Dan Wetzel has the details on Harbaugh's contractual demands

Dan Wetzel, who appears to have very good sources within Schembechler Hall and/or related circles, has the details of what the sticking points are with Harbaugh's contract (emphasis added):

Specifically, sources said Harbaugh is seeking language that would grant him immunity from termination from any finding or sanction that could arise from multiple current NCAA investigations into the football program.

Harbaugh is also seeking a delay in the start date of the new contract to maintain a lower buyout that NFL teams would have to pay Michigan to hire him away. The buyout in his current contract dropped from $2.25 million to $1.5 million on January 11. Michigan is seeking that to rise to about $4 million in a new deal. Harbaugh has sought to have the new deal not start until Feb. 15, thus maintaining the lower, and more favorable, buyout number until after the NFL hiring cycle has concluded.

Harbaugh is seeking a matrix of fines be spelled out if there are any future NCAA violations as well as prohibiting the school’s athletic director from firing him “for cause” and instead having that decision, should it ever arise, rest in a three-member arbitration panel, sources said.

Seems pretty clear that Harbaugh doesn't trust Manuel (or, perhaps, any future AD) to be the decider of Harbaugh's fate.

Harbaugh has sought to have his contract grant him immunity from termination for any violation stemming from those cases. It additionally spells out any penalty he may face should the NCAA rule him responsible in any future case. That would include specific fine amounts for any Level I or Level II violation.

He is also seeking to have any decision involving “for cause” termination — whether for NCAA violations or anything else — to be determined by a three-member arbitration panel rather than the school’s athletic director, a role currently held by Warde Manuel. Traditionally, for-cause termination of a coach would be determined by his direct supervisor. The athletic director would still be able to fire him for performance-related issues.

The arbitration panel is a system used by the university's president. It is common in university executive contracts, but not with coaches, according to numerous college administrators.

More here.