
What Happens When a Freelancer Does Work for a Client Without a Contract - kunvay
http://blog.kunvay.com/what-happens-when-a-freelancer-does-graphic-design-work-for-a-client-without-a-contract-marks-copyright-case-study/
======
chasing
I'm just going to echo what everyone else is saying: Contract. Contract.
Contract.

A contract isn't some scary legal document full of cryptic legalese. It's a
clear description of what services will be provided and what the compensation
will be. And on what schedule everything will happen. With details about what
happens if things go south.

Most client problems are not as cut-and-dry as "he took all of my work and is
laughing at me and lighting cigars with $100 bills while he refuses to pay me
for absolutely no reason." Most disputes are based on misunderstandings of
some sort. They think feature X was in-scope. You disagree and want to bill
them additionally for it. They are withholding pay because they don't consider
the project completed. You do. And such. Having to threaten a client will
waste a ton of your time and sour relationships -- clients you have disputes
with can still be good clients. This is why you write down everyone's
expectations at the start.

Most clients aren't evil. They want good relationships with the people who
work for them. But disagreements arise. Contracts give everyone a neutral
document to refer to and say "look, this is what we agreed upon when we
started."

Use contracts.

~~~
larrys
"Use contracts."

First, to state the obvious which anyone who has been around for some time
will tell you a contract is only good if the dollar amount is enough to get a
lawyer involved as far as filing and pursuing any legal action. Otherwise good
luck with trying to convert a contract into actual dollars because you are
right.

Anyway, for the purpose of what you are saying it doesn't have to be a
"formal" contract but merely an email trail will suffice to make your point
and get the other party (if honorable) to pay. In the past I've even used
notes of verbal conversations which I've repeated back the sequence of events
to the satisfaction of the other side. (Once again totally depends on who the
other side is and their motives.)

Now if they are not honorable, don't have the money, or just want to play
games, then if you have enough at stake to hire an attorney a formal contract
is a benefit (but not essential since the "trier of fact" as well as the other
side will weigh their chance of settling vs. fighting). Consequently, yes,
documentation is key but it's more a balance of power rather than the
formality of the document).

Unfortunately the article completely ignores the practical aspects of going
after someone who owes you money despite what any contract says. As if the law
is enough to make the right thing happen. It's not.

~~~
tptacek
Contracts are such a basic fact of business life, universally understood by
good-faith vendors and customers, that recalcitrance about signing one should
be taken as a "run don't walk" signal. By working without a contract, you
doubly imperil yourself: you lose significant legal protections, and also
select a client base that is particularly likely to cause you problems down
the road.

Matasano has many clients we've maintained since the formation of the company
in 2005, and many more where our counterparts in those companies are friends.
The idea of doing business with any of them sans contract is unthinkable. It
just doesn't happen.

Working without a contract is unprofessional. Don't do it.

~~~
larrys
A few points. I'm not stating you are wrong but simply would like anyone
reading to see that in business, the way I see it, it's art and not science.
"Don't do it" sounds more like science to me. Business to me is art.

1) The dollar amount of the dealings greatly matters as well as the product or
service being sold (and who it is being sold to and past history [1]).
Matasano is a "real" grown up company. I would imagine the dollar amounts of
the charges for what you do are not trivial or small in any way. "not
freelance". And what you do has liability consequences as well if you screw
up. And you have deep pockets to go after and a liability policy with pockets.
[2] A contract of course is called for. Our accounting firm (been dealing with
for many years) was just bought out by BDO. They sent a contract or rather a
letter of understanding "whatever" that absolves them from any and all
liability no matter what. This is after many many years of dealing with the
firm they acquired. The legacy firm sent the same letter. Totally ignored it
and never sent it back year after year. (Almost as a dare "ok we'll replace
you!". They didn't take it personally at all. And if they did who cares?

2) Title of article appears to be targeted toward freelancers. Hence my
comments. I'm not directing my thoughts toward Boeing (or Matasano). In other
businesses I've dealt with freelancers (non computer, graphics basically) for
many years. They do work you pay them. They give a quotation for the work and
tell you if you exceed any limits and that it will cost more.

3) Using contracts puts friction in the process and gives people (on certain
things, once again, smaller things) a chance to back out and think and delay.
So to me there is a certain balance of risk that a freelancer takes (relative
to the situation) vs. losing the sale that has to be weighed. Each situation
is different. What's the up vs. the downside?

4) Unprofessional is relative to who you are and what you are selling of
course. There are many business relationships that are done on a handshake in
certain industries. I've been involved in many of them.

5) If you do (for whatever reason) use a contract and the other side doesn't
want to sign it I agree that can be a red flag. In general. Once again,
depending on the dollar amount. I had a domain broker come to me with a buyer
for a domain name that I owned and they sent me a 10 page contract. I said
"I'm not reading and reviewing that if you have a buyer I will pay you
commission". They said "ok sounds good". And the deal was done and I have the
money in the bank. Otoh I sold a domain to a very well known attorney (someone
I knew that is well known in the business and everyone loves and even went to
the same college) and I waited like 3 months to get the money. Go know.

I will end with a funny story. When I sold my first company a long time ago I
asked both the accountant and the lawyer for an estimate of the legal and
accounting charges. They both shot me numbers verbally over the phone. After
the deal was done I got the bill and it was 2 to 3 times as high as the quote.
So I said "you quoted $x what's the story?". They said "oh it was more work".
I said "well you should have told me that, how would I know?". The accountant
stayed with the quote and is the firm I've referenced above that I am still
with to this day. The lawyer thanked me (he had just gone out on his own and
left a big firm and had no clue about smaller clients or billing or people
using their own money) and told me I had taught him a valuable lesson [3]. He
then bought some computer gear from me (to give you an idea of how long ago
this was it was a $4500 laser printer). Just to show you that he really was
cool with it.

So it wasn't lack of a contract as much as lack of communication possibly that
sunk them. And of course had they billed as the work was going on as opposed
to all at the end they would have put me on notice despite the original quote
(which by the way was stated like a firm quote..)

[1] Which of course is tricky because people and companies change their spots.

[2] As opposed to Dave, out of his house, living from hand to mouth. Nobody is
taking "Dave" to court if he screws up.

[3] So in other words he wasn't used to anything but a larger company using
someone else's money not an entrepreneur spending his own money.

