Contracts that CYA, Episode 151

Episode Transcript

Carrie: Hey guys. Welcome to Office Hours. It is such a pleasure to have you here. How are y’all doing?

Rian: I’m doing fantastic. Happy to be here.

Karim: I’m doing great too. I’m talking to you one of the few times from Redondo Beach, not traveling, so I’m happy.

Carrie: Wow. Well, I am honored that you decided to be at home for this very important episode. Karim, I know that you’ve got a ton of experience in the enterprise world in dealing with client services there and Rian, so I’m excited to have you [inaudible 00:00:30]. [00:00:30] Rian, I’m really excited to have you on as an actual lawyer to shed some light on some things for us regarding contracts. I’m guessing do we need to do the legal disclaimer thing?

Rian: Absolutely, being an attorney, we have to start out with that, the fun legal disclaimer. I am an attorney, but not necessarily the listeners’ attorney, so if they have any specific questions, they should absolutely contact an attorney in their area. This is for informational purposes, [00:01:00] but I hope to answer and clear up a lot of general contract questions today.

Carrie: Let’s say that Rian, I decide to sue you. I’m not kidding. I would never ever do that, but-

Rian: [crosstalk 00:01:15]

Carrie: You would totally eat me up in court. We’re talking about contracts. Is it possible to be sued for a poor contract or something not being written correctly?

Rian: Absolutely. The question [00:01:30] I get most often is can I be sued for this? The answer to that question by any client at any time, 100% of the time, is yes, you can be sued at any time for any reason. The purpose of contracts and the disclaimers, the privacy policy, terms of use on your website is really to limit the legal exposure and liability to put your most professional foot forward, so they know that you have a strong legal team, you have strong contracts behind you, so you’re [00:02:00] less likely to be sued. You’re not incentivizing them to do so.

Carrie: Gotcha. We know as a person just starting out in business or a young freelancer, it’s sort of overwhelming to know what you even need to do, so I’m excited to kind of dig into that in this episode with you. I’m going to ask, let’s see, Karim, I’m going to toss this one to you. When it comes to a contract, you might also hear other terms thrown in there like [00:02:30] proposal or statement of work, a master service agreement. Are those all the same document or separate pieces of documentation?

Karim: While today I work mostly in the enterprise, I started out like most people working on really small jobs and you can scare people away with a massive contract, so there is a difference and you can make it easy on yourself. One of the tools is [00:03:00] to write a proposal and then at the end of that proposal, give terms. Now, I said that in a very specific way because when you’re writing a proposal, you want to put your best foot forward. You’re being salesy and then when you’re writing a contract, Rian will tell us you want to be factual. It’s hard to do both, right? If you’re up front doing that and then coming back in and saying, “Here’s my terms,” you can actually make it more friendly and [00:03:30] less formal by not giving them two pieces of paper, but giving them one that says, “Here’s a proposal,” then just put some terms on the back. That makes it easier.

When the jobs get more complex, you’re going to want to work towards a more formal contract and we tend to call those statements of work and they get a little bit more detailed as I know we’ll talk about further on in here, but as your work gets more complex, you want to make that there. You want to make it more complex. [00:04:00] Rian can tell us the difference between the different types of contracts, but I feel that a good tool for folks would be to try and start simple, if they’re just starting out and just cover the bases that we’re going to talk about here, not try to make it too complicated with a formal SLW or a formal master service agreement, which is a different type of thing.

Carrie: Okay, well, okay, so Rian, on this different types of documents that we just mentioned, can you kind of break those down and how from a legal [00:04:30] standpoint, you would think about those?

Rian: Absolutely. Karim was talking about complexity of the work being done. It’s also from a business perspective, the sophistication of the clients that you’re working with. If you’re doing a freelancer and you’re doing a smaller site, as he said, you don’t want to throw this huge contract at them that they’re not prepared for and that’s also finding the right attorney for you. We tend to want to over-complicate everything and draft the best contracts under the sun with as many formal clauses [00:05:00] and particularities as we can. That’s not always the best business decision, so when you’re looking at these different types of contracts, they’re actually all can be contracts. A proposal is the less formal and you can absolutely have it as an estimate or a quote dealing more with the sales aspects.

