract?
    • Can the parties make “derivative works” of the IP? Additional cost? Limitations on use?
    • More on IP here

Helpful Contract Tips

  • Read the contract! Seriously, read it. If you do not understand it, ask for help.
  • Negotiate! Do not be shy about negotiating. If someone really wants your business, they will be reasonable.
  • Contract management: Appoint someone to be in charge of managing all contracts. Keep copies of each contract (even if they are just digital copies). Maintain a database/spreadsheet of contracts, term and renewal dates, etc.

Need Contract Help?

Once you have a good grasp on what contractual obligations your organization has, you can better leverage your knowledge to improve negotiations. At Mission Counsel, we regularly draft and review a variety of contracts for our clients, from the simplest to the most complex. We also negotiate contracts on our clients' behalf. We can assist your nonprofit organization with all of the contract issues it faces, often on a flat fee basis, so do not hesitate to reach out to us.

About the Author

Heidi Forland-Fetty

Hi, I am Heidi Forland-Fetty. I am the head paralegal for Mission Counsel. I joined Terry in June 2020 and am excited to help expand the firm. I have strong interests in nonprofit, contract, business, real estate, and intellectual property law. CONTACT US My Story Growing up in the Greate...

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