Negotiating and Drafting Contracts

Negotiating a contract can be stressful and have far-reaching consequences. Nonprofits enter into contracts just as frequently as any other business and face the exact same challenges and risks.

A well drafted contract accurately represents what both parties expect from the agreement. Your nonprofit organization could end up in court or out of pocket large sums of money if you don’t get it right. It is, therefore, important to have the contract represent all parties’ expectations. In this post, we will review the contract planning, negotiation, drafting, and review process.

Preliminary Talks Before Drafting Contract

First things first, before even thinking about drafting a contract, you need to have a baseline on which to work. Discuss your goals and desires with the other party. Document this in a series of emails or messages which you can refer to when drafting a contract (or later if necessary).

Develop a Non-binding Term Sheet

Putting the items that all parties agree on helps ensure there is a sufficient meeting of the minds to move forward. A non-binding term sheet should include the key terms that both parties agree to. The term sheet should cover, at a minimum,  the parties, the nature of the agreement, how long the agreement will last, key deliverables and due dates, pricing and payment terms, how the contract can be terminated, confidentiality, and any other terms that could be dealbreakers for the parties. The term sheet should include a binding confidentiality clause to ensure that information and proprietary knowledge that the parties exchange is protected if the parties cannot negotiate a binding agreement.

Drafting the Contract

Once both parties have agreed to the most important terms, and those terms are memorialized in a term sheet, the parties can draft an agreement. If you are creating a relatively simple contract, for example, a Non-Disclosure Agreement (“NDA”), you may be able to rely on a template. However, consider having your template reviewed by an attorney. We have reviewed many template agreements that aren’t worth the paper they are printed on. That said, templates are a valuable tool to save time and reduce errors on repetitive agreements. We use them in our law practice and create them for our clients.

Professional Legal Advice

It is a good idea to use a lawyer when drawing up a contract for the first time. It might sound like a lot of money, but it’s far less costly than a court case – trust me. Work with a lawyer to prepare a tailored template to fit your specific organization and situation, and that considers the laws of your state. That way, you can reduce costs by using it repeatedly and sleep well, knowing you are protected. Should you take legal action, or in a worst-case scenario, if you are sued, you will take comfort knowing that you have a strong agreement that clearly sets forth all the parties’ rights and responsibilities.

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises tax-exempt clients on federal tax matters and fundraising regulation nationwide. To schedule a consultation with Ellis, call 602-456-0071 or email us at info@caritaslawgroup.com.

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