You can also throw terms on the back end. A contract is really an offer, an acceptance [00:05:30] and a meeting of the minds, so when you’re drafting your proposal, you want to have in mind, “Is this something that I want the client to be able to accept? Do I want this to be a legally binding contract?” If the answer is yes, throw the terms on the back, have them be able to sign off and move forward with an informal contract. If the answer is no, you’re really doing this more as an estimate, but you don’t want the price to be bound, there’s still some more terms that you want to hash out, you might want to write in there non- [00:06:00] binding offer or have limiting language with an expiration date on that proposal. They must accept by a certain date. Otherwise, it expires, so they don’t come back two years from now and try to get a quote on a price for a project you’re and longer able to perform, you don’t have the team together.

The SOW is also a contract. It’s more formal, but it’s per project, where the master servicing agreement, master for a reason, [00:06:30] it’s the larger document that oversees all of the projects that you may do for a particular client, so you’re going to tend to use this if you’re working with a client for more than one project, large scopes of time. It just kind of governs your working relationship.

Carrie: I love that you pointed out put that limiting language about a date specifically, because I’ve had that happen where I floated a proposal out and then it came back way later, like a year [00:07:00] later, and I’m like, “I don’t think so.”

Rian: Absolutely.

Carrie: Fortunately, they didn’t sue me for not having that language in there. Okay, so I’m going to introduce a new legal terms called the proposal mullet. The proposal mullet, it’s the fun sales part up front and then you’re sticking on the terms and all the businessy stuff on the back end.

Rian: I like it.

Karim: I’m just going to stay quiet.

Carrie: [00:07:30] I want to say I had a bet that I couldn’t fit the word mullet into this episode, but that’s not a true statement. Okay, so those are all different sorts of contracts, just kind of under different names and then based on the situation …

Rian: And your client level of sophistication. Again, if it’s a larger client that is business savvy, they may expect to have a more formal contract. It might make them feel more at ease. It might put you in more of a position of authority to have [00:08:00] a bit more formal of a contract. They might actually question your business [inaudible 00:08:06] if you come to them with a mere proposal. Absolutely, if it’s a smaller project, less … Figure it out based on the client that you have in front of you, what’s going to work best for you.

Karim: Yeah, you want to right size things, right? Just like if you’re a freelancer starting out or you’re moving that micro-agency level, you want to make sure [00:08:30] that you’re not scaring away your clients, yet you’re covering your butt and there’s a balance there of making the client experience a good one.

Carrie: Yeah, that’s a great point, so on the date thing that we were just talking about, or the limiting language as you called it, Rian, Karim, any other thoughts on that of how you guys handle it at Crowd Favorite?

Karim: Well, so in conversations with Rian, Rian and I have talked about [00:09:00] having a non-response late fees. Rian, can you list out two or three ways of limiting the clients’ accountability and then I can dig in on what Crowd Favorite does?

Rian: Yeah, so we were talking about holding clients accountable. Contract lays out the rules and responsibility of both parties and you’re telling them, “I’m going to provide this website, these terms, by this date,” but a lot of it can be dependent on [00:09:30] them getting you their logos, their deliverables and they fail to get those to you in a timely manner or approve different changes that you might make. That can effectively put your project on hold and what do you do in that instance? One of the things we as attorneys employ is this silence by assent where if they don’t get back to you in a certain amount of time, then it’s assumed that they’ve approved the work [00:10:00] and you can move forward with the project, so that’s something that we have put in the contract, “If you fail to get back to us within 48, 73 hours, whatever you agreed to, then the project still continues.” Does that answer your question, Karim?

Karim: Yeah, and that’s basically what we do at Crowd Favorite. Instead of doing late fees, which when you’re negotiating contract, the client is going to automatically want to negotiate, what we end up leaning towards is [00:10:30] having client acceptance language and that client acceptance language looks something like this: we’re going to give you two days to give you feedback on a deliverable. If you don’t give us feedback in those two days, you are automatically agreeing that as we’ve presented it to you, it will be approved and we’re moving on. Why do we do that if the client’s not happy? We do that specifically [00:11:00] because we’re creating an instance where we’re giving them the responsibility to get back to us. Otherwise, we can continue and actually bill for the next milestone, because usually client acceptance is right when they want you to get them the invoice or when they’ll receive an invoice, so hitting them with that invoice is a reminder, “Oh yeah, I need to give them that feedback,” and that gives you a mechanism to sort of have [00:11:30] that conversation on your terms rather than theirs.

