| Mark Twain is credited with the observation that
"oral contracts aren't worth the paper they're written on." Twain exaggerates,
but his exaggeration contains wisdom. Most agreements need not be in writing to be legally
enforceable. As experience has repeatedly demonstrated, though, unwritten contracts can
cause unnecessary headaches. Putting an agreement in writing
serves several goals. First, a written contract provides an indisputable, although not
necessarily unambiguous, record of the agreement. The law gives great weight to written,
signed, documents. You may remember the terms clearly, but will the other party? Will you
always be around?
Second, the process of committing an agreement to writing forces both
parties to be clearer about the agreement. Reaching a meeting of the minds at the contract
stage reduces legitimate disagreements later about what each party is supposed to do.
Third, whether you are making a purchase or offering to provide goods or services, a
written contract can protect your interests. But, it can also ruin your organization. Keep
that in mind when you're preparing to sign a contract you haven't read or don't
understand!
Key Contract Elements
The items listed below are common for service contracts. The list is not
exhaustive, however. A lawyer familiar with the subject matter of the contract can provide
more specific guidance.
- Scope of Work
- What is to be done?
- Where?
- Who is responsible for what?
- Who decides whether the work is satisfactory?
- Is a specific person to do the work?
- Deadlines and Duration
- When is the work due?
- When is payment due?
- Are interim dates important?
- Is the contract to end on a certain date?
- Are these dates flexible?
- Money
- How much will it cost?
- Is the price fixed or variable?
- If variable, are there controls: maximum amount, approval for large or
unanticipated expenses, receipts required?
- Will funds be advanced?
- Will penalties be imposed for lateness or nonperformance and, if so, are
there exceptions for good cause?
- Record Keeping and Reporting
- Who is responsible for record keeping and reporting, including financial
information?
- How long are records to be kept?
- Do funders--the federal government is especially picky--require
particular records or reports?
- Will the confidentiality of sensitive records be adequately protected?
- Rights to Work Products
- Who holds the copyright of any resulting publication?
- What rights does each party have to information collected under the
contract?
- Liability Protections
- Is the contractor to carry liability insurance?
- Workers compensation?
- Will a certificate of insurance be provided?
- Should either party agree to indemnify the other?
- Dispute Resolution
- Which state's law will govern?
- Where can a lawsuit be filed?
- Are disputes to be submitted to mediation or arbitration?
- Will the loser pay the winner's attorney's fees?
- Legal Compliance
- Is unlawful discrimination clearly prohibited?
- Will verification be provided of mandatory licenses and certifications?
Federal grants and contracts may penalize you for a subcontractor's failure to comply with
certain rules.
- Contracting Process
- Does the contract prohibit oral side agreements?
- What are the amendment provisions?
- How can you get out of the contract?
- Can the contract be immediately suspended for good cause?
- What happens when the contract ends?
This article is excerpted from the Nonprofit Risk Management
Center's popular handbook, "No Surprises: Controlling Risks in Volunteer
Programs." To order, send $9.95 plus $3.00 shipping and handling to:
Nonprofit Risk Management Center,
1001 Connecticut Avenue, NW, Suite900
Washington DC 20036.
For quantity discounts or additional information, call 202-785-3891
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