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Do Your Homework, Do Your Duty: Ten Ways to Protect Your Organization When Engaging Outside Services

Whether you're hiring a consultant to advise your organization on a major restructuring effort, looking for an IT solution from an outside source, or even just considering accepting a service for free, it pays in the long run to do your due diligence, i.e., to research the service provider. It's not a matter of doubting your potential business partner but of protecting yourself in the event of any unforeseen difficulties or misunderstandings. Especially with the fluctuations in legislation regarding nonprofit funding and finances, it's essential to cover all your bases to make sure a transaction will go smoothly for all involved.

Here are some tips to consider when dealing with a contracting party. Telajet, a business and legal strategy company, advises organizations hiring outside services to appoint a "contract manager" who will be responsible for carrying out the due-diligence investigation. With these tips and some sound legal advice, you should well equipped to make a smart contracting choice.

  1. Check references. Especially if you have not heard of the individual or company, you should check with other third parties that have dealt with them. See what their experiences have been like and if there were any problems or issues that might affect your own dealings. Use your network of direct and indirect contacts whenever possible to get intelligence from trusted sources.

  2. Remember that even "free" services can be costly. We've heard that no lunch is free. Although in the nonprofit world that's not always the case, even services carried out at no charge need to be dealt with carefully. Intellectual property and ownership questions can arise, so it's best to define these and similar issues clearly and specifically, just as you would if you were paying for the services.

  3. Don't be afraid to ask. A company or individual willing to take part in a business transaction should not hesitate to confirm financial integrity. Transparency regarding business health will inform you of the contracting party's economic strength and commitment to openness.

  4. Do your due diligence on dues. Access any available market information on the contracting party to get a better idea of their financial situation and ability to fulfill their contractual obligations. When possible and practical, seek competitive proposals to help ensure you are getting the best pricing and value.

  5. Know who you're dealing with. No matter the size of the company, you should know who the controlling members are and, ideally, work with them directly. Use Internet search portals to research news and articles regarding the company and key individuals within the company.

  6. Be hands on. Be involved as much as possible with the people you plan to hire. Keeping in direct contact with clear communication will go a long way toward heading off potential problems.

  7. Keep in continuous communication. It's important to be aware of any changes in your contracting party's situation that may affect their work for you. Likewise, if any pertinent changes occur within your own organization, you should inform the contractor promptly.

  8. Keep your options open. If you have several parties contending for a single contract, consider conducting more than one round of interviews to get a feel for each party's communication skills, openness, and work style. Identify and interview the exact individuals, or team, who will be performing the work. Ask for a résumé of work experiences that match your exact need.

  9. Stay up to date on the latest schemes. Unfortunately, just because you're working in an industry that promotes ethical conduct and philanthropic values doesn't mean that everyone else always upholds these ideals. Be aware of the newest tricks of the trade, especially when it comes to e-mail and other Internet schemes. The Better Business Bureau is always a good resource that keeps a close eye on this sort of activity. They have an alert page that also links to other tips and information to help you protect your organization. The BBB's nonprofit-oriented site,, also maintains an article database worth checking out.

  10. Leave it to legal counsel. There's nothing wrong with seeking advice from a lawyer while you're in the process of negotiating a contract with a third party. In fact, this is a basic way to protect both yourself and your potential partners from trouble down the road. If you're at all unsure about a potential contract's terms or commitments, get legal advice. Even if you're not, consulting with an attorney is often a good idea. Never enter into a contract where you do not fully understand the price, contract term, deliverables, and termination conditions. For some reliable on-line resources on nonprofit-centric legal counsel, check out our article "Pro Bono and More: On-line Legal Resources for Nonprofits."

More Information

Christopher Trent Kaplan, June 2007
© 2007, Philanthropic Research, Inc. (GuideStar)

Chris Kaplan is an undergraduate at the College of William and Mary and has just completed a communications/marketing internship at GuideStar.
Topics: Nonprofit Leadership and Practice