Discussion on:

Customizable IT consultant sample contract

I like to see consultants include a mediation or arbitration clause in these kinds of contracts.

Chances are you will never litigate anything but if there IS a problem, mediation can be a much better process. That said, people should be fully aware of how the process works. In some cases, it might be cheaper and more effective to sue and settle than to get entangled in a mediation process, which is not cost-free.

I actually had an Arbitration clause in
there, and decided to strike it. My client
and I could still agree to arbitration, but I
didn't want to take legal action off the
table.

I was hoping to hear from you on this post,
herlizness -- given your legal background
(thanks for not disappointing me). Could you
elaborate on the pros and cons of mediation
or arbitration as you see them?

uh-oh ... my response pattern is becoming too predictable!

first of all, I agree, I don't like taking litigation completely off the table, and, as I said, depending on the client/history you may want to remain silent on the issue; the hard reality is that some clients can be quickly intimidated into compliance (typically payment) with a lawsuit; as soon as they're served with process, they either pay up or get down to serious negotiations. So you want that as an option in some cases. Of course with other clients, being sued is no big deal and they will not be intimidated and might well file counterclaims.

Although it really has little or no legal effect, I like to put in a clause to "first negotiate informally in good faith to resolve any dispute" .... it's a matter of staging, setting expectations ... if there's a problem you can call attention to the clause and it might be enough to get to the table.

Normally, mediation is a less formal process in which a (hopefully) skilled and unbiased third party can help the parties sort out grievances and reach some kind of accommodation; typically, they like to facilitate a "win-win" so if someone owes you $8,000, chances are they have some reason for claiming to owe you less than that and you'll probably be encouraged to back off some ... more or less in the interest of everyone "getting something." Of course there are other accommodations which can be made, like you get your $8K but agree to a longer warranty period, or agree to make some code changes, etc. As you can see, it's helpful to have a mediator who knows something about software development so that they have some feel for the concerns of the parties as well as the range of possibilities available to work with. When mediation fails, you can still litigate.

Consultants concerned with these issues should probably do a little shopping around for mediators BEFORE they have a problem so you they can get a better feel for how the mediator works and what the fees are. Needless to say, the parties have to agree on a mediator but if you do some shopping you're in a position to nominate a few people acceptable to you.

Arbitration is a somewhat different process and basically entails presentation of a case by each party to the panel; after hearing the cases, they will issue findings and a decision, which can be binding or non-binding. I don't see too much point in non-binding arb; mediate instead. Binding arb is a little risky in my view; it's cheaper than litigation in many cases but unless you're very familiar with the process it can be a mine-field.

For the small/one-man shop, your best bet is to avoid all of this, contract intelligently only on gigs you know you can do, and keep clients on a short leash so you always have the option of walking away, doing nothing at all and not losing a lot of money. Avoid situations like having an SMB client owing you money in an amount that you NEED.

Anyway, those are a few thoughts on the issues ... everyone should keep in mind that serious disputes requiring any kind of formal dispute resolution process are relatively rare.

If you address these contingencies in your contracts, also keep in mind that if they are overly detailed and prominent, they might raise a red flag for the client.

... for your informative reply.

You need to be careful with mediation and arbitration ... neither one is limited to the common law. Meaning that their decisions are not bound by prior decisions and may not be in agreement with the decisions a court would make in that case. This could be to your advantage or disadvantage.

You really need to do your due diligence before selecting any method. And if possible select your mediator/arbitrator based on their own history.

Glen Ford
http://www.TrainingNOW.ca

all the rights to whatever you do UNTIL you get paid or there is a legal agreement? I have a software company that is basically refusing to pay and say they own all right because I did it at their request and the rights to the software are their's by contract. (My contract looks alot like Chip's.) I know this is a fine line, but there are times the independent needs some leverage with smaller clients.

there are two sides to a contract; if they don't pay, they don't own ... they breached the contract

I'm sure the situation is more complicated than this, but that's your starting point in thinking about the problem

