An important action that freelance service providers and business owners can take for protection is to create a contract for every client. Specific information about fees, services and expectations can improve business relationships. Clients should be sure they read, understand and sign the contract before receiving services.
Business owners are not required to enter into a business relationship with a contract, but the protections provided by a contract exist for several reasons:
- Understanding. Clients might not fully understand business policies conveyed through conversations with a business owner. Clients who sign a contract in advance have a chance to review how the business works, applicable fees and the timeline.
- Professionalism. A contract informs others that the business owner is a professional and is expected to be treated as one.
- Protection. A contract protects a business owner if a client does not meet his or her obligations; sometimes the mention of the signed contract is enough to resolve minor disputes. Getting a client’s signature is not a guarantee that he or she will pay, but it does increase the likelihood.
- Procedure. A business owner should sign the contract and send the signed original to the client for his or her signature. After the client returns it , the contract should be filed and a copy sent to the client.
Detailed Description of Services
A contract should completely describe the services provided and what actions are required from the client for a successful project. The contract also should detail the results expected, how they will be measured and any applicable guarantees.
Fees and Deadlines
Is the fee a binding bid or an estimate before beginning work? The contract should specify the date by which payments must be made and the date the final payment is due. Fees for “rush” jobs or for weekend, evening and holiday work also need to be disclosed.
- Overages. If work is to be done on an hourly basis, the contract should state how overages will be handled (e.g., the estimate is based on three hours of work at $100 an hour but the job actually takes eight hours).
- Out-of-pocket expenses. If the business owner will purchase supplies or pay venue fees, the contract should detail what will be charged for these services and when the client should provide reimbursement.
- Out-of-town clients. A business owner should specify in the contract if there is a minimum charge for clients out of a certain area and if there is a fee for travel.
- Late payments. The contract should include language about how late-payment penalties are calculated (e.g., flat fee, percentage) and collected (e.g., collections agency, small-claims court) along with at what time after the payment due date they are imposed.
The contract should state whether payment is expected when the client is billed or within a certain time after the invoice is mailed.
If the job does not go as planned, one party may wish to end the business relationship. The contract should d etail the circumstances under which the parties may terminate it and the consequences of not following the terms.
If a dispute arises, the contract should specify whether either party may mediate, arbitrate or bring a lawsuit under the contract. If the parties are in different states, one state’ s laws should be chosen to apply to the contract.
Changes to the Contract
A client may ask to change certain language in the contract. The business owner should consider any substantive changes suggested by a client to determine the implications.
A contract should specify that it represents the entire agreement between the parties and that any changes must be made in writing. If the changes are in the body of the contract, each change should be initialed by all parties involved. If the changes are in an addendum, indicate on both the addendum and the original contract that the addendum has been incorporated. The addendum should be signed by all parties involved.
Not every clause listed below is needed for all contracts, but you should consider which clauses are warranted by the particular agreement covered by the contract.
- Confidentiality. A contract should contain mutual promises that each party will keep business information confidential. It should detail how the business owner will protect sensitive information about the client and if, when or how the business owner may share the information with another person or organization.
- Force Majeure. The force majeure clause provides that if an unforeseen event prevents either party from performing his or her part of the contract, the non-performance will not be considered a contract breach. The party experiencing the event must inform the other party that his or her performance under the contract will be delayed, and if the delay lasts more than 30 days, the contract may be terminated by the other party. The catastrophic events listed should include those applicable to the business, and the notice period should be long enough to allow the affected party to provide notice. The time period allowing termination should be fair to both parties.
- Indemnity. An indemnity clause provides that one party (the indemnifying party) will pay damages, claims and expenses if the other party (the indemnified party) incurs damages as a result of something the indemnifying party does related to the agreement. The things the indemnifying party could do that would result in liability to the indemnified party are listed at the end of the provision (essentially acts or omissions under the agreement). This clause requires the indemnified party to promptly notify the indemnifying party of a claim and allow that party to control the defense or settlement of the claim.
- Insurance. An insurance clause requires each party to maintain insurance to protect itself and the other party from damage claims resulting from performing an action under the contract. If a damage claim is made and the party causing the damage can’t pay the claim, the injured party is likely to sue the business (the one that did not cause the damage). The theory is that, as a party to the contract, the business had some culpability for the damage. With sufficient insurance, the business is more likely to be insulated from such a claim.
- Insure in reasonable amount. An insurance clause that requires a business to maintain insurance in amounts sufficient to cover all claims against either party should be revised to require insurance in reasonable amounts.
Last updated: Sept. 30, 2008