Welcome to part three of Negotiation for RFAs, RFPs and RFQs. After you’ve locked down the substance of the work that you’ll be performing for your new client, the next step is to review and make sure you clearly understand the legalese contained in the written contract. In this section will be talking about the essential pieces of that written contract and their implications for your rights, duties and obligations.
As a disclaimer, I have to note here that I am not a lawyer, nor should you consider implementing the recommendations and advice in this training without consulting your legal counsel first. Before I dive into the specifics that I think are essential in every contract, I wanted to spend just a few seconds reflecting on the reality of contracts for independent professionals and small companies. Contracts are a daily part of every Aidprener’s life. Ultimately, contracts are a risk mitigation device that are used to define the duties, rights and obligations of the parties that are entering the contract and, more importantly, what happens when those duties, rights and obligations are not met or are violated in some way. I always, always recommend that you have formal written contract. Contracts come in a wide variety of complexity – over at ISG, we’ve seen one page contracts for hundreds of thousands of dollars of work and 50 page contracts for only a couple hundred dollars worth of work and everything in between. At the end of the day, it all depends on the client you’re working with and the working relationship you establish with them. For myself, I prefer simple contracts with plain language. While I don’t have any hard and fast data on this, it’s been my personal experience that the less easy a contract is to understand the more difficult it is to navigate the client relationship at the end of the day. The reality check I want to underline here for Aidpreneur’s is this: while contracts are important, as an independent professional or small company it’s a fairly unrealistic prospect that you would take legal action (in other words sue) your client if things begin to go awry. The exception to this would be the case of a catastrophic event like one of your staff getting injured or worse. But for the vast, vast majority of issues pursuing legal action is just not realistic, it’s too costly, and you would find yourself out of business and bankrupt very quickly. For example, at ISG, I’m sad to say its happened more than once where we’ve encountered issues with clients where our projects have been delayed, the acceptance of our deliverables delayed and several other issues that could have potentially resulted in legal action on our part. However, in each of these cases, because we are a small company working with very large global institutions, the prospect of initiating and then ultimately being successful with legal action is unrealistic. For this single reason alone, I want to emphasize here that relationship management is the single most important skill for you, your management team and your technical team for every project that you do.
One other reality I’d like to touch on is the nature of our work as independent professionals and small companies. Because many times we are on the ground, or in the field where there is an immediacy for action, I think it’s important to note that not all working relationships will have a formal contract. Indeed, some of my most substantial and favorite work has been done with a handshake agreement. I’m mentioning this because of the reality of working in the field and of working relationships in general. Again, I always recommend you get a formal contract, but sometimes the circumstances dictate otherwise.
Next I’m going to talk about nine critical sections that should be in any contract you create or receive from a client.
First, every contract should start by naming the parties in the contract. It seems obvious, but you want to make sure these are correct – I can’t tell you how many times ISG has received a contract with the wrong office address, wrong business name or some other small detail. You should always use your proper business name (as opposed to your trade name or your DBA does business as name), and I recommend using the office address through which the money will flow.
Second, you want to review your payment schedule. Make sure that the total amount is what you agreed with the client, and make sure that it’s written in both numbers and spelled out in words – just so there’s no confusion. You then want to check that the payment tranches actually add up to your expected total amount and that those tranches will allow you to cover the costs associated with the work performed for that particular milestone. In every case, you should seek to get paid as much upfront as possible – this is just good business practice. Similarly, you should seek to get paid as infrequently as possible, because this minimizes administration, reporting and financial fees associated with the movement of money.
Third, carefully review your expected deliverables. Sometimes the bulk of your work or your technical solution is attached as an annex to the contract, but the specific deliverables you are responsible for are summarized in the body of the contract. Not only should they be clearly defined and match what you’ve agreed with your client during your substance negotiations, you also want to make sure that your deliverables are tied closely with the payments that you’ll be receiving. In a perfect world, you should try to get paid for the work first and deliver the goods later. As with payments, you should seek to have as few deliverables as possible in order to minimize administration, reporting and general overhead associated with the work (but, of course, this will vary widely according to the type of work you will be performing).
