Skydive with a parachute: use contracts with your clients

Articles

I’m a consultant who does web services — do I need a contract with my clients?

The answer is yes — only if you want to get paid.

Ok. I get it. I should have contracts in place with all my clients…does that mean I need a lawyer too?

Ideally, you should have a lawyer who can draft a formal agreement that fits your needs.  If you don’t have access to a lawyer to help you, it’s not hard to write up a simple agreement, on your own, that accurately reflects your business arrangement.  Doing this is much better than operating with no agreement in place at all.

Agreements 101

Here are a few basic points that a simple contract for web services should cover. Your lawyer (if you have one) will be able to provide a lot more detail on what your agreement should look like, and the terms you should have with your clients (these vary a lot depending on the type of client you have and the work you’re doing). Here are some questions to consider as you draft your agreement:

• Who are the parties? List each party.
• Are the web services being done by you, as an individual, or through your LLC or corporation? Be specific!
• Is the client an individual (with assets) or an LLC or corporation? Be specific!
• If the client is a corporation or LLC, are you comfortable that they have the assets to pay your fees?
• What are the obligations of each party? List each party’s obligations. Be sure to include the payment schedule.

Clarity above all else — put it in writing

You, as a service provider, should be crystal clear about what you will and will not do under your agreement. Any vagueness can lead to disagreements about whether you’ve fully completed your obligations (and therefore whether or not you are entitled to be paid.) The client, should, at a minimum, be obligated to pay you on the schedule you agree to. Also, think about what you need from the client to do the work that they’re expecting, and then make sure that your agreement says that the client will provide you with whatever you need to do this work in a timely manner. If it’s access to their servers, or something as simple as a meeting with their CTO for one hour per week to answer questions, it’s a great idea to specify these requirements up front to avoid issues later. Here are some additional considerations as you draft your agreement:

• What is the timeline?
• When do you have to deliver your deliverables?
• When are payments due?
• Does the client have the right to accept/reject deliverables? How many rounds of revision are included?

If the client has the right to accept or reject the deliverables, outline a strict timeline: if the client hasn’t rejected a deliverable (clearly, in writing) after a defined time period, you should be entitled to the applicable payment for that deliverable.

Payment options

No matter which payment structure you use, the contract should be clear about when payment is due, when you must invoice the client, and whether expenses are to be pre-approved or reimbursed by the client.

On timing — it’s a good idea to require some portion of the payment up front. If a client is unwilling to pay something toward the project once you’ve defined the scope, you may have problems collecting the amount due at the end of your project.

The time/materials relationship and you

A common form of consulting relationship is what’s called a “time/materials” relationship: The agreement for this type of arrangement will specify a deliverable and say that you’ll bill the client at an hourly rate, plus expenses.  Many times under these agreements, though, clients will request a cap on your total fees.  If they do, it’s important to be clear on the fee cap, given the scope of the work. If you think you can’t deliver the requirements and meet the fee cap, it’s a good idea to either renegotiate or understand that you are agreeing to eat the overage when you sign an agreement with a fee cap.

Milestone-based payments are also very common. For these type of arrangements, if possible, make sure that the milestones you agree to meet are under YOUR control and not subject to the client’s changing opinions or material delivery.

Many clients like to pay upon acceptance of the work. In other words, if they don’t like the end product, then no soup for you! If you’re going to allow a client the right to accept or reject the work, it’s a good idea to specify a small portion of the payment subject to acceptance. This way you’ll get something for your efforts, no matter what.

Scope creep

The biggest area for potential conflict in a contract is “scope creep.” Your contract should define the scope of what you will do for the initial set of agreed-upon payments. If you want to change any of these expectations, create an amendment to the contract where both parties agree to the new deal by signing off on it.

A very common scenario is a client that changes their mind about “just this one little thing” and then again asks for changes on “just this other little thing.” You, wishing to do a good job, go ahead and make the changes, even though this extra work isn’t in the contract. This isn’t a problem until later, when a disagreement arises about whether you’ve completed the work. Now, the definition of the scope of your “work” is strung out across conversations and emails where “little things” came up and, unfortunately, individuals have very different memories of what changes were agreed on.

The lesson is: if you are going to change project scope, timing, or cost, get it in writing.

Having a written agreement is very important. Get the details in writing and try to be as diligent as you can in updating the written agreement to match up to the work that the client wants done. Your agreement does not need to be a fancy, air-tight legal contract — anything you put down on paper to set and maintain expectations is better than nothing. Going through the process of writing things down may be a bit more effort on the front end, but making this a practice for your business will save you a lot of time, effort (and probably money too) in the long run.

Thanks to Tennille Christensen for help and insight that shaped this piece.

Image based on “World war 2 parachute at Old Sarum living history weekend” by fribbleblib, CC-BY-2.0