There’s nothing more exciting than getting word that a new client has accepted your proposal. If you’re like me, you still (even five years later) throw your hand up in the air and can’t stop smiling.
New client relationships are great. It’s a new partnership. It’s a new project. It’s a new challenge and opportunity to do good.
It’s more than acceptable to celebrate a new win, but before you go any further in your new relationship you have to do one thing: solidify all expectations, details and circumstances in an air-tight agreement.
Contracts Can Be An Agency’s Biggest Leaky Bucket
For agencies, contracts can be the leakiest buckets. They lead to unmet expectations, unclear responsibilities, scope creep, a loss of time, a loss of money and sometimes can even lead to lawsuits.
I’ve always viewed myself as an optimist, and maybe you are too. But when it comes to contracts you truly have to “Prepare for the worst and hope for the best.”
What Are the Odds Things Go Wrong?
Sometimes I get asked by freelancers and agency owners new to the game, “What are the odds that things actually go wrong?”
The honest truth is that it doesn’t matter what the odds are. It’s all about eliminating any potential that your agency gets put into a position that might harm it or destroy it. It’s your obligation as an agency owner.
It doesn’t matter how good you are at vetting new partners for best fit, every once in a while things just don’t work out. If you aren’t able to properly set expectations and responsibilities, you’ll both have a lot of frustration. This frustration might lead to other circumstances which lead to time loss, money loss and maybe even a lawsuit.
In other circumstances, you might encounter a relationship that rounds some unforeseen bends.
A Defeat Due to a Flawed Contract
I once had a client pay their 50-percent production deposit and engage the contract. We did a lot of work on our end and then, without any notice, we didn’t hear anything from the client. Days went by, weeks went by, and months went by.
Eventually we found out that they decided to work with another agency. They only notified us of this when the job we agreed to do was done by that other agency. Worst of all, regardless of how much work we did, they wanted a refund. The contract didn’t specify two circumstances:
- What would happen if they engaged with another agency for the same work
- What would happen if work was provided and a refund of the deposit was requested.
I had to bite the bullet here and oblige. I hadn’t specified the two, above situations. It was an oversight on my part. “What’s the worst that could happen, right?” Well, this was a bit odd and after nearly a few hundred successful client engagements, I’d never seen this happen.
This defeat stung too. So again, it’s not about the odds. It’s about preventing these kinds of situations—and others like it—from ever having an opportunity to happen.
What Every Agency Contract Needs
So what are the elements you need to cover to protect your agency? Here are tips and some of the vital points to specify.
- Disclaimer: What’s below might not help you cover everything, so be sure to consult with a lawyer or agency success consultant before moving forward.
One Other Note: How to Word Your Contracts
Before we dive in, there’s one important note to make.
You don’t need to write in complicated legalize. Legalize won’t make your agreement any better. In fact, sometimes it can make it much worse. Legalize can confuse both parties, and require legal assistance to mediate contention.
Instead, write in a clear, straightforward manner.
1.) Citing the Legal Names and Addresses of Both Parties
First and foremost, you need to specify who the agreement is between. Both parties must be listed. You also must first cite the proper legal names of both business.
You can indicate afterwards particular nicknames for those parties (for example: DBAs or “Client” and “Agency”), but always cite the right one’s first.
Last, but not least, include the legal business addresses for both parties. This mitigates all potential confusion and misidentification.
Before putting the pen to paper, be sure to check with your client and ask for these details.
2.) Contract Duration
When does this contract officially begin? When does it end (if it’s a retainer) or what constitutes the conclusion (project based)?
- Retainers run on a set start and end date.
- Projects might not always have a specified end date per say:
- We’d all like to think we can hit those deadlines, but projects are unfortunately a bit unpredictable. In this case, it’s vital to include a clause that identifies the rightful conclusion. For a project, it’s completion of the work.
- Also for a project, be sure to specify what constitutes the final files being released. I recommend stating that all payments must be paid in full before those files are released. If you release them too soon, well, then the client could tuck and run without final payment. Sure, you’d sue them, but this takes time and money. Prevent it by considering this.
3.) Scope of Work
It’s important to make note of the scope of work in the first page or two of the contract.
If you do this right, it should get really lengthy. What I recommend is making mention that the scope of work is located on a different set of pages within the contract. Also make note of what those pages are.
The key to a successful scope of work is to be as specific as possible. Vagueness is the enemy of good contracts.
Cover the following in your Scope of Work at bare minimum:
- What did you agree upon?
- What is your goal?
- What services are you providing?
- What exactly are those services and what are the tangible deliverables?
- How are those services carried out?
