NEGOTIATING THE CONTRACT
“We see things in black and white: ‘They either want me or they don’t. I’ll either get it or I won’t. They will pay this price or they won’t.’ But between those two poles, there are many other possibilities, if only you would take the time to talk about them, address them, propose them.”
—Mikelann Valterra, certified financial recovery coach and author
Every business book you read will tell you that you need a contract for every client and every project. But in the real world of doing business, it’s easy to let this detail slip through the cracks, especially if you aren’t particularly comfortable with it in the first place. Is it because you don’t have a good contract? (If you read this article, you won’t be able to use that excuse anymore.) Or because it’s an extra step in the process to get things in writing? Or because the job is a rush and there simply is no time to get a contract signed? (How long does it really take?)
If you’ve been stiffed or had to absorb a cost you couldn’t afford thanks to lack of a contract, you have hopefully learned from the experience. If you haven’t been lucky enough to have a bad experience yet, read on. …
WHAT IS A CONTRACT, AND WHY DO I NEED ONE?
You need a contract because human relationships are messy, memories are imperfect and communication is often ambiguous. A contract cannot protect you from any of this, but it can bring some clarity and consensus.
Clarity because it puts in writing what was said (and sometimes not said) so all parties can review it before embarking on a joint project. Consensus because each party must agree to what is written before proceeding further. If any problems arise afterward, the contract stands as the objective document to fall back on.
Simply put, a contract is a document that can protect all parties by avoiding misunderstandings and serving as a paper trail if things do go wrong. It outlines the terms and conditions under which you will perform your work, what you will provide to the client and what they will provide in return. Its purpose is also to anticipate problems and clarify the responsibilities of both parties should problems arise.
A contract isn’t necessarily a thick document with lots of legalese. A contract can be a simple outline of the terms and conditions by which you and your client agree to work. Or it can be a complex document of several pages, depending on the intricacy of the project or the number of elements involved. Its purpose is to set forth the terms of work—deadlines, scope of work and limitations, contingencies in case of unexpected changes and potential misunderstandings. More than anything, putting these items in writing prevents miscommunication and keeps everyone’s stress level low.
Many creative professionals believe that contracts are only necessary for big jobs with big fees for big clients. They often skip the paperwork on small projects. But it’s actually the little stuff that has the most potential to cause time-consuming, expensive problems.
Contracts are especially important for creative professionals because when you sell your work, you essentially are selling a right to your property—in this case, your intellectual property, which is intangible. And because it’s intangible, the process may be less clear than if the object in question were tangible, like a car or a house.
However, a contract is only as good as the people signing it. Business relationships are built on trust. In fact, many agreements are made on a handshake and that is enough if both parties are trustworthy. So the rule to live by is this: If you sense that your partner is not negotiating in good faith, walk away. Nothing you put in a contract will protect you.
What about a contract’s ability to anticipate what might happen? In real life you can’t predict everything that could possibly happen, so don’t spend too much time thinking about every single “what if.” If you’re dealing with honorable people, you’ll come up with an acceptable solution to an unanticipated problem, even if it’s not in the contract.
That said, have your own contract drawn up by an attorney who understands creative services and your interests. You can customize it for each situation. If that’s beyond your means, there are plenty of resources available.
SAMPLE CONTRACT
Gerry Suchy of Arlington, Virginia-based GMS Designs has generously shared his standard contract, created by his in-house legal team (his wife, who’s a lawyer). “Clients love it for its simplicity,” says Suchy, “and my wife would be the first to tell you that almost all legal documents are mash-ups of documents that preceded them. The law firm rule is don’t waste time reinventing the wheel if there is a document that can be cut and pasted.”
This contract is obviously created for a small design business, but the concepts and language are general enough that they can be adapted for other creative professions. So feel free to adjust this sample contract for your own purposes.
1. Client information
Name:
Organization:
Address:
E-mail address:
Phone number:
2. Project information
Artwork will be designed to enhance the body copy supplied by the client and laid out for an 8½ × 11, duplex, full-color, trifold brochure. All artwork will be done to client specifications and use client-provided graphics. GMS Designs may supplement other graphics with the approval of the client. Any custom graphics obtained from image houses will be paid for by the client. The project will be designed using some combination of Adobe Illustrator, Adobe Photoshop and Adobe InDesign. The final artwork will be output in a file format suitable for commercial printing press production. If the client does not have a commercial printer, GMS Designs will make three (3) recommendations.
Go into as much detail as possible about what you will do and how you will provide the deliverable.
3. Project price and payment terms
The project price is based upon a negotiated package price for the entire project of $____.
The price quote does not include combined a (state) sales tax of 8.0%. Sales tax will not be applied to non-Virginia residents. Additionally if you choose PayPal as your form of payment, there is a service charge that will be computed based on the total payment. This will be itemized and added to the final invoice.
Be sure to note any details regarding state taxes that apply (or don’t apply) as well as any service charges you plan to add if you use any services, such as Paypal or other merchant services that charge a fee. It is up to you whether you pass this fee on to your client or absorb it as a cost of doing business. Either way, it should be stated up front and agreed upon. Being able to offer credit card payment helps because small projects can require a very quick turnaround.
