Contract Review For Associations

Date: September 1, 2016

Originally published in Association TRENDS.

Contracts are an integral part of operations, as associations regularly enter into contracts for leases, office equipment, independent contractor services, website design, hotel and convention centers, and many more. In some instances, the contract is a simple, straight-forward document that's easy to understand and clearly sets forth the obligations of both parties. In other instances, the contract may be dozens of pages long and written in a way that leaves execs confused and uncertain. When faced with the latter scenario, it's easy to assume that all the details discussed with the other party are represented in the contract.

Associations should understand, however, that when a vendor provides the association with a contract, that's merely a starting point. Ensuring contracts are well written and complete with favorable terms, is especially important for associations. A poorly written contract could subject the association to economic loss or legal liability. No matter how complex a contract may be, there are five key provisions that are essential to all association contracts. These provisions are: warranty, intellectual property, payment, indemnification, and term/termination (WIPIT).

Warranties: Contracts should include warranties, or specifications, as to the nature of the desired product or service, as well as the time and nature of delivery. In fact, accurate specs are the most important contract provisions. Service providers should also warrant that they have the applicable skills and knowledge required to perform the service.

Intellectual Property: An association's intellectual, or intangible, property is often its most valuable asset. When intellectual property is to be used or created by either party, terms of ownership should be stipulated. For example, if the vendor created intellectual property, such as an article, the vendor would own the copyright to that article and would not be restricted in the use of the article. For this reason, it is often essential that the vendor assign copyright to the association. In other instances, when the vendor retains ownership and the organization receives only use of the copyrighted material, a broad license should be granted that outlines the scope and terms of use.

Payment: Payment terms are a crucial component to all contracts and associations should pay particular attention to the provisions regarding when payment is due, as contracts often state that failure to make a payment on time constitutes a breach. In hotel contracts, related terms, such as attrition clauses, should also be carefully scrutinized.

Indemnification: A well-drafted indemnification provision is a vital component for adequately protecting the association and its officers, directors, volunteers, and staff. Generally, indemnification is a promise that the other party agrees to cover the association's losses and pay the organization's legal fees if the negligence or wrongdoing results in damages or claims against the association.

Term/termination: It's critical for associations to understand how long the contract will last, how to get out of it, and how the other party can terminate. Does there have to be a breach, or can either party terminate without cause? Association execs should think through exactly how to terminate a contract before signing on the dotted line.

The facts and circumstances surrounding each contract should be taken into consideration when drafting and reviewing contracts.