Managing a contract with a client can be extremely challenging. It’s important to remember: Simple terms, simple discussions, and the knowledge that you still have your legal counsel to fall back on. This can get you through negotiations with most clients!
The APDF does have a sample contract document (APDF Terms and Conditions for Product Design Consultants) with options for many categories to suit your firm.
APDF Members shared their experiences and best practices on this topic in a break-out session at the recent APDF Exchange in New York City.
Some highlights:
What are the big four elements for managing risks with clients?
Indemnification, Limitation of Liability, Warranty and Ownership.
How we approach these individually, and as a whole, will determine how we protect our firms as well as help steer our approach to the management of our client’s expectations. The word “knowingly” can be your best friend in regards to indemnification negotiations. If you are not looking for any kind of ownership of the final product, then negotiating out the risk from indemnification, limitation of liability and warranty is easier.
Should my firm carry Errors & Omission coverage?
It is really up to you. Your company’s size, age and focus of craft should be taken into consideration. You can limit your client’s access to your coverage by making sure the contract does not list your coverage as primary, and not allowing the client to be named as an additional insured. This way you can meet the client’s coverage requirements, and make sure it only exists for your company.
Should the contract negotiations start with your format or the client’s?
This is up to you. You can get some good insight if you begin with the client’s format. You can find out if they see you as a service provider, and you can see their contractual point-of-view. If something in the contract doesn’t apply to this new relationship, then strike it. If the client does not push back, then no time was wasted.
Should there be a Terms & Conditions agreement to prior to the work beginning?
Yes! When you are writing a proposal, ask for the client’s service agreement. If you are in the middle of negotiations, and both sides agree to begin the project prior to finalization, please remember that if you sign the client’s purchase order, you may be agreeing to terms that are unpleasant and can contradict what you are trying to accomplish in your negotiations.
What about managing subcontractors?
Managing your subcontractors is as important as the above. You need to make clear that the rules you are being held to by your clients, bind them as well.
Separating the paperwork required for engagement into separate items may catch the contractor’s attention a bit more, and they may actually read what they sign. Four important subjects: Design Ownership (they shouldn’t own anything and should not include it in their portfolio without your permission); NDA’s (they can’t talk about the project without permission); Non-Competition (they can’t learn about the project from you, and then turn around and solicit the business directly with the client); and Secrecy (they can’t discuss your company inner-workings).
How can I protect myself with client-supplied elements?
Don’t assume your clients know what they own. They will always assume they own everything. A member firm example: A firm had been approached by a photographer that threatened to sue for use of a photograph given to the firm by the design firm’s client. The photographer claims that the design firm should have dealt directly with him, and not the client. The photographer said the client’s invoice clearly stated “rights are not transferrable.”
We all need to remember that our clients do not always know the contractual yes’s and no-no’s of the work. Most of them assume that if it is in their hands, it is theirs to use as they please.
A potential solution for this scenario is to have your client sign a “release” document prior to accepting and working with any client-provided elements (artwork, photography, etc.) This puts the responsibility with the client and makes the client think a bit before signing a piece of paper releasing the design firm if there are issues. It even may prompt the client to call the vendor to confirm licensing rights!
What are some of your “things to watch” when negotiating contracts?
Cathy Brownlee
Executive Director
APDF
The business resource for design firm leaders
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