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The Importance of a Solid Contract

One of the most common complaints I hear from contractors, especially those new to the world of being an independent contractor, is that contracts seem very complicated and onerous to review. They also wonder why the contracts differ from agency to agency. Many contractors in the past have told me they have started a contract with an agency/end client before reviewing or signing a contract!! And worse... they have agreed to work at a client site based on an email exchange. I often remind contractors that having a solid contract in place prior to starting any project is critical. The contract protects both you, the independent, and the client from any potential legal issues that may later arise. Most agencies have standard templates for contractors to review and sign off and these contracts are often drafted with client flow agreements in place. Contracts will also vary depending on whether you're Incorporated, a Sole Proprietor or part of a Partnership. The contract is the basis for establishing the business relationship between the parties involved. Key elements to a good contract agreement contain at least the following:

  • Start and end date to a contract;

  • Scope of services to be delivered;

  • Fees to be paid (ie. hourly, daily or on deliverables);

  • Payment terms (ie. monthly);

  • Payment process (ie. authorized time);

  • Confidentiality clause; and,

  • Termination clause.

Many client contract flow downs contain more robust information such as liability clauses, intellectual propriety rights, security clauses, non-compete and non-solicitation clauses. Often these clauses can seem overzealous and off-putting, but a review by a lawyer can help alleviate and address any concerns. At a minimum, all of these clauses should be taken seriously, and a contract that is lacking in the basics should cause the signer to beware. Eagle has been involved in many instances where a client asked us to payroll a contractor from another agency. As part of Eagle's due diligence process, we review a contractor's past contract. We often find that some agencies have "treated" the contractor like an employee and have put them at risk of either co-employment with the agency or have failed to properly withhold proper taxes as in the case of sole proprietors. Contractors should be wary of an agency or even an end client who "brushes" the importance of a sound contract aside. Often, this is a tell-tale sign to potential issues to come (for example, having to chase down unpaid invoices). On that topic, here is some advice to contractors when working with a new agency or client:

  • At the outset of the conversation, ask for a copy of the contract agreement so that you have plenty of time to review it prior to landing a new contract.

  • Take the opportunity to hire a lawyer to review the document if this is the first time dealing with the agency or the end client. Even though a clause may look like the "standard" clause, often minor changes can make a huge difference in the intent of the clause (ie. replacing OR with AND).

  • Always keep a copy of your contract.

Above all, don't be afraid to ask questions! A reputable organization should have no problem clearly explaining the various clauses in their contract and the reasoning behind them. If you have any hesitations, seek legal advice.