Where that works a little bit less is where Rian said, where they haven’t you content or they haven’t gotten you a logo or what have you. There, you really have to work on late fees, which I know we’re going to be talking about in a second, but also we also have to think about things like performance period and this is probably … I’ll just jump in to briefly mention [00:12:00] performance period is a way to limit fixed bid projects, which we can get into a little bit later.

Carrie: Oh man, I’m just going back to that simple contract that says, “I’m going to do this for you. Hey, you’re going to pay me this much. Sign here.”

Karim: But we’re all human, right?

Rian: If everyone actually did what they were suppose to do when they were supposed to do it, we wouldn’t have to have this conversation, but unfortunately life happens. Sometimes there’s late payments, [00:12:30] late projects, and what contractually happens when that occurs.

Carrie: Gotcha, okay, so speaking of the signature thing, a lot of online tools now for like proposal creations like Bidsketch or Proposify, those sorts of services, you can send a digital copy of the invoice, or excuse me, of the contract, and the person has … They can add a digital signature to accept it, so versus [00:13:00] mailing it to you or faxing it to with the physical signature. Is there any issue there, legally speaking? Is that enough?

Rian: Well, I think most people know by now that an electronic signature has legal significance. It’s treated the same way as a wet ink signature. That’s been law since 2000, but what most people don’t know is that there’s major factors that have to be met in order for that electronic signature to [00:13:30] be enforceable. The four major requirements are and the parties have the intent to sign electronically, they consent to do business electronically. I’ll explain it after I go through it. Association of signature with the record and record retention. Intent to sign is pretty clear. Consent to do business electronically, that typically means that you have to have a separate written agreement that you’re going to agree to sign electronically. [00:14:00] The association of signature of record sounds complicated, but it typically is just the verification of an email address and the record retention is the independent ability to provide documentation that this electronic signature took place.

It can appear as an audit or a separate document that says when the electronic document was open, how long it was viewed, when it was signed, things like this. [00:14:30] There’s a lot of companies out there now and it’s not cost prohibitive, DocuSign, Adobe, I’m not endorsing any one of them, but they actually incorporate these requirements into their technology so as a small business owner, you’re not creating these independent records and having to store them for all time. They’re automatically being met by using these services.

Carrie: Gotcha, and out of curiosity, of those two services you just mentioned, do those actually track the opens and the time spent [00:15:00] looking at the document, that sort of thing?

Rian: I’m very familiar with DocuSign and absolutely. Depending on what industry you’re in, be able to show that you’ve sent a document at a particular time. If you say, “I …” You tell your client, “I’m going to send this document before 5:00 pm, close of business today and you can show that it’s been sent and/or that they’ve opened it, this is fantastic evidence to be able to provide to squash any disputes before they even get to a litigation level. I sent it, [00:15:30] I can show you I sent it, I know you opened it three minutes later, you looked at it for two minutes and 45 seconds, this kind of thing, so yeah, DocuSign is great for that.

Carrie: Cool, and let the record reflect that Rian is not suggesting …

Rian: I am not endorsing-

Carrie: Or endorsing.

Rian: [crosstalk 00:15:46] spokesperson.

Carrie: However, I have no qualms about such things, and I will have all the show notes or excuse me, all the links that we’re mentioning in this episode over at officehours.fm.

Karim: Wow, I’ve never [00:16:00] heard that level of detail. That’s some good information, even with all the projects we do. I didn’t realize those were the considerations. I got a question, Rian, what happens if you decide to end your subscription? Will you still be legally compliant or are you stuck with this subscription forever, if you-

Rian: That’s a great question. Yes, you’re still going to be legally compliant, because when you’re done with the signing session, [00:16:30] they send you not only your signed, legal contract back, but they send you a separate document for your records that’s of a complete audit of the signing session, when every party opened up and when they signed it so that document stays a part of your electronic records and perpetuity. It’s one of those why take on the responsibility of adhering to this law and having to micromanage all of the different aspects when you have a vendor that can take on that responsibility and be compliant for you?