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I think the sample agreement is a good one to go by. I do have my own little aggreement with clientele for services rendered. There is a bit of give and take. But it protects me from getting ripped off. In my aggreement. It states "all fees for services rendered, must be paid in full and within 30 days of this aggreement before the repaired item(s) will be returned or delivered to the client. If in the event that after the specified time period has passed and all reasonable means to retrieve payment for said services, the repaired item(s) will be sold at Mr. Marr's descretion (unless an aggreed arrangment is made)in an effort cover the cost of repair(s). All monies garnered from such sale will be the sole property of Mr. Marr." I know that is a lot to put on a work order, but you don't know the kind of people that I have to deal with sometimes. I repair peronal PC's for home owners etc. I don't do consulting for bussinesses, but I need some teeth so people will actully take me seriously when it comes to doing bussiness. I get this" I really need my computer fixed right now, but can I pay you for the work next week?" Ya, right, next week never happens in a lot of cases. Once bitten twice shy. But there are acceptions to my aggreement. If I know who they are, see them everyday, (yes they can be the worst ones) and they usually will see you at the local convenience store, and take you aside to pass you what they owe you. Usually. Sometimes I will ask them how thier computer is working just to remind them. But usually no problems. The ones that you can tell haven't got 5 cents, but a really nice computer (priorities eh?) now those are the ones that DO get the rigid work order with NO flexibility. Not that I want thier computer, just want to make sure I get paid.

... than merely relying on human decency, I'm
afraid. Sounds like you found a good pain
point.

I have found a signed agreement also can have legal ramifications, so I work with my clients on a Letter of Intent, much the same as yours but with no signature per se. I do so to openly encourage conversation and communication, that this is a document truly alive and subject to modifications as time and circumstances warrant. It leaves freedom of action for both consultant and client.

I openly tell the client this as well, to encourage give and take. So we are talking throughout the year instead of insisting on meeting a portion of this or part of that.

But there are some things I don't want to
give and take over, like rate and payment
terms.

Oh yes, Rates and payament terms are NEVER negotiable. I spell those out cleanly and clearly. My big dilemma right now is figuring how to charge hourly for remote support, checking server, workstation, etc from home. No gasoline or travel involved. And I am actually MORE ON SITE in one way than before.

I find that if I keep good, detailed records
of the work performed on each day, the hours
are rarely questioned.

Are you providing less 'service' to your remote customers?

You are probably providing better support because you can start resolving issues faster (no need to drive to their location). You probably have more resources (hardware, books, etc.) at your remote site than you carry with you to the client's site.

All in all, I suspect you provide better overall remote support - so you might as well charge the same rate as on-site support. Or if you feel a social issue, you might provide your remote clients with a special 10% travel discount.

My 2 cents worth.

Through remote, I caught a critical workstation one early morning that was down and that station had a critical USB drive attached with over 13,000 retina scans. I was able to change the administrative controls for these images to a secondary location (I practice good DR and BCP protocols) and solved the issue BEFORE anyone arrived at the office. You are quite right about timely support.

Chip - I'll try to keep good records too.

Chad Perrin (aka apotheon) pointed out to me
that this would make a good subject for a
future post. Expect it.

Check with an attorney in your area... Some "letters of intent" are binding agreements depending on terms specified in the letter: work, hours, scope of work, etc... Just because the other party did not sign the agreement does not make it non-binding per se. Once you begin work, there is an implied agreement that the other party accepted those terms and you may have accepted some you don't know about.

Be careful with letters of intent as the sole means of initiating an agreement.

This is a good start to an agreement. There are a few inconsistencies and some things that need to be reworked to make it more effective.

1. If you refer to outside documents, make sure that the documents are referenced in the agreement and if you put a modification clause in the agreement, make sure the outside documents follow that clause.

2. If you do not want to go anywhere to fight a claim, put a phrase stating all claims will be brought in the City of _____________, County of ___________, State of ______________.

Also include the law that you want used. The laws of the State of Washington will be used to litigate any claim.

Without the forum clause, you could be haled into court in another state or federal district court but still using the laws of the State of Washington.

3. Try not to leave vague terms in an agreement because the courts will more often construe these terms in the best interest of the other party if you created the contract.


Just a few suggestions. Be sure to talk with an attorney who can help you draft a powerful agreement that lets you have control.

