Risks are an inherent part of any business agreement, and this is especially true for nonprofit organizations. However, gaining an awareness of what can be a source of risk and how to mitigate them can help save valuable time, money, and resources needed to address risks.
Let’s discuss the top 6 risks faced by nonprofits during the contract lifecycle and how you can mitigate these risks using contract management software.
1. Identify Risky “Boilerplate” Legal Clauses
Contract clauses like price and term clauses are two that we recommend taking into account. Your nonprofit should recognize any finance-related clauses to ensure that spend transparency and visibility are made clear within your organization. Due to the tax-exempt status of nonprofit organizations, they are often under high levels of scrutiny. Many contracts include boilerplate clauses that include risks that are often overlooked.
Don’t let a risky clause be the source of a hidden trap for your nonprofit organization. You can avoid many risks by identifying clauses that are typically added to contract boilerplates that present extraneous fees and suboptimal conditions for a potential agreement. By simply taking a methodical approach and spending some time reviewing boilerplate agreements, you can negotiate clauses and resolve possible disputes ahead of time. This allows you to save money and reduce the headache of being locked-in to an unfavorable agreement.
We recommend educating your staff on the clauses to look for in contracts prior to sending them off to your legal department. This can enable to save time, money, and resources while reducing the likelihood of entering into agreements containing avoidable risks. If your nonprofit works with a wide variety of contracts, creating a template library and a contract clause library specifically for addressing key issues (fees, indemnification, etc.) can minimize contract risks and support you in negotiations moving forward.
2. Monitor Contracts Post-Execution
Nonprofits are required to oversee an exorbitant number of contracts on a yearly basis. This means that your contract storage method must be easy to use, secure, and accessible. We recommend that you leverage a digital, cloud-secure contract repository to easily monitor, manage, and store contracts once they are executed. No matter the size of your nonprofit organization, a digital repository can support you in maintaining critical documents like contracts with ease.
Did you know that in large part, many organizations fail to prioritize how they manage their contracts following execution? Many in-house legal departments even fail to review contracts again following signature. This in mind, the legal department is often responsible for negotiating contracts. When a contract is misplaced or lost, all the time and effort spent negotiating is all for naught.
However, cloud-secure digital contract repositories enable nonprofits to store all of their agreements in a single place, accessible to authorized users at any time. The security provided by a cloud infrastructure supports a tamper-free contract management environment, giving you the confidence that every document is protected 24/7. To maximize efficiency, applying a standardized naming protocol can support you in searching for and retrieving your contracts in the future.
3. Prioritize Contract Accuracy
Contract management software is a top solution for nonprofits to take care of the fine details with their contracts so they can spend more time focusing on their mission. These solutions enable you to gather all essential contract metadata, ensuring nothing slips through the cracks. Have you ever come across a document that contained incorrect basic information? Believe it or not, this phenomenon occurs more often than you might believe with contracts. Oftentimes, the wrong names and party names are included in contracts. Any changes in contract information must be included and adapted within your contracts, as using the correct, up-to-date information can save you time and money that would result from noncompliance repercussions and soiled contractual relationships. You want to ensure your nonprofit does its due diligence before executing any agreement to avoid the potential for litigation.
In a similar vein, it is absolutely essential that the correct, authorized parties are the ones who sign an agreement at hand. You do not want to create unnecessary confusion surrounding who does and does not contain contractual authorization to legally bind their counterparty. In this manner, ensure that the right stakeholders and employees within your nonprofit are the ones given the authority to sign contracts. It may seem like an oversimplified issue, but it’s one worth mentioning due to the negative potential repercussions.
4. Communication, Communication, Communication
Are you aware of the number of contracts that your nonprofit works with on a yearly basis? We recommend gaining an awareness of just how many contracts you work with and how much time your teams approximately spend on contracts. Due to the amount of time, money, people, and resources involved in contracts, when small pieces of vital contract information are overlooked, it can result in missed due dates, lost opportunities, and financial repercussions.
We suggest that your nonprofit leverages contract management software to keep the entire team aware of approaching deadlines, time-sensitive contract management tasks, and autorenewal and expiration dates. In addition, contract management software offers the ability to communicate and collaborate in user-friendly portals. These solutions enable streamlined contract negotiations and editing that your entire nonprofit contract management team will benefit from.
On another note, we recommend creating a clear understanding organization-wide of who is authorized to sign contracts and of who is responsible for managing the implementation of the agreement. This can help eliminate risks. In addition, when contract obligations are dependent upon deadline-based contract responsibilities of a counterparty, there should be systems and people in place to ensure that milestones are reaching by the appropriate time. You might also assign someone within your nonprofit to communicate outwardly to give notices when contract termination and contract breaches occur per contract terms. To this end, creating a roles and responsibilities document for your team regarding their assignments for contract execution and ongoing management can help create cohesion and clarity surrounding the expectations of every contract.
5. Consistently Update Contract Templates
Contract templates are an incredible tool that your nonprofit can use to draft contracts and complete negotiations faster. In addition, contract templates are accurate and approved by your legal team to ensure that only the most up-to-date legal terminology is included, supporting you in ensuring compliance from the very beginning of contract authoring.
Depending on the type of contract, your legal team can design contract templates according the specifications and the needs of each type. This might include adding clauses and requirements that will change depending on new compliance requirements or governmental regulations. We highly recommend that you review your contract template library every year to make sure each template includes current legal language and requirements according to current legislation. Conducting a review of your contract templates also ensures that your relevant information regarding your nonprofit is updated incase certain details have changed since the initial creation of the template.
6. Develop a Proactive Contract Management Atmosphere
Instead of waiting for contract problems to manifest into larger-scale issues, we suggest creating a proactive atmosphere around your contracts. Don’t let things wait until the last minute or let deadlines pass. Creating a proactive environment surrounding your nonprofit’s contract can help you take contract of the entire contract lifecycle, ensuring tasks are completed with enough time in advance to get the best deals possible.
With a results-driven contract management atmosphere, you can focus less on contract management itself and more on your nonprofit’s larger goals and mission. Automated contract workflows enable you to create predesigned steps for every contract for follow, ensuring each agreement goes to the correct person at the correct time for the completion of a specific tasks. This can reduce risk, increase efficiency, reduce turnaround times, and provide more value to your nonprofit organization.
