6 Best Practices for Drafting an Independent Contractor Agreement
As an independent professional, contracts are an important part of your business. Not only are they important to define your work agreement, but they also provide protection to clients and help them avoid misclassification.
Contract negotiation can be a difficult obstacle to beginning a new project, but establishing a legal framework will help protect you in the event of a worst-case scenario. Follow these 6 best practices to create a strong foundation for your next project.
1. Describe Duties, Deliverables, and Roles
A good contract should clearly outline the agreed-upon services or products to be delivered. When reviewing a contract, don’t assume anything. If you see overly general terms such as a vague timeline, or an unclear description of deliverables, be sure to add in necessary details.
As part of defining your role, the 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 contract.
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.
3. Specify Project Milestones and Engagement Time
Outlining what project components should be delivered when 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, whether it’s based on completion of a single project, or runs 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 contract terms.
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 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 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.
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.
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 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 form the start; don’t be afraid to suggest changes and work with your client to find what works best for both of you.
For more information about contract key terms and best practices, download our Consulting Contracts 101 guide.
MBO Partners can help you manage your business—including assisting you in proposing and executing contracts. Contact us today for more information.
This content from MBO Partners does not constitute legal or financial advice.