Disclaimer: I am not a lawyer and you should not consider implementing the recommendations and advice in this post without first consulting legal counsel.
Contracts are a daily part of every aidpreneur’s life.
At least where I come from, contracts (and the legalese that generally fills them) generate a lot of anxiety for individual professionals and small companies. I think this is because there are lots and lots of lawyers in the world and our news is filled with people getting sued for whatever reason. While it’s essential to have legal counsel you can trust, the best way to avoid business-related legal problems is through good client and partner relationship management. You’ll never get sued by somebody who trusts you, has confidence in you and believes that you are working in their best interest – no matter what the circumstances.
Contracts don’t have to be scary. Ultimately, a contract is a risk mitigation device used to define the duties, rights and obligations of the parties that are entering into the contract and, more important, what happens when those duties, rights and obligations are not met or are violated in some way. Contracts come in a wide variety of complexity – 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 of work and everything in between.
At the end of the day, the importance and value of a contract depends on the client you’re working with and the working relationship you establish with them.
Personally (like most non-lawyers?), I prefer simple contracts with plain language.
Regardless of the contracts you or your clients use, there are critical sections that should be in every contract. Below, I’ve listed these sections and detailed what you should be looking for in each. I’ve also created a checklist you can use when reviewing contracts to make sure you never miss something important.
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[wlm_ismember]First, every contract should start by correctly naming the parties. This seems obvious, but I can’t tell you how many times ISG has received a contract incorporating the wrong office address, wrong business name or some other incorrect detail. You should always use your proper business name (as opposed to your trading name or your DBA – doing business as – name), and I recommend using the address of the office through which the money will flow.
Second, review your payment schedule. Make sure the total amount is what you agreed with the client, and make sure 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 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 up front as much 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 negotiations, but also you also want to make sure your deliverables are tied closely to the payments you’ll be receiving.
As with payments, you should seek to have as few delivery milestones 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 non-performance, and how this notice must be given – via email, fax, hard copy), 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 14-30 days. (Another reality check, this is a necessary clause in every contract and you should ensure that it’s in there, but experience has shown me that if you get to the point at which your client is notifying you officially that there’s a problem, you have bigger fish to fry).
A fifth item I look at is the legal jurisdiction of the contract. 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, at ISG we always seek to have the legal jurisdiction be in the United States, and particularly 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 we 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 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 goods or physical plant?
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 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 you can keep things confidential, for your own safety, and that of your employees, 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 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.
Here are three critical points to always keep in mind:
- Never be afraid to ask for clarification about anything in a contract;
- Always read the entire contract from top to bottom; and
- Never sign anything that you’re uncomfortable with, no matter what it may cost your business or your practice.
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, it’s extremely rare that you will have legal issues with your client. The most important piece to focus on is maintaining a healthy client relationship throughout your entire program.