Karim: [00:17:00] As a process nerd, that’s cool.

Carrie: Karim, I’m going to put you in the hot seat here for a second. You’ve been doing this like decades and have dealt with all sizes of projects from little bitty to enterprise level. Are there any sort of go-to things that you like to include in a contract that CYA or cover the bases?

Karim: Yeah, the basic parts for our industry and [00:17:30] defining our industry is sort of digital services whether you’re building an app or a website or what have you. There’s a couple of basic things. You always want to start with scope. You want to be as precise as possible on what you’re actually going to be delivering. The more you get into the details of how many comps or how many templates, if you’re using WordPress or any of those things, the more you’re going to be able to push back when the client say, ” [00:18:00] Well, I didn’t like that or I only got two rounds of revisions. I want a third round of revision.” Well, I stated in the scope we’d do that, so besides scope though, once you’ve figured that out, you’re going to want to make sure that you’re talking about those timelines and things that client delays.

When we’re starting out, it’s very hard sometimes to ask for time and material projects. Clients love fixed bid, because they have to [00:18:30] limit the amount of exposure they’re going to have financially. Well, you have a tool that not a lot of smaller shops use and that’s called a performance period and somebody’s going to say, “Well, isn’t the performance period just the six weeks I say this project is going to take? No, no, no, you can add a clause and here’s some practical examples come in, hopefully for your listeners, you can add something after the timeline where you’ve said it’s going to be six weeks [00:19:00] to do this project.

You can say the performance period for this project is eight weeks. Why are you doing that? Well, you’re doing that because you’re saying, “I’m giving you X amount of scope for Y amount of money within Z amount of time.” If the project gets delayed two weeks, that’s reasonable. If the project gets delayed past that, you’ve exceed the performance period of the project, therefore, we’re going to have to negotiate a change [00:19:30] order. The reason why you give yourself a little bit of time is because you may create that delay as well. I hope I was clear about how you can create this performance period for a fixed bid. You can go ahead and reach out to me and I’d be happy to talk to anybody through Twitter or any of the social medias, if they need some negotiation pointers of how do to this, but that’s how you can get a client to really understand that time does [00:20:00] equal money even on a fixed bid.

The last couple of things would probably be you want to make sure … An easy thing to do, and Rian might have a comment on this, is I put in a clause that says the total liability of the project can’t exceed the cost of the project. I’ve had some very unreasonable clients come back to me and say, “Well, you made me late on this. Therefore, not only should I give back my fee but I feel like I lost a certain amount of sales [00:20:30] or something.” That sort of cuts off that conversation.

Rian: Yeah, that limiting of liability of the total cost of the project is good and I don’t want to go too far into it because it goes into so many different realms, but when you’re looking at third party liability and identification, if their site goes down and they’re offline for a day or two, that limitation of liability covers everything, not just the actual creation of the project or whatever, but the amount you could totally be liable for if something were to go wrong as [00:21:00] well. It’s a really great limitation to put in there.

Carrie: That’s a great tip.

Karim: The last thing I’ll cover, if we’re not running out of time, is something that’s very specific to the WordPress community or other open source communities, which is mentioning warranties and maintenance. When I say warranties, I do mean in both senses. You do want to warranty in the legal sense that you do not represent WordPress, the WordPress project. They’re electing to use [00:21:30] open source. You do want to actually also have a warranty that limits if they don’t find a problem with a website in 30 days, it’s their problem, not yours. You want to make sure you’re explaining both of those things and I’ll tell you why. On the first part, when you’re dealing with open source, clients really don’t understand the fact that they’re using something that doesn’t have support and they’re going to come to you with a bunch [00:22:00] of questions or they’re going to come to you and say, “You adapted this third party plugin of Module and Drupel,” and say, “I need you to fix it. You need to understand client X, that that was broken by an update on your managed WordPress.” That’s not warrantied. You want to explain that a little bit.