Fourth, you should review how the contract can be terminated. Specifically you should clearly understand who can terminate the contract, what notices must be given (such as notice from the client about underperformance or nonperformance, and where this notice must be given – through email, fax, hardcopy), and what time frames are associated with notices. For example, your contract should stipulate how many days or weeks you have to rectify a problem if you’re notified by your client that there is a problem. Usually this is 14 to 30 days. (Another reality check, this is a necessary clause in every contract and you should ensure that it’s in there, but my experience has shown me that if you get to the point where your client is notifying you officially there’s a problem, you have bigger fish to fry – just another reminder that client relationship management is a critical skill for independent contractors and small companies).
A fifth item I look at is the legal jurisdiction of the contract. You want to understand what laws will be used to enforce the contract – are they the laws of your home country? The client’s home country? Some other international framework? It’s always in your interest to have the legal jurisdiction to be the same as that of your company – for example, in the case of ISG we always seek to have the legal jurisdiction be in the United States, and in the state of Colorado where our company is registered. Recently, we received a contract that was written under the laws of Thailand. In the highly unlikely event that we would have a legal issue, imagine how difficult it would be for us to defend or sue in a Thai court.
Sixth, you want to review the contract carefully for your liability and risk associated with the work. Make sure you read and clearly understand any indemnification clauses and any other causes that denote who will be liable for damages in the case of an infraction. And, obviously, understand what exactly are damages – is it reputation? Is the physical buildings?
The seventh area you want to carefully review are clauses related to confidentiality. Specifically, you want to understand what confidentiality means and what information you may be handling that is considered confidential (here’s a hint: in most cases, it’s everything). This can sometimes be a very scary clause for individuals or small companies, but really if you use some very simple common sense and good business practices confidentiality should never be an issue. It’s important to understand your duties and responsibilities regarding any information you receive from your client or its beneficiaries or the work that you’ve created for them. (As a side note, however, some of us work in areas of high security, in conflict zones, and some of us work with highly sensitive information, such as gender-based violence reporting. If you’re working in these or other similar areas, take the time to learn the best practices for your niche about how to make sure that you can keep things confidential for the safety of yourself, your client and the beneficiaries of the work).
An eighth area to review are clauses related to work for hire. You should have a clear understanding about who owns the work that you’ll produce – especially if you’ll be creating a new product or service for your client. In almost every single case the client owns everything related to what you create.
The final area to review, and unfortunately one of the largest and most often overlooked, is the boilerplate content that you’ll receive from large institutions and organizations. Especially if you’re working with UN agencies or other governments, many times your contract will have a small section that is unique to your assignment, and a very large portion of the contract that is “boilerplate.” You would literally have to move mountains in order to change this boilerplate content, but it’s very important that you read it and understand its content to have a full picture of your rights, duties and obligations.
At least where I come from, legalese and contracts generate a lot of anxiety for individual professionals and small companies. I think this is usually due to the fact that we have lots and lots of lawyers in the world and our news is filled with people getting sued, or taken to court for whatever reason. Contracts don’t have to be scary and, as I’ve mentioned several times before your most valuable and important tool to never having legal problems is your ability to manage your relationship with your client. You’ll never get sued by somebody who trusts you, has confidence in you and who believes that you are working in their best interest – no matter what the circumstances.
Here are some critical points to take away: never be afraid to ask for clarification about anything in a contract, and always, always read the entire contract from top to bottom. You also should never sign anything that you’re uncomfortable with, no matter what it may cost your business or your practice. I’ve never come across a situation where the client is unwilling to provide clarification so that you do get comfortable. Finally, make sure you keep a healthy dose of realism at all times when it comes to contracts – while the legal ramifications of a contract are very real, unless you are blatantly foregoing your duties or obligations in your contract, or not delivering it’s extremely rare that you will have legal issues with your client because they’re costly and a super inconvenience. Again, the most important piece to focus on is maintaining that healthy client relationship throughout your entire program.
Once you are completely satisfied with the substance of the work that you’ll be performing, and the legalese in the written contract you’ve received, it’s time to execute and hand over the contract to your project management so they can kick off the project and move things forward. I’m going to touch on the handover and next steps in the next section of this training. Thanks for watching this section of negotiation for RFAs, RFPs and RFQs. Remember if you have any questions at all please contact us at training@Aidpreneur.com