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The understanding below would have been a reasonable contract to sign. Conditional picks in contracts are common. They chose NOT to sign such a contract.
I don't see why not. It could have gone something like this.
Pioli: "Bill, I understand that you want the cap space right now, but it will take some time to finalize a contract with Matt. I will trade the 2nd round pick for the tendered contract and Vrabel. If/when a contract is signed, we'll change the compensation to...."
Belichick: "Thanks my friend. That works for me."