- What is required of the client (time, info, resources)?
- How many revisions are included before additional hourly/project fees become necessary?
4.) An Additional Work Request Clause
Scope creep doesn’t happen overnight. It happens day to day. It’s up to you to make a firm decision to be open and honest. Tell the client that you’d be happy to fulfill the request, but give them a quote for doing so.
You also need to make mention of additional work requests in your contract. I recommend placing this in the Scope of Work or just below it. State that all additional work requests—outside the scope of your contract—will be quoted at a separate rate and agreement.
5.) Budget and Payment Schedule
What is the total amount to be paid? How is that payment going to be delivered?
Common delivery schedules:
- Monthly payment (retainers)
- 50 percent up front and 50 percent upon completion (projects)
Are these payments refundable?
6.) Late Payments
When are payments due after invoices are sent out? I recommend a net 21, which means invoice payments are due in full in 21 days.
You’ll also want to consider a late fee. A common late fee is three percent of the invoice total applied to the late invoice. Although this might not be that much, it is a way of encouraging on-time payments.
What happens if either party wants to terminate the agreement?
You’ll want to specify:
- How much notice is required in order to terminate the agreement.
- What method is required (written letter, email, etc.). Any verbal or text conversation should be followed up with a written notification.
- How outstanding work is handled.
- Refunds—if they terminate the agreement before it’s fulfilled, do they get their deposit back or not? Do they get a percentage?
8.) Breach of Contract
A breach of contract is a failure, without legal excuse, to perform any promise that forms all or part of the contract.
This section of your contract discusses exactly what happens in the case of a breach of contract. It can result in an immediate termination of the contract with no refunds (if the client breaches), or a termination and compensation (if you breach it).
Something else you need to consider are actions that would constitute a breach of contract and what happens.
An Example of an “Other” Breach of Contract Circumstance for Agencies
My earlier example is a good one for this. The client went out and engaged with another agency without informing us. They got the end-result, didn’t deliver full payment and even asked for a refund of the deposit although significant work had been completed. It’s not the fact that they engaged with another agency in general—it’s that they engaged with that agency to create work that directly competed with the services we were providing.
In an ethical sense, it was shady and not transparent. In a legal sense, I didn’t have any written clause that specifically addressed this situation, so we had to eat it. What we started including in our contracts moving forward was a clause that discussed this in depth.
In short, it states that if a client engages with another agency to accomplish the exact same work while our contract is active without presenting written notice or clearly terminating the agreement that we reserve the right to hold onto the deposit and charge the final payment.
In reality, this could happen to any agency. Again, “Prepare for the worst, hope for the best.”
9.) Dispute Resolution Steps
If there is a major issue that can’t be moved beyond, what happens? Do you terminate? If there are outstanding issues, do you move to legal proceedings?
It’s worth your while to consider outlining a dispute resolution plan. This would indicate formal written notice of all issues and a series of meetings accompanied by a mediator.
In the long run, this may prevent legal proceedings and save a lot of money.
- If it must lead to legal proceedings, specify who handles attorney fees. Commonly, both parties handle their own.
This discusses the intellectual property of the processed, systems and final work.
- If your agency utilizes specific processes to create the work, be sure to identify those processes as intellectual property.
- Also identify final products as the property of the client (agencies who “rent” final products like logos or websites are a bit shady in my opinion).
- If particular elements are owned by third parties, be sure to indicate that those are the properties of those third parties.
Both parties must be protected, from, well, each other.
Unless you state what must be kept confidential and only released with written consent, it’s technically fair game.
Here are items to cover with confidentiality:
- Your agency
- Your pricing and quotes given to the client
- Your processes and trade secrets
- Information discovered about your clients
- Emails sent from your agency
- Your client
- The pricing and quotes you give them
- Their processes, trade secrets or operations
- Unreleased news discussed, but not ready for public
- Emails sent to you from them
What happens if some kind of losses are incurred in relation of your work? Will you compensate the client, or are you held harmless? This is important to consider.
Here is an example of a hold harmless clause:
“[Client Name] agrees to indemnify and hold harmless [Agency] of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, to the extent caused by or arising out of or relating to the work of [Agency].”
Go Over Your Contracts
Once you put together an agreement, don’t just ship it over in a vacuum. Be sure to go over your contracts with your clients. Go over each heading and explain the significance.
This will allow you to clearly review expectations and answer any questions.
Go Out and Write Airtight Contracts
Now, go out and write airtight contracts!
Again, before utilizing your contracts, be sure to have trusted professional help overview them just to make sure you’ve covered your bases.
Here’s to better contracts,