I won’t be moderating comments until end of August 2009. Thanks for your patience!
DISCLAIMER: This does not mean I am giving you any legal advice.
This is purely from my experience (and BF’s) in the field.
Please contact your lawyer or accountant before following any advice.
Okay, so I’ve kind of heard requests for contract information.. and in light of today’s economy, maybe now’s the best time to chat a bit about some basics I learned firsthand (or secondhand) that can be crucial to understand in contracts.
The first couple of tips are simple:
WHO: Who is in the contract? You? 2 brokers? Another company? Another freelancer?
This is done because you need to know who is liable for a project going awry, or something not getting done in time. Who do you talk to if you don’t get your expenses paid? Company A or B? You need to make that dead clear where the roles lie for each party.
You are also NOT an individual when you sign these things, eh? Don’t forget that you’re a company or a corporation. You need to sign on behalf of your company (even if it’s your name), and not as an individual.
You will also want to be clear about what the expected results are going to be (a system implemented, a big advertisement campaign mapped out), and who owns that proprietary information.
WHAT: Services? Goods? The more detail the better.
You also want to re-iterate the roles of each party in the contract. Is it going through a third party who provides the insurance that you pay for, but the client is the one who receives the services?
Make it dead clear. Especially in services — the more detail the better. Are you just doing the design? The coding? The blueprinting? The support?
You really need to be clear about what you are responsible for, and what you are not, so that if a dispute arises, you can go back to the contract and say: Nope, coding was not included in my rate. That’s extra.
WHEN: This one seems pretty simple, but how long is the contract going to last?
Give actual dates, not just “Month of July” sort of things. You also want to stipulate when the services are to be delivered (if in phases), and THE MOST important thing of all when will you get paid?
I usually do my “Payment must be received 30 days after being invoiced“. We call this “payment terms”, or “net 30″ (for net 30 days).
You will also want a bit of contingency worked in there, like what happens if deadlines are missed and what penalties there are.
And if you’re selling goods, you’ll want to know when you get paid for selling goods; when you have to pay for buying supplies from a vendor, or how many times and at what quantities or amounts you should be delivering goods to your client per week. Specifics really matter, in this case.
WHERE: You need to know where this is all going to go down
I mean, for services… it’s usually something like “for services to be performed on client site“, but if you are delivering goods, you’ll want to lay out some delivery terms.
Where will the goods be dropped off? At the warehouse? At each store? No delivery required at all, unless the client is going to pay another fee to get things sent to them?
$$$$: My favourite section…. THE MONEY!
How much are you going to be paid? Per hour? Per minute? Week? Day? Month? Year? Fixed Amount per contract?
You also want to know if you are eligible for any discounts from a vendor, or if you as a seller, give a $10 discount per hour, once the client hires you for more than let’s say.. 500 hours into the contract.
I know it sounds trite, but you’d be surprised how open some contracts are without following the above basics.
Now for the intricate bits. The basic rule of thumb for freelancing contracts that I follow is:
What I mean by that, is if the client is requesting something from you — a favour, a way out, or any other sort of special request.. then you should make the rule apply to yourself as well.
The biggest example is what I call: The Way Out or The Two Week Clause
The Two Week Clause
This is when the client says you have to give them 2 weeks notice (sometimes up to a month) before you skip out on a project.
(Note: Some people give notice without having it written in a contract, but I’ve heard of consultants not even bothering.
If a new contract is coming up and it’s too juicy to wait 2 weeks for a proper notice, many freelancers point to the contractual terms of the agreement and skip out without a day’s notice, leaving the client up the creek without a paddle.
Unlike in a corporation, if the client requires you to give 2 weeks notice, then before they terminate the contract or fire you before the end of the supposed contract, then you’ll want to make sure (as your own mini corporation or company) that they are also obligated to give YOU 2 weeks notice before giving you the boot.
You may also want to think about the fact that if a client steps over the line and BREACHES the contract (like.. made you work 50 hours a week, but didn’t pay for the extra 10 hours), then you should have a clause in there to be able to get out of the contract on the basis of contract breach.
Set a minimum hours per week
Make sure that they give you a set number of hours per week that will be paid. This is your guaranteed income.
Much like being an employee at a company, you are paid for 40 hours of work each week, as per your gross salary.
