Nonprofit Report - August 2016
Contract Review For Associations
By: Stacey L. Pine, Esq.
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.
Our CEO Wants To Host A Candidate Fundraiser: What Are The Risks?
By: James A. Kahl, Esq.
Every election year, corporations, associations, their PACs, and their leaders are asked to host or participate in fundraising events for federal candidates. All incorporated entities – corporations, trade associations, or advocacy organizations – are barred from making contributions (monetary or in-kind) to any candidate for federal office. As we enter the heart of the 2016 election year, corporation and association leaders must make sure that their organizations know the rules for participating in federal fundraising events or risk significant monetary penalties and adverse publicity.
Who can contribute to federal candidates?
While an incorporated entity is prohibited from making political contributions, its employees may contribute to candidates for federal office with their personal funds. However, because federal law also prohibits indirect corporate contributions, the company cannot reimburse its employees or other individuals for the political contributions they make to attend a fundraising event. Nor could a company provide a bonus or salary increase to an employee with the intent that the additional income would be used to support the candidate.
Remember that all personal contributions must be voluntary. Therefore, it is illegal to coerce employees, such as by threatening detrimental employment reviews, to urge them to engage in fundraising or make contributions to a federal candidate.
Can corporate resources or facilities be used for a fundraising event?
The most common types of in-kind corporate support for a fundraiser involve the use of corporate meeting rooms and other facilities, providing food and beverages, and using lower-level company employees to provide administrative support at the event. However, the costs of these resources must be paid for by an individual or entity that legally can make a political contribution. So, a U.S. citizen, a legal resident of the U.S. (i.e., green card holder), a federal political committee such as a corporate or association PAC, or the campaign itself can pay the organization for the value of the resources. The payments by these individuals and entities (with the exception of the campaign committee itself) to the companies providing the goods or services are treated as in-kind contributions to the campaign.
The Federal Election Commission, the agency that enforces federal campaign finance laws, has special rules for the appropriate payment terms for different categories of in-kind corporate support.
Use of Meeting Space & Facilities: A company may rent its meeting rooms for a candidate fundraiser provided it is reimbursed within a commercially reasonable time at the normal and usual rental rate for a similar facility. If a corporate room is not regularly rented out, it is sufficient to determine the appropriate rate by contacting a few local hotels or other meeting facilities in the area to determine the rates for similar sized rooms.
Food & Beverages: A company can provide food, beverages, or catering for a candidate fundraising event, provided that it receives advance payment for the fair market value of these items and services.
Use of Staff: Corporate officials may assign administrative assistants and other subordinate employees to plan, organize or carry out fundraising as a part of their work duties only if the corporation receives advance payment for the fair market value of their services from a legal source of contributions. It is common for a candidate’s campaign staff to attend to the administrative aspects of a fundraiser such as preparing invitations, receiving RSVPs, handing out name tags, and assisting with other tasks at the event. This approach is preferable and avoids the issue of compensating the organization’s staff altogether.
Other Corporate Facilities: The use of other corporate facilities in support of a candidate fundraiser can also result in an in-kind contribution. For example, an organization’s lists of customers, clients, members, vendors or other persons can be used for invitations or solicitations only if the organization receives advance payment from a legal source for the fair market value of the lists. In addition, the company should not be involved in any manner in collecting and/or transmitting contributions to the candidate’s campaign committee. This includes even seemingly ministerial activity such as using company envelopes, letterhead, postage accounts, or overnight delivery services to forward checks from contributors to the campaign.
So what are the risks?
Organization’s that don’t educate themselves and their employees about applicable political fundraising rules may face the real and serious risk of making illegal political contributions. These violations can result in costly investigations and enforcement proceedings, and substantial fines. In addition, since all federal campaign finance violations are a matter of public record, and the press and watch dog groups regularly monitor the FEC’s public database, even inadvertent missteps can result in significant reputational harm to your organization.