Contract basics for freelancers

As a freelancer, your agreement/contract that you have in place with your clients or agents is a legal document which is so much more than that. Your contract will reflect on all aspects of your relationship with the other party, whether it's an agent or client. The following are just some of the points that will be highlighted and dictated in the contract; the cope of your project and the work you are carrying out, getting paid and getting paid on time. A contract will hold all the relevant information for your project allowing all parties to understand the relationship. Essentially, a contract will be the document that puts all parties involved on the same page, and will likely be used if a dispute arises. 

Contract basics for freelancers

In this guide, Richard Nicholas a lawyer from Browne Jacobson LLP will highlight the importance of a contract and everything you need to understand about it, from disputes to settlements.  

1) Whose contract is this?

When it comes to contracts and working with agencies and clients, it might be possible that you might not be able to work according to your own contract. Instead, the client or an agent might offer their own standard contract/document which will need to be agreed upon and signed before you get started on the project. 

As with any contract you take on and intend to sign, you must make sure that you have a thorough look at it to make sure that it applies to your project and meets your expectations. Some of the things you need to be looking out for before signing it are payments terms, ownership of the completed work, the scope of the project. These terms within a contract will vary from project to project so you will need to be checking all contracts. 

If you don't feel comfortable signing a contract that is provided by another party then you can hire a solicitor in the field to help you draw up a contract which meets both yours and your client's expectations and demands. Some things you need to have clearly stated in the contract are, when and how you will be paid for the project and what will your responsibilities be during the work being carried out and the ownership of the assets once the project has been completed and the contract terminated. 

By having your own contract that is written up professionally, it can help you come across as an established business as a freelancer. It can also put you at an advantage through various stages of the engagement with the client, from the early negotiations before any work starts to your rights once the work has been completed. Therefore, it's in your best interest to take time to create a contract that will help you throughout your enaggement., 

2) When and how will I be paid?

One of the most important questions to ask about any project is how and when you will be paid for your services. Your contract needs to highlight this and make sure the terms of payment a crystal clear so that all parties are aware of the expectations. Something that you need to add in there is whether you will be getting paid a fixed price for the project or if your costs will be calculated based on materials and time basis. 

Fixed-price contracts

If you are going to get paid a fixed price for the services that you are providing, then you will likely either get paid in full at the end of the project or be paid when you hit certain milestones that will be agreed upon before. 

If you are opting for the fixed-price contract, you need to make sure that you are able to deliver the service within the right time frames. You should calculate your fixed price by calculating the time and materials that it might take you to complete the project. You should be confident in your ability to deliver by the set milestones because if it takes you longer hours, then you will not be paid any more than the agreed fix price. 

The great thing about fixed-price contacts is that you know how much exactly you will get paid for the project. Also, it may work in your favour if you are able to complete the work in less time than you anticipated, as your amount of payment will not be any less. 

There are both pros and cons of fixed contracts, so freelancers need to be aware of the risk that can come from them before taking any such contract on. The services that the freelancer is set to provide, need to be clearly identified and with a timelines/milestones which are a clear “trigger” for payment. It's advisable that freelancers only take on fixed-price contracts when the contract is clear and the payment is not dependent on any third party. Additionally, terms such as “to the satisfaction of the client” should be avoided in these contracts as they are ambiguous and not defined, which could mean the freelancer works longer for much longer until their client is satisfied. 

So, it's in the best interest of the freelancer to understand the scope of the project and make sure that its manageable and this needs to be reflected in the contract. It's also a good idea to highlight the assumptions set and what would be the consequences of those assumptions if they were incorrect. This can then allow the freelancer and the client to make changes to the scope, as we all ensure that the increase in price written in. 

‘Time and materials’ contracts

Another alternative to fixed-price contracts is time and material contracts. This type of contract requires your client to pay for your services on a project as well as for any of the 'materials' used in carryout out your work. Therefore, this would include any materials, software or any other goods involved in providing the service. 

This type of contract is most suited to projects that have an unclear scope, which is the complete opposite of fixed-term contracts. If the solution for a problem that the freelancer will supposedly help fix is undetermined, then its best to go with a time and material contract as the freelancer will be unaware about how much time and what materials will be needed (which are the factors that help decide the price of service). This contract will have ambiguity, which is why its best to set your price as you go because it's unclear the total amount of work required form the beginning of the project. Another thing to consider is, will your expenses be covered, and if this is the case, what are allowable expenses? 

When it comes to working out the price that the client is due to pay you, you will need to define your work on a daily or a weekly basis for contract purposes. Therefore, you would need to calculate how long a working day is and how long a working week is. Contracts in which the cost is worked out on the daily 8-hour rate or a weekly 5-day rate is preferable compared to some other methods. 

