Good Contracting and Agreement Practices for Businesses and Individuals Providing Fee-Based Creative, Development and Marketing Services

Posted on Wednesday, March 19th, 2014

Whether you are a freelance independent contractor or an established company that develops websites or applications, creates graphic design work-product, or engages in SEO/SEM work, you may have experienced many customers or potential customers who want “something for nothing” (i.e. for the possibility of something in the future). For example, many start-ups or established companies may seek to trade a small equity interest in a company in exchange for your product or services.

Taking equity in exchange for services rendered has huge upside potential and can be lucrative over a longer term but generally not for the near term. Therefore, most technology-based service providers also have fee-based clients that pay for services pursuant to an agreement, believing that those agreements will keep employees paid or keep food on the table, which allows the service provider the freedom to pursue other alternative or non-fee based projects (start-ups, results based services, etc.). However, many of these providers can get stuck in a bad financial position if those fee-based arrangements don’t work out as planned.

Agreement terms in fee-based arrangements tend to be less creative than non-fee based agreements. But with a lingering expectation of payment, fee-based agreements can be more dangerous for the service provider who has a budget and is expecting certain fee-based payments to cover costs and expenses (typically within a specified time period). When a client puts money on the table for a desired/end result, if the end product or result doesn’t meet expectations (or if the client’s needs change mid-project), costly disputes can arise.

Unfortunately, these disputes can lead to the service provider not getting paid for quality work-product (i.e. the work-product is completed without payment and the service provider takes a hit for any expenses incurred). Here are a few steps one can take to avoid working for free and/or having disputes over the end work-product when negotiating and contracting with paying clients:

    • Make sure you know what the customer/client wants and what they want to get out of the product or service.
    • To be certain and avoid loose ends, ask follow-up questions related to what the customer wants. Remember, you know more about your service or product than the customer and the customer may not know the right questions to ask.
    • Listening and learning often involves making sure that the customer is sure they want what they say they want, as opposed to some other (sometimes better) alternative. 
    • Whether responding to an RFP (request for proposal) or entering into an agreement, the best practice, generally, is to specify in detail what you will be doing for the customer or project (and sometimes, especially if the customer has declined elements you feel are important – what you will not be doing). For those services you do not provide, this pre-contract or engagement period is your opportunity to suggest third-party service providers you have previously worked well with to make your work easier. Note: if you have your own formulaic SEO/link building strategy, proprietary software, or some other confidential aspect of your product or service, make sure a good NDA (non-disclosure agreement) is signed by the party to which you will be disclosing such information (before disclosing such information).
    • Each roadmap provided, whether in a proposal or an exhibit to an agreement is a chance for marketing and a chance to protect your proprietary materials by including your contact information, logo, and trademark and copyright notices (if applicable).
    • More detail in a roadmap is typically better for avoiding disputes down the road, unless the information needs to be kept abstract, ambiguous or results-based to protect trade secrets or other intellectual property rights. 
    • An oral agreement is bad. An agreement in writing can be better. A formal agreement reviewed by competent counsel is almost always the best option.
    • Written contract(s) or agreement(s) do not have to be complicated but should clearly identify who the parties are and their respective obligations (e.g. scope, ownership of work-product/deliverables, timing, termination, pricing, liability, confidentiality, dispute resolution, governing law, etc.).
    • “Get it in writing” before you start work. 
    • If you do work for larger companies (or smaller companies that are very well-organized) you have likely seen master terms and conditions or master service agreements that need to be negotiated and agreed to before a statement of work can be awarded to a particular vendor (for example, you or your company). I have reviewed many master agreements and can say with confidence that the terms of master agreements often vary and vary broadly (even from within the same company). Knowing and being comfortable that the master terms are acceptable before moving forward is key. But after master terms are agreed to, a statement of work or SOW system can make the process of continued work with a particular client less cumbersome.
    • A statement of work should clearly outline the project and/or expectations involved in regard to the work needed. More detail is typically better. Deliverables should be as specific as possible and timing and deadlines should be identified in detail. A process for review and revisions is generally helpful to limit “time creep” and keep project costs in line with expectations. Payment terms should be clear.
    • Ensure that any statement of work does not conflict with any other terms. If there are conflicting terms among various agreements, be certain as to which terms are legally controlling before moving forward (generally, if a master agreement is in place, the master agreement terms control, unless modified in writing). 
    • Projects often change, and some projects change often (sometimes at several different phases during the project). Don’t fall victim to “scope creep” and be stuck making less money than you expected. Along with identifying the scope of work in detail (discussed above), consider specifically excluding items that you think the client might want even though the client says they don’t want such items (e.g. if you are a web or application developer your client may also expect you to do design work even if you are not a designer). Your agreement should clearly say what extra costs will be involved for out-of-scope work, and sometimes, whether you will be using third-parties for such work and the cost of management or coordination (if any).
    • A process for managing change requests should be considered in advance, and all change requests should be considered in good faith while keeping the client’s desired outcome in mind.
    • Your agreement should specify that change requests or amendments must be made in writing to be effective (this includes a service agreement and any statements of work – as discussed above). 
    • As you likely know, it is not often the case that you create a design, site or application, and the client loves the first draft of the product and says no further changes are required. Mostly because not every client knows exactly what they want until they see a working draft, or their needs or ideas change. Many engagements begin with the client having more ideas than direction or details. Therefore, it is beneficial to obtain client feedback before going too far in the wrong direction. For certain projects, a good practice is to detail the client’s obligation to provide feedback, and discuss any corresponding delays in timely performance caused by the client’s failure to give timely feedback.
    • Providing a “test drive” period for deliverables can be a way to answer any questions before too much time passes and avoid any miscommunications regarding completion. This period often goes hand-in-hand with the payment schedule for the work.
    • With the completion of some (but not all) projects, it is best to have the customer/client sign off on the deliverables and the satisfaction thereof. This step can provide an early warning system for payment comfort, early dispute resolution, satisfaction level feedback, an indication of the opportunity for further work, and (sometimes) testimonials for a job well done.

The practices identified above are merely a few basics, and provide design and technology service providers, consultants, and freelancers, with a basic checklist for developing and maintaining professional client relationships while limiting the risk of miscommunication, nonpayment, and long/costly disputes. Even the most well-intentioned service provider will run into trouble or problem clients at some point but the right agreement can minimize risk.