Vendor contracts generate much of a medium to large size nonprofit organization’s contracting activity. Developing a vendor contracting policy and processes, utilizing a reasonable standard addendum setting forth the general business and legal terms acceptable to the organization, and employee training should substantially reduce contract cycle time and improve contract risk management.
Step 1: Assessment
If you have decided it is time to streamline your vendor contracting activities, assess the organization’s vendor contracting activity. Among the questions to answer:
- how many vendor contracts do we have;
- what are they for;
- which units or activities are generating the contracts;
- how are contracts being processed within organization; and
- how are contracts being managed and stored after initial signing.
This should provide you with the initial information you need to identify areas of opportunity. If, for example, you learn that all employees in the organization are able to negotiate vendor contracts, reducing the number of employees negotiating vendor contracts will likely yield positive results.
Step 2: Develop Vendor Policy & Standard Contract Addendum Form
Start with a vendor procurement policy as the first step to ensure the organization is operating from a shared understanding of expectations and requirements.
A vendor policy should describe the business practices associated with on-boarding vendors and managing vendor contracts, including:
- when competitive solicitation is recommended;
- encouraging the use of existing vendors when it makes business sense;
- stating the organization’s vendor compliance requirements, such as insurance and denied party screening;
- identifying contracts that need prior authorization from the CEO or board of directors;
- identifying authorized contract signers;
- addressing conflict of interest, which may be or include cross-referencing the board of director’s conflict of interest policy;
- addressing contract management during the contract’s lifetime; and
- specifying the organization’s records retention requirements for contracts.
At the same time or after the vendor policy has been developed, the organization should also have a contract addendum form prepared. The addendum should focus on routinely negotiated points in contract negotiations, including payment terms, indemnification, intellectual property, choice of law, venue.
We recommend that organizations work with counsel to develop the list of required terms and any alternatives or allowable exceptions, tailored to the needs of the particular organization.
Drafted correctly, an addendum will act an as amendment to the vendor’s contract form and override contract provisions of concern to the organization.
Step 3: Train Team Members
Identify employees with vendor selection, contracting and/or management responsibility and provide training to these employees on the vendor policy, the business processes and contract addendum.