Our 501(c)(3) nonprofit animal rescue corporation is converting a former veterinary hospital to a kennel facility for the animals. Our Contractor is working under a fixed price contract, but one of our Board members is demanding that she have an itemized list of all materials and/or labor. He is really balking about this and says he did not quote us as cost-plus, and does not need to provide this information. She says it is mandated for a 501(c)(3). I am an accountant and say our proof of expenditure is his signed contract and checks paid to him. Am I correct or is she?
I don’t know where people come up with these supposed mandates. If you agreed to a fixed price contract, both you and the contractor are bound by that price. It doesn’t make any difference whether the contractor makes a zillion dollars or loses a zillion. You are not entitled to an itemized list of the costs unless there is a really unusual clause in your contract. There certainly isn’t anything in 501(c)(3) rules that requires it.
If she is concerned with the quality of the work, you can have it inspected along the way to assure that it complies with the contract terms. If the contractor is an officer, director or other “disqualified person” with respect to your organization, you may have excess benefit tax issues if the price is not reasonable. If the contractor is independent but she thinks the price is unreasonable, she may want to check comparable costs from others, even though it is too late to change it. But none of these possible concerns gives you a right to the itemized list of costs from your current contractor.
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The risk in any fixed fee project is that the contractor will cut corners. A good contract provides warranties and remedies to protect against that event. Some construction contracts warrant that materials be of good and sufficient quality. In that case, the project owner has a right to demand proof that materials are of good and sufficient quality. A Director who suspects that shoddy materials are being used, may have a duty to enforce contract warranties and remedies under the contract. As you point out, that has nothing to do with 501(c)(3) law.
If the complaining Director has a prejudice against the contractor because he is a competitor, that, and any other material conflict or circumstance, should be disclosed to the Board. --R.S. via email
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