I remember talking to a business owner who provided me with this bit of insightful wisdom: 'Everyone is happy as long as everyone is making money.' As it turns out, he screwed his employees and business partners out of every dollar he possibly could, leaving everyone pissed-off and miserable. So you can say that he proved the statement to be true, using reverse induction. Suffice it to say, it’s not fun when someone refuses to compensate you for your hard work.
I had an object lesson in non-payment during my freshman year in college. A local business contacted me about building them an e-commerce website. This was during the 1990s, so 'e-commerce site' loosely translated into today’s technology would be 'crappy shopping cart,' but at the time it was a high-tech endeavor. They were based out of a rickety old house in a shady neighborhood just on the outskirts of Dallas. They seemed nice enough, and, after hashing out exactly what they wanted, we settled on a price: one thousand dollars. It was a small fortune for a college student, and I had big plans to use that cash to break my dietary dependence on Ramen noodles, and undertake other grand plans that seemed fairly epoch to me at the time but the details of which now elude me. I swaggered home and labored for a month to build the site.
Once I'd built the application exactly to specification, I went to deploy it on their server and give them a run-through on how to use it. The installation went fine. The demo went fine. Everything was working and working well. Then came the question: 'Where is all of our product information?' They had hundreds of items they wanted to sell, hundreds of photos to go along with those products, and lots and lots of product descriptions. And apparently they had gotten the extraordinarily incorrect impression that I was going to be the one who entered all of it into their database. I told them that I originally took all of their product information so I could build out an appropriate database schema to hold the information, but that we never discussed anything about data entry. I might have considered importing the data if it had been in electronic form, but they only had hard copies of the information. After a bit of arguing, they begrudgingly gave me the check, and I went home a thousand dollars richer. Or so I thought.
I found out later that they had called up their bank and canceled the check, leaving me with only a worthless piece of paper. They also left me a voice mail a few days later, informing me that they had reconsidered the situation and had come to the extraordinarily incorrect conclusion that I should have done the data entry. I attempted to call them back, to work something out, but I got no answer. Apparently they also thought that they should take my application and not pay me either. Now, you might think that not getting paid has left me somewhat bitter, but I want to assure you that that is simply not the case. What really left me bitter is that I deposited their check before they called me, and my bank charged me $25 bucks after it bounced. Talk about adding insult to injury!
I have to say, in their defense, that I do not think that the little company being run out of a rickety old house in a shady neighborhood just on the outskirts of Dallas had premeditated plans to steal my application and make off like bandits without paying me. There was obviously a lack of communication about the scope of the project, and I’m sure they felt justified in taking the action they did. But the reality is that they had my code and I had nothing. No contract. No documented scope. No emails to back up my claim. No way to collect on my botched deal. No nothing. It was quite a learning experience and one that I learned hard and well. Over the years, I’ve talked with a lot of people who do contracting work on the side, and this article outlines some of the ideas and insights I’ve gathered on avoiding nasty situations and ensuring that you get paid for the work you do.
Contracts and scope definition
You’re called a "contractor", right? As such, it seems that you should have an actual contract, for the sake of propriety if nothing else. The reality is, however, that most contractors start contracting without ever actually making an official contract, or even fully defining the scope and deliverables for the project they are undertaking (guilty as charged!). Clearly, this can lead to serious problems down the line.
Project scope definition
One of the first things you need to do is to define a clear set of objective deliverables for the project. Normally, you define deliverables in a 'scope' document, which outlines the extent of the work you are agreeing to complete. You can also think of the scope document as a high-level 'design' document on which your client signs off – just like a contract.
When you create your scope document, you are essentially defining what needs to be done in order for the project to be considered 'complete'. Outline each item that you are going to complete, and attempt to be specific about what 'complete' means. If you are building a website, make sure to identify all of the pages in the site and the specific functionality for each page. The more detailed you are, the better off you are if you have a disagreement with your client over part of the project.