On the back side of that, you also want to make sure that they understand [00:22:30] that you’re not legally responsible for if WordPress stops working and the best thing to do there is not only used a managed WordPress provider for hosting, but also explain to them, “Hey, I’m delivering this project to you. It works in a fixed amount of time when I deliver it to you. There are updates to plugins. There are updates to WordPress, no matter what open source platform you’re using, there’s going to be updates [00:23:00] and that’s not included,” so if you, as a service provider, provide maintenance or provide a service contract, let them know about that upfront, not after they’ve already signed the contract. Trust me, it’ll be a lot better experience.

Carrie: A lot of this is, and we teased about it earlier, kind of being the terms and the businessy side of things, but it seems like it’s negative language or language that protects you [00:23:30] versus protecting your client and none of that’s bad, but is there any way to sort of couch this in a nice language?

Rian: What I tell my clients is we’re actually setting clear roles and responsibilities for both sides. It’s neither positive or negative. It’s just clear expectations.

Carrie: That makes sense. Karim, any thoughts on that?

Karim: Yes, she’s absolutely right. That is the brass tacks of how the rubber meets the road. I love those analogies, but [00:24:00] those metaphors, but the bottom line is also this is a sales process. Until they sign that contract, you’re still in a process of selling things, and all of this, if they start putting their feathers up, the salesman is going to automatically say, “All right, I can tell some of this seems like it might be ruffling your feathers. I just want to point out that I’m trying to make sure that you have all the information, so I’m trying to set those expectations with you. If any [00:24:30] of this is difficult, then let’s dig in and let’s talk about those details,” but I’m sure it can cover each one of these points by explaining to you how this protects me and you, because all of the things we’ve talked about today, even when you’re talking about client delay language, you’re trying to protect their budget, you’re trying to do them a favor. Any one of these things that I mentioned as sort of things that we put into contract are things that [00:25:00] there is a good side for the client, even if we’re protecting ourselves.

Rian: Absolutely, and investing that time up front to take that time to go through it with them and answer any and all questions, make sure that there’s a clear understanding. That’s going to not only save you a large amount of time on the project as whole, but can really reduce your legal liability if there’s something that comes up and they don’t understand later. Remember when we spoke about that beginning and we clearly …

Carrie: Yeah, I actually like [00:25:30] reframing it that way. You are setting expectations on both sides of the table and that’s what that document represents.

Karim: Yeah, I think that’s the way you can say some of the things that feel negative, but you’re saying it, “Look, I’m making sure that we’re going to have a good experience here.”

Carrie: I know that you have done everything perfectly in your career and that you have never made mistakes, but I’m sure that you’ve observed other people making mistakes. Being in digital services, are there [00:26:00] things that you’re like, “Oh, I always do this now, because I saw somebody else make that mistake,” any legal clauses specific to the digital space?

Karim: Oh, I’ve made plenty of mistakes. I’ve had projects outright fail in the past with the best possible contracts and times when frankly, I thought I covered everything. I just covered quite literally [00:26:30] in what we’re just talking about, I just covered some of the things that constantly come up for me, but I left out a bunch of the absolute most important things that should go in any contract, because I don’t think about them, but I’m sure Rian probably has a list of make sure you get these things in there, even if it’s a proposal.

Rian: Yeah, absolutely, so there’s a lot of contracts online and boilerplate language. I typically, [00:27:00] from speaking with the WordPress community, will go through anatomy of a contract, so I can kind of bullet point effective date, the clear naming of the parties, the very specific terms that end to be in every contract that you do. Today, we’ve kind of gone over very practical, specific industry terms and clauses that have come up over time, but things that as an attorney that I would always make sure that you’re addressing, regardless of whether [00:27:30] it’s a proposal and you’re bullet pointing or not, the first and foremost is jurisdiction, [inaudible 00:27:36] when you’re buying and selling online, your client may be in another state, you want to make sure that you’re limiting where you or your company can be sued. That’s what the terms of use do on your actual website, if you have that agreement as part of your website, but definitely in the contracts that your clients sign. You want them to re-acknowledge jurisdiction as your state where your attorney is [00:28:00] for that home court advantage.

