Legal Horror Stories: This series is brought to you by eMinutes.com to help educate and inform young business owners. See if you qualify to have your business incorporated for free today!
Today’s story comes from Dominick Fuccillo, founder of TrustPages.com. His company provides an easy way to save and share local business recommendations with friends and neighbors. It is currently live in DC, Maryland and Virginia, and scheduled to be national by Fall 2012.
Anyone starting a website or software company will inevitably work with third party contractors for tasks like development and design. Due to the nature of creative engagements, these contractors can become difficult to manage. Deadlines are missed, creative disputes arise, and legal agreements quickly turn into legal headaches.
Neither party is out to screw the other, but mistakes are often made on both sides. I am extremely thankful and happy with all the third parties that helped make our business a reality, but I have certainly made mistakes along the way. Below are some of the lessons that I’ve learned.
Make sure that there is a schedule of services in addition to a schedule of deliverables. This is probably the most important aspect of the contract to go over. Each contract will have the goals: design landing page, develop functionality, launch website, etc. However, it likely will not have any details regarding hard hourly estimates, burn rates, and deadlines.
Firms have multiple clients, and this necessitates a certain amount of scheduling flexibility. But if they’re unwilling to tell you how many hours they will work on your project in a given week, don’t work with them. You need to set a schedule of expectations. E.g., there will be two phone calls and 10 hours of work performed during the first week. If you don’t set expectations and things do go south, there will be no tangible way to take responsibility, identify fault, or defend the blameless.
Check to see if a firm or contractor has methods for tracking and logging work before you sign the contract. Set expectations for appropriate action when the hourly estimates are not met. Reputable firms and contractors will have a transparent log of the hours worked. If a firm isn’t willing to agree to send you their hour log, don’t work with them.
Never prepay the full contract for a discount. It sounds obvious, but as a startup CEO, saving cash is tempting. Especially be wary of large pre-payment discounts for short-term contracts. Normal contracts will be closer to 50% upfront and 50% upon successful completion. Once they have your money, don’t plan on getting it back.
Don’t put any stock into their “standard” contract. Their standard contract can be and often is one-sided. Check with the Better Business Bureau to see if they have any complaints. If they do, people were not happy they signed their standard contract. If they don’t want to agree to a change, you certainly don’t have to agree to their contract. Try to remove anything that obligates you to the firm past the engagement of the contract. Things go bad and a contract is for making sure that when things go bad both parties are protected. You’ll never regret walking away from a bad contract.
You’re their client, not their manager. You are their client and it’s their job to get the work done. You shouldn’t have to give pump up speeches or encourage them to do their work (some firms will bill you for their time listening). Everything positive you say about them, even if it’s just to motivate, will be used against you if things fall apart. Obviously, you still should be very professional with your feedback and try to keep a positive relationship.
Complaints should be tangible and quick. Make sure when you do bring up complaints that they are tangible or you will fall into a game of he said/she said. For instance don’t say ‘you caused a delay’ because they will respond ‘no you caused a delay.’ Once again, some firms will bill you for the time spent “getting back on track”, so make sure you clarify if a discussion is billable beforehand. Say “I haven’t heard from you in 10 days, can you send me your hour log?” That says everything they need to know.
Keep detailed records. If they are responding slow, keep track of their response time. If they aren’t outputting as fast as you want, keep track of it. If you don’t hear from them make sure to make a note about it. You should have a detailed record of how the contract is playing out in your back pocket. When milestones are hit you should have in writing that a milestone is hit and the project is on budget. At the end you do not want to hear from them that at the beginning they spent extra time on something that they need to charge you for now.
Focus on the future not the past. If you decide to end a contract early, focus on what needs to be done for both parties to go their separate ways. If you bring up all the reasons for ending a contract, their best defense is a good offense and they will just come after anything they feel will scare you. Games of he said, she said get both parties nowhere. Remember there is no judge or jury yet, it’s just you and them. If you say everything you didn’t like about them, how do you think they will react?
Set a time limit then move forward. One of the best things we do for our company is keep records of our time and what we are working on. Especially with legal hassles you can find it takes a ton of your mind share away. Set a time limit and if you exceed it lawyer up, take them to small claims court (often don’t need a lawyer), file a Better Business Bureau complaint, or move on. Worse thing you can do is let a bad experience with a third party take too much of your focus from your company.