"1. If you refer to outside documents, make sure that the documents are referenced in the agreement and if you put a modification clause in the agreement, make sure the outside documents follow that clause."

Sometimes, the point of allowing for additional documents is to provide for amendments to the agreement. Especially in the world of software development, circumstances and/or the understanding of circumstances can change rapidly, and adjusting plans for them can be necessary for a positive outcome to the agreement.

As long as no amendments are considered valid without the agreement and signatures of both parties, providing for the addition of amendments that didn't occur to the contracting parties at the time the original contract is composed is basically a necessity.


"Without the forum clause, you could be haled into court in another state or federal district court but still using the laws of the State of Washington."

I'm no lawyer, but it seems unlikely that one would go to court in Alabama using the laws of Washington.


"3. Try not to leave vague terms in an agreement because the courts will more often construe these terms in the best interest of the other party if you created the contract."

Are there some specific examples you have in mind?

>"1. If you refer to outside documents, make >sure that the documents are referenced in >the agreement and if you put a modification >clause in the agreement, make sure the >outside documents follow that clause."

>>Sometimes, the point of allowing for >>additional documents is to provide for >>amendments to the agreement. Especially in >>the world of software development, >>circumstances and/or the understanding of >>circumstances can change rapidly, and >>adjusting plans for them can be necessary >>for a positive outcome to the agreement.

>>As long as no amendments are considered >>valid without the agreement and signatures >>of both parties, providing for the >>addition of amendments that didn't occur >>to the contracting parties at the time the >>original contract is composed is basically >>a necessity.

This is why things should be in writing. It's a CYA. You can make changes on the fly but try and leave a paper trail. Emails can serve as appropriate communication in many jurisdictions. Check your local rules.


>"Without the forum clause, you could be >haled into court in another state or >federal district court but still using the >laws of the State of Washington."

>>I'm no lawyer, but it seems unlikely that >>one would go to court in Alabama using the >>laws of Washington.

Yes you can. It happens. If you engage in activity with another party from another state, then you could be subject to jurisdiction in the state. Venue may be debatable but many times you will be forced to defend in that state but the court sytem would use the laws of the State of Washington in the courts in the State of Alabama.

>"3. Try not to leave vague terms in an >agreement because the courts will more >often construe these terms in the best >interest of the other party if you created >the contract."

>>Are there some specific examples you have >>in mind?

I'm not sure I understand what you are asking for here. I'm refering to the sample agreement posted above. Depending on the common law of the state, the idea is that you created your own agreement so you have a better advantage than the other party knowing what needs to occur or not. The moral is to try and be specific, it could come back and bite you.

">"3. Try not to leave vague terms in an >agreement because the courts will more >often construe these terms in the best >interest of the other party if you created >the contract."

>>Are there some specific examples you have >>in mind?

I'm not sure I understand what you are asking for here. I'm refering to the sample agreement posted above."

Do you have some specific examples of vague terms in this agreement in mind?

I was refering to the agreed upon sections in the agreement.

Expenses & Time Requirements jump out at me. Yes they reference other documents or arrangments but if not available or what is deemed reasonable, then the vagueness will give the other party a better advantage if any litigation were to occur.

happens all the time



This is standard contract doctrine. Suppose you draft an agreement which states that "all work will be performed using agile development methodologies." Later on, it turns out that there are problems which somehow are traceable to the developers NOT using the methodologies which have come to be known as "agile." So you say you meant "flexible" and the customer says he understood you to mean the particular formalized process -- you lose on the point; the Court will construe the contract as understood by the non-drafting party.

Sorry for the lousy example but I hope it suffices to make the point.

The one that "lets you have control" is the one I won't go near. It's contractual, remember.

I was referring to giving the creator of the agreement more control over the agreement. If you are specific and provide for terms that could arise out of the "hope it won'ts" then the agreement has more protection for the creator than the signer.

You're still saying, "Hooray for me and fuc you."

http://www.techrepublic.com/downloads/build-your-own-consulting-contract-using-this-sample-form/173867

Hi Chip,

I am also a software consultant, just starting out. I was thinking of basis my contract off of yours, but was concerned about copyright issues.
What are your thoughts?

Here's my business page: http://www.amilkhanzada.com/p/consulting.html