Nonprofits enter into contracts constantly, with vendors, grantors, partner organizations, and independent contractors, often without the dedicated legal review a for-profit company of similar size would apply. This post covers the contract areas that most often create problems for mission-driven organizations.
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What contracts do nonprofits typically need reviewed?
The most common categories are vendor and service agreements, grant agreements (both incoming and outgoing), memoranda of understanding with partner organizations, facility and equipment leases, and independent contractor agreements. Each carries different risk profiles: a grant agreement’s terms can affect an organization’s compliance obligations for years, while a poorly drafted vendor contract might simply cost money to unwind.
Organizations that rely on templates found online or reused from a previous, unrelated deal often miss provisions specific to their situation, indemnification scope, termination rights, or data handling terms that matter more for a nonprofit handling donor or beneficiary information than a generic template anticipates.
What should a grant agreement actually address?
Whether receiving or issuing a grant, the agreement should clearly define the funded activities, reporting requirements and timeline, permitted and prohibited uses of funds, and what happens if the grant purpose can’t be fully carried out. For grants involving expenditure responsibility or other compliance-triggering conditions, the agreement needs specific language to satisfy those requirements.
Grant agreements are also where restricted funds get defined. A grant agreement that’s vague about restrictions can create accounting and governance headaches years later, when the organization needs to determine whether funds can be redirected or must be returned.
What should nonprofits watch for in vendor and partnership agreements?
Indemnification and liability provisions deserve particular attention, since nonprofits often have less negotiating leverage than a larger commercial counterparty and can end up accepting terms that shift disproportionate risk onto the organization. Termination provisions matter too: a contract that’s difficult or costly to exit can trap an organization in a relationship that no longer serves its mission.
For partnerships and MOUs with other organizations, clarity about decision-making authority, financial contributions, and what happens if the partnership ends is worth the time it takes to negotiate properly, even when the relationship starts on good terms.
Why does contract review matter more for nonprofits specifically?
Nonprofit contracts often intersect with compliance obligations that a purely commercial contract wouldn’t, grant restrictions, donor intent, and tax-exempt purpose limitations among them. A contract that looks standard on its face can create an unrelated business income tax issue, or conflict with a restriction attached to the funds being used to pay for it, if it isn’t reviewed with those considerations in mind.
Jova Law reviews and negotiates contracts for nonprofits and foundations across grant agreements, vendor relationships, and partnerships. Learn more about our Nonprofit Contracts & Agreements practice.