Writing contracts is an important part of your business as an independent professional. A contract defines the work you agree to do for a client, and it also provides you with legal protection.
Contract negotiation can be an intimidating part of starting a new project but setting up this legal framework will help protect you in the event of a worst-case scenario. Here are six best practices to write a consulting contract that defines your project scope and protects both you and your business.
1. Define Duties, Deliverables, and Roles
A good consulting contract should clearly outline the agreed-upon services or products to be delivered. When reviewing a contract, don’t assume anything. If there are undefined terms, a vague timeline, or hazy descriptions of deliverables, be sure to add in necessary details.
As part of defining your role, the consulting contract should clearly state that the client has engaged you as an independent contractor and that you bear sole responsibility for your tax obligations. As a contractor, you have the right to function as your own boss. This includes the power to decide when, where, and how you perform and deliver your services.
Outline any deliverables on the client’s end as well. If they are expected to provide background materials, schedule meetings, or review reports, state these obligations in the consulting contract.
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2. Prepare for Potential Risk
An indemnity clause helps manage potential risk between you and your client. If possible, ask for mutual indemnification, which commits both parties to compensate each other for any harm, liability, or loss that may arise out of the contract.
For example, you may promise to compensate your client if someone brings a claim against them because you violated intellectual property laws. Vice versa, the client may promise to compensate you if you’re sued because of something they did. This way, you both accept risk for your own conduct.
Learn more: How to Write an Independent Contractor Agreement
3. Specify Project Milestones and Engagement Time
Outlining when project components should be delivered will help keep both you and your client on schedule and give you a chance to talk through and revise milestone dates before starting the project.
Be sure to define your engagement term as well. For example, your term might be based on completion of a single project or run a specific number of weeks or months. If possible, include a mutual termination clause allowing you or the client to cancel the contract if either party fails to uphold the contract terms.
Check out: Do I Need an Independent Contractor Agreement for Consulting?
4. Identify Expenses and Outline Payment Terms
Identifying expenses ahead of time will help save you and your client from surprises down the road. If you foresee having additional expenses, be sure to discuss these upfront and include them in the consulting contract.
In addition to expenses, include payment terms such as invoicing, billing, and time-keeping policies. Clearly spelling out the timeframe for payment and when you are allowed to invoice will help ensure you are paid on time.
Beware of any discounts or allowances you see in a consulting contract. Sometimes, clients may try and reduce the basic price of services by taking a percentage off the bill for paying you early. In these cases, it’s in your best interest to try and remove the clause.
Deep dive: How to Bill and Invoice Clients
5. Specify Product Ownership
As an independent contractor, it’s important to understand your intellectual property rights. Keep an eye out for non-compete clauses, which may prohibit you from starting new work if it in any way competes with the client’s business.
To get around non-compete clauses, explain to the client that the clause would effectively prohibit you from working until after the contract ends. If necessary, include a non-disclosure or non-solicitation clause to protect the client’s intellectual property, trade secrets, or proprietary information. Be sure to define time limits for any additional agreements.
Up next: Verbal Contracts: 4 Best Practices
6. Beware of Warranty Clauses
Warranty clauses are a guarantee to one party—usually the client—that certain facts or conditions are true and will happen. These sections often include re-performance clauses or refunds and should be removed if possible.
If you do include a warranty, be sure that it is within your own resources and control and that it is not unreasonable to deliver. For example, a software developer may guarantee a defect-free product for 6 months after delivery.
Remember, the goal of a consulting contract is to find mutual ground between you and the client, so you are both protected. The right contract can help establish a good working relationship from the start. Don’t be afraid to suggest changes and work with your client to find what works best for both of you.
Learn more: 3 Consulting Agreement Templates and Contracts Guide
The information provided in the MBO Blog does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.