Also, remember to include a statement that indicates you are only responsible for items specifically designated as deliverables in the scope document. This helps protect you from any assumptions the client makes, but which he forgets to tell you about. For example, if you deliver an e-commerce site and your client comes back and says that you are responsible for all the product data entry, you can point them to this clause in the scope document and tell them that, since the data entry was not a deliverable, you are not responsible for its completion. If you want to be doubly-protected, you should also include a section outlining specific project items you are not going to deliver. This may seem a bit redundant, but specifics are always better than generalities.
Alongside the scope document, you also need to prepare a formal contractual agreement for the work you are about to undertake.
Writing up the contract
There are many tangible benefits to be gained from establishing a written contractual agreement. Hashing out a contract forces you and your client to outline all of the terms of your engagement, and it legally binds both to the fulfillment of those terms (at least, it does if you do it right). If you complete all the work outlined in the contract and your client fails to remunerate you in the method specified, then you have a means by which to pursue payment in court. Of course, it also means that you need to do a good job of outlining specifics, because ambiguity can only harm you.
So, the question is: what do you need to have in a contract? Here are some of the things that you will definitely want to consider:
As described in the previous section, you and the client should formally agree and sign off on a scope and deliverable document, which can then be explicitly referred to in the contract.
You need to define how both sides handle time-sensitive situations and deadlines. Is there a deadline for finishing the project? Is there a penalty for finishing the project late? A bonus for finishing the project early? And, perhaps most importantly, what happens when the project timeline shifts because the client fails to provide a time-sensitive deliverable? I’ve seen too many clients say they need something in a month, wait three weeks to give you what you need to start on the project, and expect you to have it done in a week. Always include something about delaying the project timeline in response to delays for items on which you depend, but the client fails to provide. You will be amazed at how quickly you can coax your client into getting things done when they know there are defined consequences for delays. You may also want to specify how you are going to bill clients during a period when you are waiting on a dependency.
You need to define all aspects of how you will be compensated for your work on the project. Are you paid based on an hourly rate? Are there limitations on the number of hours you can bill in a given time frame? Is it a fixed-bid project? How, when, and to whom do you submit invoices? How much time does the client have to pay an invoice once it is received? What happens if the client fails to pay an invoice?
Travel time / expenses
If you need to travel out to the client for any reason, can you bill your travel time? Can you expense the mileage? And how do you handle other ad hoc expenses that come up during the course of the project?
If there is something that you know you will need, in order to be successful on the project, make sure you include it in the contract. For example, if you expect to have VPN access to their network, or need a specific piece of hardware or software, then outline it specifically. This helps you avoid assumptions about your environment that may hinder your ability to complete a job on time and on budget.
Third-party software / licenses
If you know that you need to use any third-party software, you should outline who is going to pay for those tools, and who will own the licenses for them when the engagement is over. Even if you are not planning on using third-party software, it may help to have a clause in your contract that states that the client is responsible for paying for any third-party tools that are deemed necessary for the project. And then you will need to define how 'deemed necessary' is determined, because you do not want it to be ambiguous.
If you want to keep your sanity, be sure to define the process by which the client contacts you with questions, concerns or additional information about a project. If you do not want the client calling you during the day while you’re at your real job, then put it in the contract. To drive home the point, you can even put in a clause that allows you to charge them a premium if they do call you during a restricted time.
Almost every project you work on will have bugs, but you cannot provide indefinite support for an application. Make sure that you outline, in your contract, how you plan on handling maintenance with your client. This is a touchy subject, because clients quickly find issues with an application once it is deployed, and usually want those fixed as part of the original cost of the project. Normally, you will want to include the cost of a few maintenance hours in the original cost of the project, so you can stick around and fix problems for a little while after deployment. But you also want to protect yourself from a ceaseless stream of minor requests like changing the text of a label from this to that, moving a textbox from here to there, using a different shade of blue as a background, etc.
Cover your butt. I’ve heard of clients going after developers for a myriad of reasons, like lost employee productivity or even lost revenue due to glitches in software. There are a lot of things that can happen on a project and you need to have a broad-sweeping statement that attempts to cover the unforeseen. The more specific you can be about the things that can go wrong, the better off you are. For example, if you are building a billing system, then you should probably have a clause indemnifying you of the cost of any lost revenue due to billing errors, system down time, and so on.
