Contracts are a necessity in business, but many independent consultants and small business owners are uncomfortable using written contracts for the following reasons:
However, the reality is that independent contractor agreements are simply a written record the agreement between consultant and client. Not only do they provide legal protection, but they also create a sense of professionalism, encourage communication, and ensure an efficient and streamlined process to complete the project.
Should a dispute arise between you and your client, a written and signed contract is your most ironclad proof of your agreement. One of the most common objections to written contracts is the assertion that verbal agreements are binding. While it's true that oral agreements are legally recognized, the problem lies in the inherent lack of proof or evidence of what was agreed upon.
It should also be noted that court decisions, such as this U.S. Court of Appeals for the Tenth Circuit decision in April 2012, have upheld other forms of written agreements—such as email—as carrying the weight of a written contract. However, these missives are often incomplete, with missing terms filled in through assumption, making them a risky form of formal agreement.
A proper contract will include verbiage that outlines the terms of the project, and declares your relationship with your client as that of a consultant or contractor. This could be helpful should you ever need to prove consultant status for tax or other financial purposes.
Many professional disputes arise not out of malice or dishonesty, but out of a miscommunication. A well-written contract will spell out the exact terms and details of an agreement in clear language, and will give each party the opportunity to discuss or clarify any points that are unclear.
A contract does not only protect the independent consultant, but protects the client as well. Your willingness to bind yourself to a legal agreement can often help to establish a strong relationship based on confidence and trust from your client. This may overcome any doubts they may have about hiring an independent consultant.
The contents of your contract should provide as much protection as possible, while also serving to clearly establish all expectations of both parties. The exact language and sections included in your contract may vary, depending on your industry, client type, and location. Though your contract may contain much more information, below are general sections that should be included in any contract between an independent consultant and client.
It's important to outline the services you will provide as precisely as possible. For example, "Consultant will perform consulting services for client" leaves far too much open to interpretation and disagreement on the actual scope of the project.
It can sometimes be difficult to create a contract without estimations, particularly if you use an hourly billing rate or will be relying on outside vendors who may affect your time frame. However, it's important to go into an agreement with as much established information as possible. At the very least, scope, responsibility and payment terms should be clearly defined, and any estimations included should be based on carefully calculated and considered data.
The fact that a contract is a legally binding document does not mean that it should be filled with "legalese" that may be difficult to understand. Avoid highly technical industry terms and jargon that your client may not be familiar with. A contract's language should be thorough, but also simple to understand.
When drafting your own contracts, referencing a template can provide a helpful guide and outline. However, using templates as a substitute for a custom contract can be risky, as they may omit sections or verbiage that are necessary for your field, or they may not meet the requirements of your state's contract laws.
Many independent consultants choose to hire an attorney to draft their contracts. This helps to ensure that the contracts are properly written, include all necessary information, and fully protect both parties. Should you choose to draft your own contract, or if your client provides a contract, it is highly advisable to have an attorney review the contract and terms before signing.
For more information on consulting contracts and agreements, click here to receive our guide to Consulting Contracts.
Independent contractor misclassification can be an expensive mistake—here’s what you need to know to avoid it.
Managing a consulting business is both rewarding and challenging. Here are four times to consider partnering with other consultants to ease your workload.