4. Final payment terms
An itemized invoice will be provided to the client within three (3) days of project completion, before the final work files are given to client. A deposit of 50% is required to commence work. Final payment is required when the work is complete. In addition to PayPal, I also accept corporate or business checks. Checks will need to clear before the final files are sent.
There are no “right” terms. What’s important is that you outline your terms clearly. Always include how much you’ll be paid and when, plus your policies regarding late charges. Traditionally, clients with whom you’ve maintained long relationships should pay “net thirty,” meaning they have the standard thirty days to pay. For smaller projects and for new clients, it’s customary to request 50 percent in advance and the balance on delivery.
For large projects, consider asking for “progress payments” which are payments that are not tied directly to project milestones, but instead are tied to the calendar. For example, for a project that you estimate will take you four months, propose four equal monthly payments (less the deposit) on the first of every month. This way, if the project takes longer or the client has a bottleneck, your cash flow isn’t compromised. Plus it’s an incentive to finish the project since they’ve already paid for it.
5. Revisions
The project price quoted does not include an unlimited number of revisions. I, of course, want you to be satisfied with the final look and feel of the project and I’m sure you feel the same. It has been my experience that good communication between the designer and the client can limit the revisions to just minor changes rather than complete do-overs. Minor changes and adjustments are part of the process. Do-overs are a symptom of poor communication. Having said that, let me suggest that for the proposed cost of this project I will include two rounds of adjustments. Beyond that, the cost of further adjustments can be negotiated. This way of doing business works to your advantage as well as mine in that your project is finished in a timely manner and within your budget.
What’s important here is addressing the issue of revisions and clarifying exactly what a revision is. It is not advised to provide unlimited revisions at a fixed price, especially with a new client.
6. Ownership of artwork/files
Until full payment has been made, GMS Designs retains ownership of all original artwork/files or parts contained therein, whether preliminary or final. Upon full payment, the client shall obtain ownership of the final artwork/files to use and distribute as they see fit. GMS Designs retains the right to use the completed project and any preliminary designs for the purpose of design competitions, future publications on design, educational purposes, marketing materials and portfolio. Where applicable, the client will be given any necessary credit for usage of the project elements. Any trade-sensitive information, such as product pricing or customer data, shall be redacted by the designer prior to use.
Whether you retain ownership of the files or you transfer that ownership to your client is your decision to make. It should be decided on a case-by-case basis. Here, Suchy is transferring all rights in exchange for full payment, while retaining the right to use the material for promotional purposes. If you want to retain the rights and the native files, you must make that clear because most clients do not understand that is not what they’re contracting for.
7. Production schedule/delivery of project
The client will assume any shipping or insurance costs related to the project. Any alteration or deviation from the above specifications involving extra costs will be executed only upon approval with the client. The designer shall not incur any liability or penalty for delays in the completion of the project due to actions or negligence of client, unusual transportation delays, unforeseen illness, or external forces beyond the control of the designer. If such event(s) occur, it shall entitle the designer to extend the completion/delivery date, by the time equivalent to the period of such delay.
This clause is designed to avoid the all-too-common situation where a client is delayed in getting their feedback to you and you therefore have less time to implement the changes. It states up front that you will extend your time frame according to the length of their delay. In the actual situation, that may not be possible or your choice, but at least you’ve provided for it as an option.
8. Third-party shipping
In the event any material necessary for the production of the project must be shipped to a third party for additional processing, typesetting, photographic work, color separation, press work or binding, the designer will incur no liability for losses incurred in transit, or due to the delay of the shipper of the third party.
9. Claims period
Claims for defects, damages and/or shortages must be made by the client in writing within a period of ten (10) days after delivery of all or any part of the order. Failure to make such claim within the stated period shall constitute irrevocable acceptance and an admission that they fully comply with terms, conditions and specifications.
10. Proofing of final project
The designer shall make every effort to ensure the final product is free of any grammatical and spelling errors, before giving the final product to the client. It is agreed that it is the client’s responsibility to ensure that there are no spelling or grammatical errors contained in the final product. It is agreed that the designer is not responsible or held liable for any errors contained in the final product after the final product has been committed to print or posted in view of the public.
These clauses attempt to protect you from mistakes and minimize your liability. These mistakes will hopefully not occur often, but, when they do, it can be catastrophic if you haven’t protected yourself.
11. Cancellation
In the event of cancellation of the project, ownership of all copyrights and the original artwork and disks shall be retained by GMS Designs (Gerry Suchy), and a fee for work completed, based on the contract price and expenses already incurred, shall be paid by the client.
It’s a good idea to have a clause outlining what will happen and what charges will be incurred in the event of a cancellation of the project. If the cancellation is due to reasons beyond your control, a kill fee should be applied according to a percentage representing the stage of the work completed. The Graphic Artists Guild Handbook states, “Typical charges for services rendered can be 25–50 percent if the work is killed during the initial sketch stage, 50 percent if killed after completion of the sketch stage and 100 percent if killed after the final design is completed.” You should also allow for payment in the event that the work is rejected due to client dissatisfaction, which also depends on where in the process the project is. GAG also states, “Common cancellation fees are one-third of the total fee if canceled before completion of final art, and 50–100 percent after the final artwork is completed.” This is subject to negotiation but should be provided for.
