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Basics of Contracting

By Jean Sifleet

Many people are finding that short-term contracting assignments are an excellent way to pay the bills while waiting for that perfect job to be offered. Others have decided to explore their options in self-employment.

If you're taking a contracting assignment, these tips should help. This article and these tips do not replace speaking with a real attorney. Before you sign a contract, the best thing to do is show the contract to an attorney and ask them to review it. Then, follow their advice. Ask other freelancers which attorneys they use, if you don't know one.

There should be an actual contract involved, and it should document the agreement between you and your temporary employer.

Don't just sign the contract offered, read it carefully.

If you don't understand something, don't hesitate to ask for clarification.

Even if it is "non-negotiable" (and few contracts are really non-negotiable), reading it will help you understand:

  • What is expected.
  • How much you will be paid.
  • When you will be paid.

And other extremely useful information.


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Do your own research on anything that confuses you -- as the old saying goes, "trust, but verify."

Contracts Can Help or Hurt You.

A Contract

A contract is an AGREEMENT between 2 parties.

Do NOT sign it if it doesn't represent YOUR understanding of the agreement you have with the employer. And, don't sign it if you don't understand it. Don't be afraid to ask questions or get something clarified (preferably in writing in the contract).

A good contract clearly explains what each party expects to give and get, and what happens if either party fails to perform.

A well-written contract increases the chances that you'll be paid for the work that you perform. A badly-written contract, or one that you do not understand, can hurt you.

Projects also have a way of expanding in scope. So, beware of "flat fee" projects. Your agreement needs to specify the initial scope and be clear that you'll be compensated for additional work.

It's a good idea to include in the contract how you will handle changes that may be necessary as the project evolves.

Contract Negotiation

Not as scary as it sounds, and MUCH better than accepting a term you cannot, or do not want to, meet.

Think of the negotiation as setting the stage for a long-term relationship that is beneficial to both sides

  1. If you don't like a term, propose a modification ("counter offer") that is acceptable to you.
    • "I can drop my rate by 10% (or whatever) if we you are willing to commit to an additional 30 days [or whatever] on the assignment."
    • "I can't complete my section of this project unless the [whatever] is completed. Let's change the contract to indicate that I'm not responsible if [source] does not supply the [whatever]."
    • "My normal fee for this type of work is $XX per hour, not [lower number]. Let's change the hourly rate, or modify the requirements, or..."
  2. Give yourself some room to maneuver.

    People often expect to negotiate. So, if you propose your lowest rate and best terms, you may be stuck if the other party expects to play "let's make a deal." You could end up with a price much lower than you want, or no deal at all. So, don't start with the deal that is most beneficial to the employer. Begin the negotiations by offering the "deal" that is most beneficial to YOU (but not unfair or one- sided).
  3. Don't assume that price is THE issue!

    Often, price is NOT the issue. Something else is. Explore other options - timing, hours, location, etc. Ask questions. Then, shut your mouth (this is the toughest thing to do when you are in make-a-sale mode, so bite your tongue if you must!). Listen carefully to the answers. Price is easy to drop but very hard to increase, so drop it only when absolutely necessary.
  4. If price IS the issue, offer to change some other term that helps you (or the employer) reduce another expense before you drop your price.

    For example, you could justify maintaining for a HIGHER rate if you work from home since that can reduce an employer's expenses, too (no desk, phone, etc. needed for you).

    OR, working from home (if appropriate) should reduce your commuting expenses and time, making a lower hourly rate potentially more acceptable to you.

    It depends on the situation, what is important to you AND to the employer, and on the way you present your idea.
  5. Don't make a concession without getting a concession in return.

    For example, you may agree to work at their location in exchange for getting paid at 50% of your rate for travel time. Or, you'll agree to their timeframe if they will agree to pay your invoices every week, within 5 days of your invoice submission. Or, whatever else is something you want that you don't have yet.
  6. Know when "the deal" is a bad deal for you, and be prepared to walk away from it.

    Don't agree to something you know is going to carry too large cost for you, either in money or in lost opportunity. Prepare yourself mentally to WANT the contract, but NOT to NEED the contract. Desperation shows, and weakens your negotiating position.
  7. Go for a "fair" or "win/win" outcome so that both sides are comfortable with the final agreement.

    Ideally, contracts get extended (or converted into "real" jobs), so it's usually a good idea to keep the goal of creating a long-term relationship in mind. It won't be long term if either side feels ripped off. One-sided agreements usually plant the seeds of the need for revenge for the party that "loses" - not the basis of a good relationship. But, watch out for people who play games with you on this, too.

Contract Provisions

Avoid:

  • A contract with broad non-compete and non-solicitation provisions.

    They can seriously limit your future employment options. The problem usually does not show up until something goes wrong, and then it's too late.
  • "Unwritten" provisions, or verbal assurances that a clause or provision you don't like will never be enforced.

    These statements should send up yellow (or red!) flags. If something will not be enforced, then it should NOT be in the contract. If it DOES apply, it should be included.

Consider the following when entering into a contract:

  • Purpose -
    Does the contract include a clear statement of intent, scope of work, and project description? Can you do it, as specified? Are you comfortable with it? Is everything defined correctly?
  • Terms -
    Does the contract list a timetable for performance, deliverables, payment schedule, deadlines, and penalties for late delivery? Are payment terms set for the initial contract and for additional work beyond the scope of the contract?
  • Intellectual Property -
    Does the contract state "work for hire?" You may want to add: "Consultant [you] retains all rights in methods, techniques, and tools used by Consultant before the date of this Agreement or developed by Consultant during the term of this Agreement."
  • Confidentiality -
    Is the contract clear, reasonable and reciprocal in addressing confidentiality? You may want to add: "Consultant performs services for other companies. Nothing in this agreement precludes Consultant from accepting other employment as long as Consultant preserves the confidentiality of client information."
  • Liability Limitation/Indemnification -
    Does the contract include a "hold harmless" provision if performance is impossible due to events beyond your control?
  • Warranties -
    Does the contract use industry standard performance criteria?
  • Conditions -
    Does the contract have a clause "contingent upon receipt of..."?
  • Termination -
    Does the contract list requirements for notice of termination and opportunity to cure?
  • Dispute Resolution -
    Does the contract include provision for mediation / arbitration and stated location?

To be safe, have an attorney review the contract for you, and advise you on what might need to be changed.

Bottom Line

It is good business practice to have a written agreement for every project, even if it's just an email confirming your conversation. Being clear about billing and payment, and the project scope and milestones, can save you from a "misunderstanding."

NOTE: Information provided is intended as a broad, general overview and is not legal advice.

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About the author...

Business Attorney, CPA and 3-time entrepreneur, Jean Sifleet provides practical advice for business challenges based on her first-hand experiences. Her book "Smart Fast, The Desktop Reference Guide for Running Your Business" is a great resource for learning how to avoid legal pitfalls in business.