I am not a lawyer, nor do I pretend to understand a lot regarding writing contracts. But I am an entrepreneur who has been burned from signing an improperly prepared outsourcing contract.
When it came time for my startup to develop an application, we approached a contractor to outsource it. We didn’t need a lawyer to see that the contract the contractor had sent us was a joke. The contract was only in favor of the contractor: The contract did not include a time commitment, layout of the assigned manpower, penalties if deadlines were not met, nor positive reinforcement if development went faster than expected. In addition, they mandated that the majority of payments was to be paid at the beginning of the project.
To reach the final version of the contract, which included correspondence and phone calls back and forth, it took about a month. We were able to add many of our demands into the contract, but there were some points that the contractor simply would not agree to or even meet us half way. After a visit to the offices of the contractor (alone, without a lawyer present), we went over the contract for the last time, revising the more problematic sections.
When we returned home we decided to sign it. We were still not one hundred percent satisfied with the contract, but said to ourselves “it’s part of the ‘game’” – this was a big mistake on our part. The contractor gave up on some of his demands so we had to do the same. This only made sense, right?
At the beginning of a startup’s life, it usually does not have money to spare. Legal services are expensive, and so, despite their importance, we tend to use the help of a friend. Even if this friend is an amazing lawyer (which ours was), at the end of the day he is your friend and would not want to fight nor argue with you. Sooner or later you will reach the stage at which despite there being a problem with the contract, you want to sign it already. You may be advised not to sign the contract in its current state, but you don’t listen.
There are many fine details that anyone who is not a lawyer will not pay attention to. For example, the company with which you are about to sign a contract might be located in another country. Therefore the contractor will want to abide by the law of their country, to determine a legal problem arising. This may lead to a situation where you believe the contractor did not provide what they had promised, and unfortunately, you did not protect yourself from such a scenario in the contract.
After checking out the outsourcing company and researching a bit about them, you should have confidence in the company in terms of performance. To try and better protect yourself, here are six tips to keep in mind when signing an agreement with a contractor.
1. Agree to a time limit.
The project must have a time limit based on the plan they have presented you, and according to the time they anticipate for development. Of course your milestones should have a time frame, which can be a little more flexible. However, it is important that you define how long you will allow the contractor to deviate from the timeline. Emphasize that a deviation past the agreed upon development time frame will be considered a breach of the contract.
2. How many payments?
Remember to spread the payments as much as possible over the development time in such a manner that the most significant payment will be paid once the project is over and you are happy with the results.
3. Keep in touch.
Make sure that anything related to the development of the project, including any change reviewed or accepted by both sides, will be approved by both parties in writing: Thankfully e-mail suffices. In general, you should have a clause in the contract that details what to do in case the company sends you something for approval but cannot reach you. Usually if you do not reply within a few days the company needs to try and make contact again via another medium such as phone, social networks, etc. Usually you will be asked to do the same.
4. Create a full development Gantt
Demand to receive an overview of the work plan of how long each part will take, when each part is expected to be completed, and if there are any materials that will be required of you and when. You should always be ready and know what is supposed to happen. Be aware if there are delays, and how long they are expected to last.
5. Use measurable outcomes
Each significant milestone is usually associated with a payment due date. The milestones should be quantifiably measurable. For example, instead of writing “developed most of the application screens,” say “developed 70% of the application screens”. Define as best as you can what the final/intermediate outcome should be and how you intend to measure it. For example, if you are developing a hardware device, then the battery should be such that the device could work for X number of days after the battery has been fully charged.
6. One last tip, which might actually be the most significant one
Make your payments through an establishment such as PayPal, which in the case of a disagreement will review the case to determine if any money should be refunded. While a payment completed using PayPal takes a small commission, it gives more peace of mind. If you feel you are being treated unfairly and the contract is not delivered, there is another “someone” that could help recover your money.