Design a Contract: Everything You Need to Know
If you have your own business, you need to know how to design a contract that will protect your interests and prevent disputes when working with clients.3 min read
If you have your own business, you need to know how to design a contract that will protect your interests and prevent disputes when working with clients. In most cases, if you provided the client with an estimate, you already have most of the information you need to create a contract.
The Importance of a Contract
Although you might want to get a jump-start on a new client project, it's important to establish a contract before you start working. These are some of the many reasons contracts are critical to the success of your business:
- They offer written protection to ensure that you get paid for project changes such as timeline, scope, or deliverables. This keeps you from taking on additional work without additional pay and limits the number of revisions and the length of the approval process.
- They establish a payment schedule to ensure that you get paid on time. If the client doesn't pay you as agreed, you will have legal recourse. Common pay structures divide the total into two or three payments spread equally over the length of the project. This should be detailed in the contract.
- Having a contract enhances your credibility with clients and starts the project off in a professional manner.
- They put provisions in place for unexpected situations.
Elements of a Contract
Every contract must include an offer, terms, and a commitment in order to be legally valid. This is true for both oral contracts and written contracts. A contract also requires consideration, which is a fair and equitable exchange, such as a website design for a certain amount of money. Each party to the contract must provide consideration, and the offer must be accepted by both parties. Elements of the contract document should include:
- Overview: Describe each party to the contract, summarize the purpose of the contract, and note the associated cost.
- Responsibilities: Indicate what each party has agreed to for the duration of the contract.
- Scope: List all the deliverables of the project. This is critical because it tells the client what they will receive in exchange for the agreed-upon payment. This section should be detailed. For example, if you're designing a logo, note how many mockups and rounds of design revision are included before a change order is required. In addition, you should explain how the approval period will work so that the project runs smoothly. You may also want to note elements that you are not responsible for under the contract terms.
- Changes: If changes to the contract are needed, specify the hourly rate that you will charge for additional work. Also note the official procedure for requesting changes.
- Ownership: Indicate who owns the rights to the work when the project is completed, and make sure you note that you have the right to include the work in your portfolio.
- Payment: Detail a payment plan with specific amounts to be paid at specific project milestones. This can include an initial deposit to be paid before the start date. Payment terms should be clearly indicated.
- Warranties: If you will be giving the client a grace period in which you will answer questions and provide technical support and troubleshooting, this should be clearly noted in the contract, with a specific end date.
- Termination: Indicate the procedure for canceling the contract if it's not working out.
- Signatures: Both parties must sign the contract or it is not legally binding.
Make sure that you design a contract that is appropriate to the project size and scope. Avoid creating an overly long contract that may intimidate a new client. You don't need to include pages of legal jargon. In most cases, a simple, easy-to-understand contract is sufficient and preferable.
If you have to terminate a contract, do so in a way that upholds your professional reputation. Do it in a phone call, and then follow up with a confirmation email rather than relying on email alone.
When negotiating a contract, make sure you are talking to a person with decision-making authority rather than with a lower-level employee who will have to get the boss's approval before moving forward. When you do offer a draft contract, make sure you have spelled each person's legal name and title correctly.
If you need help with designing a contract, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.