Anything is better than nothing when it comes to contracts, so writing a contract yourself is a far better option than having nothing to go on at all. But you should be keenly aware of the fact that a professional contract lawyer is far more qualified than you are at writing contracts, so you should seek assistance from one, to help you write a solid contract. Writing contracts is a mysterious journey into the complex art of legal prose, most aptly scribed by a professional who actually understands the ramifications of what they are putting to ink. You may think your contract writing skills are akin to the works of Thoreau, but when you come up against a really good lawyer, you will quickly find they are more on par with Curious George gets his Ass Handed to Him In Court. Normally, you can ask a lawyer to write up a fairly generic contract that you can use for most of your engagements, so it’s well worth the investment.
Layers of Protection
A wise man also once told me that a contract is just an invitation to a fight. If you get to the point where you need to enforce something in your contract, then you need the help of the court system. And that course of action normally requires spending a lot of time, energy, and money on the legal process. So it’s also good to avoid a protracted legal battle by protecting yourself in other ways.
Full up-front payments
One way to make sure you get paid for your work is to get paid before you start working! However, negotiating a full up-front payment is a fairly difficult task, because it creates a risk reversal for the client. Instead of you taking on the risk of not getting paid for your work, the client takes on the risk of not getting the work for which they have paid. Some companies are willing to take that risk if you have a good reputation and they trust you. Some companies are so desperate for help that they will agree to anything. You should always check into a desperate client to see the source of their desperation. It may be that they need someone quickly and are willing to pay up-front to secure a qualified contractor. It may be that the project is a complete mess and they cannot get anyone in their right mind to touch it. Knowing their reasoning can help you determine if a project is really worth your time and effort.
One downside to accepting a full up-front payment is that some clients may feel cheated when you declare a project complete while there are lingering issues which the client feels you should resolve. But it’s far better, in this situation, to have the money in hand, because this is the point in time when some clients would refuse to pay you until you fixed those issues. It also illustrates the need for appropriate project scope definition, outlining what deliverables are covered in your fees and how to handle maintenance after finishing the project.
Partial up-front payments
A more common alternative to a full up-front payment is a partial up-front payment. This reduces the overall feeling of risk for a client, because they are not paying for everything up front. Most businesses understand the importance of an initial investment in a project, as a way of demonstrating a commitment, both to the project itself and to maintaining a healthy client-contractor relationship. When defining partial payments, you need to outline the specifics of how such payments are to be made. Normally, the client pays an up-front amount and then makes additional payments as you provide them with project deliverables. This creates a cycle in which you finish a part of the project and are paid for that part. It also sets up an easier environment for billing your client for additional work that arises in the middle of a project. If they want to add something to the project, or keep you on longer for maintenance purposes, then you can simply schedule additional payments for the additional work.
Maintenance and buckets of time
Most contractors accept a project, thinking that they are going to write some software, send it to the client, get a paycheck, and be done with it forever. But that is rarely the case. Business processes change over time and, when they do, your client may need to update your application to account for that change. And guess who they are going to call! Sometimes the requested changes are so significant that you can simply treat it as a completely new project. Often, however, you will get a client who has lots of little changes that come up sporadically. One tactic for dealing with this situation is to establish a maintenance time-bucket. In this situation, the client pays you for a certain number of maintenance hours (say 5 hours). They can call you and request any changes that they want and you can deduct the time you spend on the fix from the time-bucket. When it starts getting low, the client simply refills the time-bucket by paying you for another set of hours.
Another suggestion is to establish an initial maintenance time-bucket for your project, and explain the concept to your client. Tell them that you will be available for this many hours after the project, and that, if they want to retain you for minor fixes, they can refill that bucket as needed. It’s a seamless way to move from project completion into a maintenance billing cycle.