A combination of time and materials’ and ‘fixed price’

You may find that for a particular project, the two types of contracts mentioned are not completely suitable, so might opt for a combination of both time and materials and fixed-price. So you might want to include elements of both in your contract. For example, you might require a payment for the materials and the time on a basic payment, and then require payment for hitting a certain milestone in the project or a final payment once the project is completed. As a freelancer, the things to look out for are what are the milestones and how will they be met, what is the scope and are there triggers for payment, as well as if expenses will covered and if so which ones. 

3) What is the scope of involvement and the service that is to be provided?

There have been a number of contracts that I have come across which have terms and conditions but don't mention any specifics details about what the involvement of the freelancer will in the project or what the project itself will involve. 

The cope of involvement of the freelancer needs to be clearly identified and highlighted. This is especially important if milestones have been set in which the freelancers/contractors payment is dependent on. 

4) Who owns the Intellectual Property (both the Background and the Foreground) rights in the materials?

As a freelancer, you may be bringing some of your own know-how, software, designs, confidential information, processes or other property in which you have Intellectual Property Rights with you to provide the services.

Typically, you might anticipate using these Intellectual Property rights when you have finished the contract and start to work for another client. This is not always the case however and, unless the agreement separates “background Intellectual Property Rights” (i.e. the Intellectual Property Rights either party had before entering into the contract) and “foreground Intellectual Property Rights” (i.e. the Intellectual Property Rights created during the course of the project) then it is likely that the customer will require all Intellectual Property Rights to be assigned or licensed exclusively to the customer. This may not always be appropriate, particularly where you intend to use similar know-how, built up over a period of time in order to act for multiple customers.

In order to set out the basis upon which you may work for other customers after any given customer, the agreement should set out how Intellectual Property will be dealt with and in particular, whether Intellectual Property rights are assigned or licensed and the terms upon which that licence operates. (A customer may, for instance, be willing to allow you to use materials created provided that you do not use those same materials for a competitor). Such a licence, however, would need to be agreed as part of the arrangement.

5) Is there something I could be sued for?

The thing that can sometimes a freelancer apart from a worker or an employee is that you carry a risk of being sued if things were to go wrong. Therefore, its the responsibility of the freelancer to ensure they have the relevant insurance to cover them to mitigate the risk of being sued. One of the most important insurances a freelancer can take out it Professional Indemnity Insurance

If you were to cause death or personal injury through your negligence when providing the services or were to act fraudulently you would not be able to limit your liability for losses that are suffered as a result. In respect of other losses, however (for instance, where you damage the property of a customer, unwillingly cause the customer to lose an important contract, suffer a computer virus, suffer a security breach or otherwise suffer damage resulting from your failure) you may be able to limit your exposure in the contract.

One common provision which you will want in place is a “force majeure” clause, dealing with your responsibilities in the event that you cannot supply the service for some reason beyond your control. Without this clause, you might find that you are liable for your client’s loss, or face an extremely difficult legal battle to show that the contract has been “frustrated” - rendered impossible to perform.

6) What happens if the contract is terminated?

It might be strange for you to think about termination before you have even begun a project. However, it's vital that you get it right to ensure that you are able to run your business efficiently as a freelancer, should there be a termination, 

You will need to make sure to add in a clause int the contract which will detail that the client will need to give you a reasonable amount of notice before any termination. This will allow you the time you will need to sign on new clients and find your next project by the time comes where your engagement with the client has ended. 

Agreeing upfront any restrictive covenants and IP issues will help you to get the future contracts and continue to win work in the same sector. It's important to note that you need to deal with these sort of issues in a transparent and explicit manner so that you can rely on them should a dispute arise. 

7) How formal do contracts need to be, and what about ‘oral contracts’?

Is a widely believed misconception that if a signed agreement is not put into place by the client, then the freelancer is not bound by it. This misconception can be a problem, as contracts do not need a signature to be binding or in fact, a contract does not have to be in written terms to be binding. If a client presents you with a contract and you are yet to sign the agreement, but you have started the work on the project then it is seen as you accepted the terms of the contract and are bound by them. There is, however, an exception to this that is if the contract is marked with a term along the lines of “subject to contract”, which will mean that the freelancer will not be bound until the contract has been signed. 

Something to also note is that these rules also apply to email. If a formal written agreement has not been put in place and signed by all pattied then there may still be a binding contract through communications/conversations between the freelancer and the client or actually carrying out the work for the client over a length of time. 

If there is not a written, formal agreement in place then it can be near impossible to prove in court. With oral contracts, both the client and the freelance will remember agreements and conversations differently. This could then lead to more problems as the disupite arises so will the costs to prove your case. This can then put the freelancer in a weak position in terms of winning the case. 

A good contract (which you should seek professional help to draw up) can be invaluable to a freelancer. There are a number of ways which a good contract can benefit a freelancer including, getting paid the money that you are owed and making sure that they are paid on time, and avoid being liable for risks which may be related to wider projects. Hence, it is strongly recommended that your contract and back you up if need be. So, it might be even worth considering getting professional help with it. 

 

10th March 2009

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