Modifying Contracts: What Nonprofit Organizations Need to Know

  1. Church & Nonprofit
  2. Modifying Contracts: What Nonprofit Organizations Need to Know
Church & Nonprofit

In a perfect world, nonprofit organizations would enter contracts, both parties would perform their end of the contract, and everyone would benefit. However, the COVID-19 pandemic has illustrated the type of havoc that unexpected restrictions can cause for businesses, including nonprofit organizations. For example, the pandemic caused many businesses to forego fundraising events, gatherings, and operating altogether, which likely affected contract completion in at least some cases. As a result, nonprofit organizations need to know what to do when they need to modify or amend an existing contract, whether due to COVID-19 or another unexpected problem.

Understand All Aspects of Your Contract

Ideally, you should understand all the provisions in your contract before you sign it. However, you may ave skipped over or skimmed several provisions in the contract simply because you figured that it would be inapplicable. If you need to amend, modify, or terminate a contract, you need to know what your contract says about doing so. For instance, you may need to give a certain amount of notice in a specific way if you terminate a contract or the language may specify who is allowed to modify the contract. You also need to understand the consequences if you fail to perform your obligations under the contract and whether the other party is required to take any step to mitigate their damages.

Force Majeure or Acts of God

Contracts typically contain a “force majeure” provision that anticipates those events that are entirely out of the parties’ control, such as natural disasters and acts of terrorism. These provisions tend to be quite broad and, up until now, usually did not specifically reference a global pandemic. In some cases, these provisions may free one or both parties from the contract if certain events occur. Suppose a force majeure clause does apply to your situation. In that case, your contract may require you to give a specific amount of notice to the other party to the contract or to mitigate the effects of terminating the contract. You also must determine whether there is any remedy other than terminating the contract. For example, you might be able to extend the time for one or both parties to perform their duties under the contract or suspend performance for a specific period.

Impossibility and Impracticality

Arizona law does provide for the termination or suspension of contracts in some cases where completion of the contract by at least one party would be impossible or impracticable. However, these cases are often challenging, as they generally require a high degree of proof. The severity of the inability to perform comes into play when arguing that a contract is impossible or impracticable to perform and is usually based on an event that was not anything that the parties contemplated when they executed the contract.

Renegotiate Your Contract

Occurrences such as the COVID-19 pandemic have forced all types of businesses to rethink their business practices and do things differently, out of necessity. Therefore, your organization very well may be able to renegotiate the terms of your contract to take into account whatever event has prevented you from performing your responsibilities under the contract. With a little bit of negotiation and flexibility by both parties, you may be able to reach a mutual agreement to amend the contract. If you can reach a renegotiated agreement, then it is essential that you make this amendment in writing and specifically refer to it as an amendment to the existing contract.

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The attorneys of Provident Law have over 250 years of combined legal experience. Our goal is to build a relationship with you and our clients as we work with you through your most complex legal problems. Call us today at (480) 388-3343 and see what we can do for you.

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