Why You Need a Client Contract for Your Service Business


Think about it – whenever you buy anything of consequence, a car, a large appliance, a house – you have to sign a contract.  That’s because the seller wants to be sure they’re protected: in case something goes wrong, of being accused of selling the wrong thing, or a million other possible issues.  So, yes, there are certainly legal reasons you need to have clients sign a contract with they engage you for services – but it might be easier to think of it not so much as a legal hedge against problems, but think of it as a valuable piece of communication between you and your client.  You’re clearly laying out in writing what they’re buying, how much it’ll cost, and what happens if something goes wrong, among other things.

Now, as I have you have heard me say a number of times – I am not an attorney. So, my first piece of advice is to get an attorney.

When I started Idomeneo, I realized right away that I would need some sort of contract that would outline what we were and were not engaged to do for the client, to say nothing of how much they agreed to pay us. Well, actually I mean to absolutely say what they agreed to pay us.

I knew a contract would go a long way in protecting both sides. And I also knew I couldn’t just copy one from the internet and expect it to do the right job.

Legal documents call for legal names, so ask the client for their corporate ID, or look them up on the state’s Secretary of State website. You need to know who you are dealing with.

What’s going to happen. What service are you providing, how often, how much will it cost, is there any implementation fee, is it a monthly cost or a one-time cost, are there things that could increase the cost. Anything that might apply to the cost of working with you should be addressed in the contract.

Are there circumstances that would cause a fee adjustment – for instance, for a retained client, will they have an annual fee increase. And what other situations give you the right to increase the fee. Will there be a required notice (there usually is a notice period on fee increases).

Are there costs that will be passed on to the client (such as phone, or messenger costs). And if so, do they have to approve them first.

How and when are you going to invoice the client. What happens if they don’t pay the bill. Sometimes states and other local ordinances exist that may limit the amount of late fee you can charge – so carefully review this with both your attorney and accountant.

What happens when/if there is a change in the scope of services. If you don’t lock this down somehow, it’s very easy to get ‘project creep.’ That’s when you were hired to do this, but ‘this’ keeps getting added to so pretty soon it’s ‘that’ – and ‘that’ is much more time consuming and should cost much more than ‘this.’  But if you don’t clearly lay it out in the contract, you may find yourself working on a significantly larger project for the same money.

“… think of it not so much as a legal hedge against problems, but think of it as a valuable piece of communication between you and your client.”

What standard of care will you guarantee; what insurance do you carry. If you are providing professional services, clients will look carefully at this clause.

Who owns the product you’re creating. If you’re creating a training program, does the client own all the rights to that content, or do you retain rights as well (meaning, can you reuse some of that content in other work you do).

What happens if you don’t get the info you need from the client.  Again, when providing professional services, it’s a bit of yin and yang. You’ll have to rely on the client to get certain information and/or materials to you. What happens if they don’t, or don’t do it in a timely manner and it puts the project completion date in doubt. Figure all this out up front so the client knows her responsibility.

What happens if things go wrong. Not a particularly fun subject – but it’s important to make sure you have protected yourself.  Is the client required to put their concerns in writing and to give you sufficient time to fix them.  What about if the client doesn’t pay her bill – can you stop producing work for her.  You might find yourself obligated to continue to provide some level of service for a period of time, unless you clearly lay out something different in your contract.

Confidentiality – what is confidential, and what are your (and the client’s) responsibilities around confidentiality.

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Term and Termination. I would say this is one of the most important paragraphs in a service contract. When, and under what circumstances, will the contract end. And what happens when it does. What are your responsibilities, and what are the client’s. How will you return information to the client and close out her account. How much notice is the client required to give you before the contract is terminated.  By the way, I would always suggest including a termination notice period, otherwise you might find  yourself suddenly without that revenue and with no time to replace it.

And then there are various other standard clauses that are usually part of contracts, things like Modification and Waiver, Severability, Notices, Assignments, Counterparts, etc. Also, for a service based business I would guess your attorney will include a non-solicitation of employees clause so that your client understands that she cannot try to recruit your employee within a given period of time (say, one year). Again, there are some real restrictions here – your attorney can guide you through them.

Schedules and Exhibits – for anything that is added to the contract (such as exhibits or schedules……).

The paragraph labeled Representations and Counterparts defines that the people signing the contract have the authority to do so, and (importantly) that they can sign the contract in pieces. So, your client can sign a signature page, you can sign a different copy of the signature page, and both pages can be put in the contract to represent a fully executed document.

And finally, the Signature block

Oh, also each page of our contract is labeled as page x of y pages. It helps to clearly identify how many pages the document should have.

I know this all sounds super corporate and legal, but remember, you’re running a business, and you have to take steps to clearly protect yourself and your business.  And remember, most times, if you don’t have a contract for your client to sign, they may have one of their own they want you to sign – because they want to protect their interests.  So, I think it’s far better to have your own contract, that you know applies specifically to your business and services, and has been reviewed by your attorney.  Don’t you?

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