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5 Essential Clauses for Professional Services Contracts

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Until the contract is signed, nothing is real. ~Glenn Danzig

It’s exciting to be hired to work on client projects for the first time after starting your own business. However, those who are new to doing so often enter into the client relationship without a contract.

Sometimes it’s because they are afraid to ask the client to sign a contract. Occasionally it’s because they are unaware of how important having a contract really is to the success of the project (and their business). More often it’s because they had a pre-existing relationship with the client or are convinced there is a clear and mutual understanding of the project making a formal contract unnecessary.

But working without a contract is risky business. It’s also an invitation to be taken advantage of. That’s not good for you, the client relationship, or your business!

Why Use Contracts

Realistically, a contract won’t always save you from dishonest clients. But it does help you manage cashflow and streamline your work around a pre-defined schedule.

It can also prevent you from being bullied or guilted into doing far more work than was agreed to without receiving some form of compensation for it. And it serves as the ultimate go-to document if and when misunderstandings arise — as they will from time to time.

A contract protects both the client and the service provider. Working with your client to put one in place before you start work on a project is an indication of your professionalism and commitment to mutual success.

If you still insist on working without a contract, it won’t be long until you regret it. It will only take that one client who has you jumping through hoops because they needed the work done yesterday, asks for so many changes or revisions that you dread receiving their emails, and then doesn’t pay your invoice or take your follow-up calls for you to see the light.

You don’t need a lawyer to draft a contract. Using simple language is the best way to write one. But do include clauses that address the following issues in a way that works for you.

1. Charges for Professional Services

The easiest way to avoid misunderstandings about the cost of a project is to make your rates/pricing, billable expenses (like travel, supplies, shipping costs, etc.) and applicable taxes as well as the payment currency ($US, $CAD, other) clear up front.  This reduces the risk of having a client dispute your invoice and withhold payment.

If you’re charging the client by the hour, include a minimum and maximum work hours clause and the billing increment (e.g., to the nearest quarter hour or half hour). Having a minimum hours limit prevents you from being penalized financially for finishing early; having a maximum hours limit protects the client from having to pay more should it take you longer than expected to finish the work.

If you’re charging per diem, you might want to consider adding a fixed rate daily fee for early delivery since working extra-long days and possibly even weekends can be involved on such projects.

Other predictable situations to consider including as subject to additional charges are:

  • changes to project scope, requirements and deadlines (reserve your right to adjust your rates accordingly)
  • client-requested changes and revisions for work you’ve already completed
  • your kill fee (% and terms) should the project be cancelled before completion

2. Payment Schedule/Invoicing Terms

How and when you get paid is another important clause to include in your contract. Define the required payment method (direct deposit, credit card, cheque, Paypal etc.) and payment schedule. Include a non-refundable retainer (if applicable). For most projects you want to structure the schedule so that you are paid in installments on a predictable timeline.

You really can set this up in any way that you want it to work for you. For example, since 1988 my own contracts have required clients to pay me in advance for project work. With each monthly invoice, they receive an accounting of how the advance payment was discharged. This works well for me in terms of managing and forecasting cashflow and well for them in terms of budgeting appropriately for professional services. Everybody wins!

Some organizations issue payments a period of time after they receive the invoice. You can plan for this in advance too. (I also charge for late payments and include this in the contract.) It pays to put all these details in place before you start working for your client.

3. Single Key Contact

The larger the client you are working with, the more important having a single key contact clause is. You must limit communication to a single point of contact if you want to stay sane and not get involved in politics. This applies to both reporting on the project to the client and acting on feedback and requests for changes.

That’s not to say not more than one of the client’s people will be involved in your project, just that there is a single channel through which communication flows. Actions and changes you respond to are directed by that authorized key contact only.

This helps maintain control of the project (which is good for everyone involved) and reduces the risk of the project being derailed by internal conflicts and competing interests.

4. Copyright Ownership

Many client projects involve creating intellectual property. Depending on what it is you are working on with/for the client and the terms you agree to in the contract, there are different copyright ownership options available.

You don’t necessarily have to relinquish all rights after final payment is made for delivery of the work. You can negotiate to retain some, if not most of the rights you might want for yourself. For example, I retain the copyright and all other rights for all of my writing. Clients are granted a license to use my work in a pre-defined way for their own projects and purposes. This allows me the freedom to reuse or even republish the work in other ways for additional benefit to myself so I can maximize the return on the asset created.

If your client wants full and exclusive ownership of the finished work, your contract spells out the transfer of copyright requires full payment to take effect. That way, if you are not paid for the work, you can recoup the loss in other ways. Either way, with so many possibilities, it’s best to have these discussions before work begins and to include what you’ve agreed to regarding rights in the signed contract

5. Completion Deadline

Never commit to a client project without an agreed completion deadline in place. A deadline is necessary. There must be an end you are working toward. You need to know when you’ll be free to take on other client commitments.

This is even more important when working with a client who does not get back to you with the required information, feedback, and approvals needed to complete your work in time.

Clients have been known to delay completion as a means of delaying payment for services rendered. You must not allow this to happen. A contract makes it clear what transpires when the deadline comes and goes. This protection benefits both of you.

Similarly, clients have been known to move deadlines up and, occasionally, to extend them out. This makes it difficult to plan your work schedule and cashflow as well. Depending on the amount of time or delay involved, you can decide how you want to be compensated for that or whether you’d just like to leave the project with no penalty to your reputation. Putting it in writing eliminates deadline-related disappointment and discord.

Wrapping Up

So, now that you are aware of the important elements to include in your contract, it shouldn’t take you long to draft one. Gather your discussion notes and client email messages and put the details on paper. Review the draft contract with your client, make any changes necessary to come to an agreement, then both of you sign and date it, each keeping a copy for reference.

If you’ve done a thorough job in the early stages, you may never have to refer to the contract again throughout the project. However, if your client should move on, you’ll be glad you have that signed contract in place when dealing with his or her replacement.

More next time. Until then, remember to LOVE YOUR WORK, whatever it may be.

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