Developing a Contract or Written Agreement for Your Nonprofit Collaboration

As nonprofit collaboration has gained momentum within the sector, the Foundation Center has been striving to offer plenty of programming and informational resources on the subject for organizations looking to work together. 

One aspect of collaboration is the need to develop a contract, or other type of written agreement delineating the details of a partnership. To help us go over the importance of these agreements, the Foundation Center offered a seminar on April 12 called Nonprofit Collaboration Agreements, Contracts, and MOUs. The workshop was led by Stephen Besen and John Marzulli, partners specializing in mergers and acquisitions at Shearman & Sterling LLP, and was presented in collaboration with New York Lawyers for the Public Interest. Here are some of the critical points of the discussion:

The first thing to think about is whether a formal contract is the correct document to choose, or whether another type of agreement would be sufficient.

Contract: A contract will be the right document for a major collaborative undertaking like a merger or a joint venture. A contract is legally binding and enforceable in a court of law, and will protect the interests of each organization participating in the collaboration. Each organization's specific obligations will be noted, and the document will follow the necessary elements of offer (one of the collaborating parties puts forth an offer of terms for the contract), acceptance (the other party agrees to the offered arrangement), and consideration (a bargain in which each party offers something of value, or promises to perform designated duties, according to the terms of the arrangement).

Memorandum of understanding (MOU): An MOU will serve a similar purpose as a contract, but it is not as strict or formal, and it is not usually legally binding. Much like a contract, the document will outline the goals, expectations, and duties involved in the collaboration, but it tends to be more direct, brief, and lacking the types of complex terms and conditions that are included in a contract. An MOU can be a good option for a more informal partnership, or it can sometimes be used as an early form of agreement before a more official contract is drafted.

Under some circumstances an MOU can be deemed legally binding – particularly if the language used is comparable to that of a contract, or if the MOU features the elements of an offer, acceptance, and consideration – and if you are certain that you do not want your agreement to be legally binding, you should be sure to say so within the document. Be advised, though, that if you proceed with a non-binding agreement, you are missing out on the protections that a contract would provide.

Whether you opt for a formal contract or a slightly simpler document like a memorandum of understanding, here are some of the key points that your document should cover, according to our panelists.

What should your agreement reflect?

Goal/vision for partnership. Be clear on the specific aim of your collaboration. Why are you partnering with each other and what do you each plan to get out of it? Determine whether you are working together to broaden the reach of your organizations, or to tackle a specific issue or project together, or for reasons of financial sustainability, or any other type of purpose. Note whether this entails a formal or an informal partnership, and whether it will be short-term or long-term.

Given the complicated nature of collaborations and the possibility for unexpected challenges to crop up along the way, make sure that each organization has a thorough understanding and agreement on what the collaboration is about before delving in too far. Having this information in writing will ensure that everyone is on the same page, and will cement the commitment of each group to the pursuit of the common goal.

Division of control/responsibility. Think about each nonprofit's role in the collaboration, the manner in which the work will be divided, and the level of control each group will have. Will this be a 50/50 partnership or is one organization taking the lead? If one of the nonprofits will be taking on a dominant role, this is important to make very clear in any written agreement, in order to avoid problems later.

In addition, what will each organization bring to the table? Are there certain tasks that both nonprofits will share? Create a list of the responsibilities that each organization will handle, and note any that will be shared by both. This way, if there is ever any confusion or forgetfulness concerning either organization's duties, they will already have been clearly defined in the agreement.

Finally, it will be useful to designate at least one point person to coordinate the collaboration and act as the official contact for any issues that come up. If possible, assemble a management team to handle the coordination aspect.

Timetable for the collaboration. Do you see this as a permanent alliance, or are your organizations joining forces for a set time period to work toward a concrete goal? Your written agreement should note the length of time for which the collaboration is scheduled, along with designated points for review of the agreement.

What other things should you consider before putting an agreement into writing?

Is this the right partner? This has been discussed in some of our previous collaboration posts, but it's crucial to assess your partnering organization thoroughly before diving into your collaboration. Make sure that the nonprofit's goals, values, management style, reputation, and ethics are all compatible with your own. You need to be able to trust each other, and you need a good grasp on each other's strengths and weaknesses before you sit down to create any written agreement.

Have you done your due diligence? As part of ensuring that you've chosen the right partner, you should perform due diligence before arriving at the stage of drafting contracts and agreements. Review your potential partner's finances, programs, licenses, contracts, and any other relevant documents. You should also discuss the impending collaboration with your funders in advance.

Have you chosen the correct structure? Think over the goals of your collaboration carefully before settling on a structure for the partnership.

  • Looking for a very loose, simple partnership with like-minded groups? Consider forming a network.
  • Do you want to band together to address a very specific mission? A coalition might be appropriate.
  • Interested in something more formal and closely tied? You might want to look into mergers or joint ventures.

You can read up on the more informal collaborations in this earlier post, while the more formal structures are discussed here.

If you're looking to explore collaboration agreements and contracts further, there are some great samples to be found online, such as this one from the Department of Housing and Urban Development's site, or this one from the Insight Center for Community Economic Development. In addition, Don Griesmann's Nonprofit Blog has a helpful post on putting together collaborative agreements.

Meanwhile, to find more information on collaboration as a whole, our Knowledge Base article on the subject will offer a wealth of information, and our Nonprofit Collaboration Resources page features tons of reports, videos, articles, and other informational resources on collaboration, along with our Nonprofit Collaboration Database, which can help you find a potential partner for your project.

-- Tracy Kaufman

Disclaimer: The information provided in this post is not legal advice. If you have a legal question, we suggest that you consult an attorney.