In freelancing, you’re usually paid by the hour. But some sneakier clients have actually sent consultants home, claiming the work is too low to justify paying them to sit there… but the consultants get screwed because now their income each week is $0 instead of $4000 or whatever they expected.
If you are going to only work part-time, or only at nights, or on weekends, put it in writing, and make sure it’s in there, nice and bold.
Don’t pigeonhole yourself
One consultant we knew, went as a freelancer, working for his former company as a consultant… but then signed some BS agreement with his former employer about not being able to work for any of the customers (old or new) in the same city as long as the former company existed.
I understand having a clause where if you quit the company, they need to ensure that you won’t poach their clients, so you have a 1-year clause or something where you cannot work for your former customers.
After a year, all gloves are off. You’re a freelancer. You can go work for them without being under anyone’s thumb any longer.
But don’t do something silly and pigeonhole yourself into not being able to work for ANY customer in the city as long as the former company was still there.
If you want to sign something like that, you might as well have stayed an employee.
A real freelancer, is just that — a freelancer.
Changes & Oral Contracts are a hassle
I know in the good ol’ days, your word was as good as gold. But today, whenever you have to work with another company, representing yourself as a company, you need to get it in writing.
Even if you feel comfortable with the company.
Get it in writing so that there are no ambiguous “he said, she said” arguments later on. Just make it simple, clear and proven on paper.
Usually, when things end up in black & white, arguments ensue about not fully understanding what each other meant.
Same with changes. Any changes you or the client wants? GET IT IN WRITING or put an amendment to the contract.
An email may be sufficient if it’s detailed enough, but don’t count on it. Try and get something more formal.
Contracts are not flexible
Another reason to GET IT IN WRITING, is that once you sign a contract, it’s a done deal. You can always negotiate BEFORE you sign, but don’t assume that what they’re giving you is a fair deal.
I’ve received contracts before where the “what’s good for the gander is good for the goose” didn’t apply. The client was supposedly able to fire me at any time, cut my hours, or not have to pay expenses, because it wasn’t in writing.
Needless to say, I re-wrote the whole damn thing and sent it back for review to make it fair for both parties.
And they wanted me, so they signed.
Like any other contract in life (mortgage, marriage, lines of credit), if you don’t agree with the terms, don’t sign it.
Be careful using contract templates
They may not apply to your situation, you may need to edit them, or they may just be plain BAD.
That isn’t to say all contract templates online are bad, but it’s just that it’s difficult to find a diamond in the rough and you will inevitably always have to adjust it to your situation.
Think about the worst legal scenario possible
If you get into a legal fight with your client (please no!) then you might want to put a clause in there that the loser who initiates the fight, pays the winner’s fees.
This will keep BOTH parties honest, because no one will try to bring up a lawsuit just because they know you can’t afford one, being a one-man show, or if they just want to antagonize you into submission because they know they can breach the contract and pay the fees whereas you’d be bankrupt.
I remember reading some contract about how if I brought the client to court, I’d be liable to pay all of their fees.
Nuh uh! If I was the LOSER, I’d pay the fees. Not if I were the WINNER.
But these are all things you hope you will never have to ever encounter in your line of business, but unfortunately, it could and does happen.
Oh, and you want to also lay down WHERE justice will take place, if it comes down to a fight. If you are doing design work in California, but you live in New York — which court handles the fight?
Lay out your roles and responsibilities
If it’s goods, you may or may not want to put in something about “no returns, no refunds once purchased”, or “30 day return policy and then you’re on your own”!
I mentioned this above, but you should be careful with services because it is especially difficult to guarantee a system will work for example.
I mean, I do something pretty cool in a system at a client’s site, but if they don’t listen to me, or are making mistakes, the system might fail!
But it wouldn’t be MY fault, now would it? It was the client who didn’t use the system properly.
However, in a court of law, you want to make sure your liabilities are REALLY limited, and to do that, you may want to think about putting something in there like: “Everything I design or code, MUST be signed off by a client employee and dated before it is set in stone and implemented.“
That usually helps cover your butt. You don’t want a company coming back and screaming bloody murder that you helped put in some business process they (supposedly) never wanted.
That about does it for me.
Remember, whatever is good for the gander is good for the goose, and many contract disputes occur because there wasn’t enough detail or something was misunderstood.
That’s why everything should be in writing, and the more specifics, the better. Dates, times, actual job roles and responsibilities… all things that need to be ironed out on paper so that people don’t get confused about who was responsible for what.