You may not be able to protect yourself by negotiating an up-front payment on each project, but you can still protect your development efforts with other strategies. When you compile a project, your easily readable source code is reduced to an economically indecipherable jumble of machine language. So, one option for protecting your code is to give your clients only the compiled form of your work. Binary deployments allow the client to interact with your work and even deploy it into a production environment, but also allow you to retain a bargaining chip if the client fails to pay you for the work you have completed. Most applications have bugs and eventually need changes, so the source code is important for the client to ultimately acquire.
Licensing and trial periods
Although source code is important, some clients can still find ways to abuse a binary-only deployment scenario. I spoke with one contractor who deployed his solution, only to have the client turn around and demand that he add additional reporting functionality to the application before they would pay him. It put him in a bad situation because, if he walked away, the client could continue to use his application as it was, or until they found someone else to rebuild the system, using his work as an example. You may even encounter some clients who lose their sense of urgency and, once they have a working solution in place, drag their feet when it comes to paying you. So how do you protect your binary-only deployment? By programming your application to quit working after a certain trial period!
Adding trial-period support into your application can be as simple or complex as you choose. You could add a full-blown licensing system to your application that checks a license key to determine if your software has been paid for or should run in trial mode. You could throw if-then statements around important sections of code that disable the application after a certain date. If you choose the latter, which is the cheapest and least difficult route, I highly recommend centralizing your date-checking logic so you can easily disable the date checks. If you have scattered checks throughout your application, then you are bound to miss one of them and incur the wrath of an angry client when the application they paid for suddenly stops working.
You may also want to consider targeting specific pieces of functionality instead of the application as a whole. For example, if you build a web application that has a customer-facing front-end and a back-end system that the business uses to manage the website, consider disabling the back-end system before disabling the front-end. Disabling the back-end system does not affect the customer’s ability to make purchases, but it does affect the client’s ability to process those orders. When you re-enable the back-end system, the client can process the backlog of customer purchases without losing any sales during the downtime. It’s an effective means of getting the client’s attention, without making too much of a negative impact on the client’s bottom line.
Never use trial period protection as a last-ditch act of revenge against a client who fails to pay you for your services. You will damage your reputation, and you may leave yourself legally liable for losses the client may incur as a result of their application suddenly ceasing to function. Always outline the trial period in your contract to let the customer know, in advance, that a trial period exists and exactly when the trial period expires. You should also refrain from displaying inappropriate comments to the client when your trial period expires. It may seem like fun to write a nasty message about how they should have paid you, but simply informing the user that the application is unavailable is much more advisable. Remember, if you mess up and accidentally display the expired trial message, it’s much easier to explain away an 'Application Unavailable' message than an expletive-laced tirade.
Informing your clients of all protective measures
You should expressly outline any measures you plan to take to protect your work (such as binary deployments, trial periods etc) in the contract, and discuss them with your client at the beginning of a project. By outlining the specifics, you help protect yourself from legal liability in the event that the client feels your protective measures damaged their business in some way. If you suddenly inform the client of such measures at the end of the project, then you are much more likely to get yourself into trouble and upset your client.
After my incident in college, I made it a point to not release my source code until I received payment for my services, but I never really thought of communicating that point to my clients before the project began. I figured it was just a handy way to ensure I got paid. This came back to bite me one day, when a client requested the source code for his project so his developer could take over maintenance. I had yet to send him the invoice, so I told him I would send the invoice and that he would receive the source after I received the payment. I got paid very quickly, granted, but in doing so I unwittingly called his integrity into question, and lost a good client.
Remember, the most important thing you can do as a contractor is to establish an actual contract with your client. Effective communication is essential for a project to run smoothly. The process of hashing out a contract forces you to communicate openly with your client about topics most people seem too squeamish to bring up in normal conversation. Money and failure seem to be taboo subjects, but the finality of a contract makes it easy to discuss delicate financial matters and what happens if anyone fails to live up to their side of the bargain. Every client you encounter is going to be a bit different, so use your judgment in determining the best approach for payment options and source code protection.
Oh, and Tony, if I don’t get my check for this article on time, I’ve rigged all the text in this article to turn into a virtually indecipherable dialect of Sanskrit!
[TD: Sounds cool. I might have to withhold payment just to see it! :-)]