A Short Note on Managing the 501: Contracting
http://www.law.cornell.edu/uscode/text/26/501
© 2014 EEASI Corporation

 

Generally, a 501 will need to contract for some services. The contracting strategy will to be tailored to the source because there are at least two scenarios that the 501 management will face. Type One is the standard contractor who has no interest in the 501 personally. This form of contractor is the most expensive in that they do only that work contracted for and at the price negotiated, unlike a volunteer who will do whatever needs to be done, regardless of their primary focus. Type Two is a contractor who does have in interest in the 501. This contractor, in many cases, has a volunteer orientation but cannot afford to work entirely for free. This is the cheapest contracting source.

Type Two contractors can have far reaching benefits. For one, they often act like a volunteer by doing things around the premises that need to be done (spot work), and for which they expect no compensation. This saves both money and time as well as reducing the burden of management who otherwise would have to find a source to do spot work or even walk the premises occasionally looking for things that require attention.

Type One contractors require a formal contract for goods and services to be delivered. Type Two need not, and should not be contracted for goods and services through the formal contracting process. The reason for this is that through the formal contracting process, the Type Two contractor ceases to be a volunteer resulting in a loss for valuable free volunteering services. There thus is a need for there to be middle ground contracting approach.

The Type Two contractor might be better described as a contractor/volunteer. The type of contract for the Type Two case need only be sufficiently specific that both parties have a "good enough" idea of how to wok together, but not so specific that volunteer work is eliminated. This bring us to the typical approach in Type Two contracting: The Implied In fact Contract. In this contract form, the parties agreement is implied by how they have chosen to work together. While the broad outlines of the contract will address be a baseline service to be rendered to the 501, the boundaries of the baseline has latitude and can even be amorphous. Further, it does not inhibit or attenuate volunteer action by the contractor/volunteer.

The Implied In fact Contract "consists of obligations arising from a mutual agreement and intent to promise where the agreement and promise have not been expressed in words.  Such contracts are implied from facts and circumstances showing a mutual intent to contract, and may arise by the conduct of the parties.  A contract implied in fact is a true contract. -- The Legal Institute

The implied in fact contract can operates bertween two parties if three conditions exist: (1) trust, (2) mutual respect and (3) common goals. It is a contract form that is very efficient for a 501 when the three aforementioned underlying human principles of confidence exist. Without trust, mutual respect and common goals this form of contract cannot operate successfully. When the relationships are established as being adversarial, the potential for an implied in fact contract is undermined. In the absence of this opinion, the parties have no choice but delineate their mutual roles and responsibilities in writing. The potential for losing free good and valuable goods and services through being adversarial provides a compelling argument for directors being individuals that have strong people skills without which the financial burden of the logistics train may exert a disproportionately high demand on the 501's financial resources.