The other thing is notice and notification. We spoke earlier about the e-signature and the parties agreeing to be contracted via electronically, so notice or notification, are you deciding that if there’s something goes wrong and you require notice, is email acceptable, one to three days, email, mail, what address, is it business [00:28:30] days or calendar days? You want to be very specific about what proper notice is if you’re late fees and you’re contractor contingent upon notification of an issue. Then lastly, this is something that people outside of the legal industry really aren’t as familiar with and it’s called the drafters rule and it’s basically whoever drafts the contract, any ambiguity will be construed against them by the court. If you’re the one giving your client a contract [00:29:00] and there’s something wrong with it, the court would automatically find against you, unless you have something in contract. This varies by jurisdiction, but just be aware of it and if possible, include it the both parties agree that the contract will not be construed against either of them. Any ambiguity is not being held against one party over the other.

Carrie: Gotcha, so in my own starting out, I would get my hands [00:29:30] on other people’s contracts or things I’ve found online and just sort of piecemeal together my own. I don’t know what your feelings are about the whether the appropriateness of that is, but like would you recommend getting sort of your base proposal template or whatnot, getting your lawyer to check off, “Yes, this is an OK structure to use,” and just reusing that same structure over and over?

Rian: Absolutely. [00:30:00] There’s a reason that it’s called boilerplate and template. Especially when you’re dealing with small businesses, which is what I primarily deal with, they’re going to be reusing the same contracts over and over, whether it’s client contracts, independent contractor, vendor, things like that, so I try to make them as broad as possible for them to reuse, knowing that they have a budget and limitations while at the same time, being specific enough to the industry and the work that is actually being done to protect them. [00:30:30] There’s certain things. Like I said, jurisdiction we know is going to be in every contract that you have. Notice, indemnification, there’s certain things that you’re going to see time and time again that once you make sure that that language that … What you have is good for your jurisdiction, it can kind of be plug and play. I’m always going to advise people to seek an attorney. I’m an attorney and that’s what I do. I would be remiss if I didn’t [00:31:00] give that advice. Know that there is a large amount of legal that is going to be recurring and you should find an attorney that’s able to advice you on what you can reuse.

Karim: I’m going to break in and say two things. First of all, we were joking around about how long I’ve been doing this and all the mistakes I have made. That’s why I have this template. I have a template right now that I use with my clients that quite literally is … [00:31:30] It’s from 15 years of working with these clients and refining things and things change. It’s always worth it to just keep iterating on that. It’s not going to be perfect the first time or the 10th time you use it, but you can just keep iterating and learn from your mistakes and learn from close calls. That’s the first thing. Secondly, in the show notes, I know you’re going to put Rian’s contact information. I’ve been begging her to [00:32:00] take some of this information that she’s sharing with the WordPress community at WordCamps. I know she’s coming up to WordCamp Minneapolis. I’ve been begging her to come up with some blog posts or possibly some things that will let freelancers have a little bit more of a boilerplate and I know she’s working through how to do that. If you’re listening to this, go ahead and reach out to Rian and see if that content’s up there [00:32:30] by then.

Carrie: Rian, that would be fan-freaking-tastic. In case you were wondering if you should do that, you should.

Rian: Yeah, after I went to WordCamp Miami and saw the business track, every single business question had to do with contracts and exactly your question, “What’s boilerplate? What can I plug and play?” I don’t want it to be cost prohibitive for freelancers and people to get legal advice and to know that this [00:33:00] is acceptable language, so I am working on templates and trying to put something together that’s reliable from someone you guys know and is not necessarily something you rip from Google and hope it works out.

Carrie: Awesome. Well, you guys have just dropped some major gems today. I look forward to, myself, just going through and re-listening to the episode and getting the show notes for it, but thank you both so much. Karim, it is always pleasure having you on. Rian, you have [00:33:30] been an excellent first time guest. Thank you so much. I hope to talk to you again soon.

Rian: Thank you so much, Carrie.

Karim: Thank you, Carrie.