12. Confidentiality
All correspondence and documents provided will be treated as confidential between the client and the designer, unless consent has been granted by both parties involved.
13. Acceptance of Agreement
The above prices, specifications and conditions are hereby accepted. The designer is authorized to execute the project as outlined in this agreement. Payment will be made as proposed above. This agreement is not valid until signed by client and returned to the designer.
Signature:
Date:
Please print your name here:
BAD CONTRACTS/BAD DEALS AND HOW TO GET OUT OF THEM
By Jean S. Perwin
In the poem “The Hand That Signed the Paper,” Dylan Thomas wrote, “Great is the hand that holds dominion over/Man by a scribbled name.” All of our hands have signed papers we wish we didn’t. But when it happens in business and someone holds dominion over you, figuring out your options can be difficult indeed. If every business relationship went smoothly, no one would ever need to sign or enforce a contract. One of the reasons to have a written contract is to prevent problems and to solve them. What happens if you sign a contract with a client or partner or employer or employee and you live to regret it? What do you do?
First, you have to identify what makes a contract a bad one. A bad contract usually comes down to one of two things: the deal itself is bad or the contract was badly drafted, or both. If the deal you made turned out to be a bad one, the best-drafted contract cannot turn it into a silk purse. But it should be able to help you change it. If the deal is sound, but the contract is poorly drafted, it won’t be able to help you solve problems that may come up. But if the deal is bad and the contract poorly drafted, you’re down that river and contemplating your lack of a paddle.
If nothing is permanent but change, a good contract anticipates change. And while it’s impossible to anticipate every thing that could possibly go wrong, there are several issues that come up often enough that every “good” contract should deal with them.
Money. Money is always a problematic issue in any business relationship. While most agreements specify how much money one party is supposed to be paid by the other, a common problem is how and when. If the contract doesn’t say specifically (1) when payments are supposed to be made, (2) what happens if they are not, (3) what has to be done before payments are made or (4) how long after invoices are payments due, there will be problems.
Ownership. In the creative services business, any agreement that does not spell out who owns what when will be problematic. Copyright ownership is the coin of the realm for designers. Agreements should be very clear about when and if rights transfer to the client. Also, pay close attention to work-for-hire language. Much to their chagrin, many creative professionals have discovered belatedly that they signed work-for-hire agreements.
Terms. How long a contract will last can often be the difference between a good contract and a bad one. I have never had a client who regretted signing too short an agreement. But many rue the day they signed long-term agreements. While it can appear very appealing to sign a five-year contract with a client for a monthly retainer, for example, for a specific type of work, five years is a very long time in any business. What looked like a great deal in year one can be strangling you by year three. Short term agreements—no more than one-year with the opportunity to renew—are much safer.
Termination. Every agreement should have a way out. The simpler, the better. “This contract may be terminated with 30 days written notice by either party.” A bad contract may spell out the work to be done and how you will get paid … but not what happens if you are not paid or if the client rejects the work. A bad contract includes nothing about ownership of the copyright for the work that is created. It does not address how the agreement will end or specify a term after which the parties would have no obligation to each other. It may contain an attorney’s fees provision, but may also include an arbitration provision, which has legal implications you may not understand.
HOW TO GET OUT OF A BAD CONTRACT
There are essentially two ways to get out of a contract—renegotiate it or break it. There are advantages and disadvantages to both.
To renegotiate a contract, you need the other side to be willing to negotiate. If the relationship is still amicable and there’s an avenue to work out a new agreement, take it. Sit down. Explain your position and why you need the agreement amended and what kind of terms you are looking for. Remember that you need the cooperation of the other side, so accusing them of bad behavior, even if it’s true, is not helpful.
The advantage of breaking the contract is that you end the relationship—either in writing or orally. The disadvantage is that you may be legally liable for payments or for providing services for which the other side could sue you. From where I sit, litigation is always something to be avoided if possible. It’s time consuming, expensive and rarely satisfactory. But unfortunately, sometimes it’s unavoidable. If you are considering walking away from a contract, get legal advice to determine whether the cost of walking is worth the potential cost of litigation. Then at least if you decide to take the leap, you’re not diving into an empty pool.
The best way to avoid bad contracts is to not get into them in the first place. It is often said that an attorney who represents himself has a fool for a client. I would add that a creative professional who drafts his or her own contracts also has a fool for a client.
Jean S. Perwin is a Miami-based intellectual-property attorney who has expertise in creative services.
Ilise Benun, founder of Marketing Mentor and co-producer of the Creative Freelancer Conference (www.creativefreelancerconference.com), works with creative freelancers who are serious about building healthy businesses. Sign up for her Quick Tips at www.marketing-mentortips.com.
Excerpted from The Creative Professional’s Guide to Money © 2011 by Ilise Benun. Used with the kind permission of HOW Books, an imprint of F+W Media Inc. Visit mydesignshop.com or call (855)840-5126 to obtain a copy.