~~~
fat0wl
Yes this is the business world exactly as I've experienced it. Specifically,
#2-4. Handshake deals are great for people who are generally sane and trying
to pick up momentum. People advise you lock everything down 100% but they
don't realize what a time/energy drain it is on both parties.

A quote sets up a reasonable negotiating point and then any deviation from
that can be discussed. The client eats it or the worker eats it. You win some
you lose some -- at least things are moving.

~~~
larrys
I'll tell you an interesting thing that I learned in a past business where we
were given many rush jobs.

Let's see how you view this.

a) Client comes with a rush job and asks you to quote the job and you do. You
give them a price.

b) Same clients comes to you and says "just get the job done and bill me
whatever it is. I need to get this done."

My question to you (or anyone else) is "under which situation did we end up
making more money, "a" or "b" usually"?

~~~
fat0wl
Hmmm my gut says A. When you give a quote it sets up a reasonable expectation
and even if you go over-budget clients usually understand if you don't deviate
by too much.

With B you have to pull the trigger on it all-at-once so I feel like it leaves
you more inclined to bring the price down to avoid sticker shock.

"A" probably has a better "return customer" conversion rate too, no? Because
they weren't on as much of an emotional-financial roller-coaster, it was just
the execution of a process understood by both parties. So I'd guess with A you
have a better shot both at short term money and future endeavors.

How did it work out really?

~~~
larrys
You are correct it is "a".

Reason was simple.

Customer was under duress and needed to get a job done. You stated a price and
they accepted that price. That agreement was important.

With "b" \- "whatever it costs is ok!" they could come back and say "Wow I
didn't know it would be _that much_ ". So even though most people would go for
"b" my experience was "a" was better.

Of course now if I wanted to argue the other side I could say if you really
were trying to jack up the price than "b" might be better. Why? Because you
are jacking up the price so if the customer say "I didn't know it would be so
much!" you have some flexibility to throw them a bone and lower the price and
make them happy.

My attorney on bills typically puts in all the hours he spends as "time spent,
time billed" giving you some idea that you are actually saving money. As if he
is cutting you a break.

"and future endeavors"

Right because you managed expectations successfully. Same reason perhaps
paying $35 for parking is not the same as getting a $35 parking ticket.

~~~
fat0wl
Heh right on I actually thought of that flexibility / throw them a bone bit
after I already posted. I think that's the abstract bit, is that these things
need to be negotiated in real-time for it to make any sense. If you find
you're doing too much work or it's something that requires a lot of
specialized knowledge, you need to get that level of pay while having it make
sense to the client. I know some people try to whine that this amorphous rate
idea is sketchy but then I hear stories about freelancers & small web ventures
trying to do psychotic shit like quoting 2k/month for "site maintenace" or
getting a 5k contract for "SEO". I deliver MUCH better quality of service to
my clients than these "professionals" who are trying to set up bunk service
contracts as sources of recurring income. The reality is you need to have your
client's trust. I do the best work I can & if I feel I deserve extra for a job
and can justify it, by all means I say so and negotiate it. And I do something
similar to your lawyer in that I don't bill for email/communications unless we
have time blocked for a longer meeting, so it's hard for the client to ever
feel as if they've overpaid. 15 minutes on the phone every day or so on the
job I let slide. Then I log most of my hours by task. What I want is to
deliver them value so they can succeed and give me more work. Most clients can
appreciate that.

Man I like your attitude larrys. Business really is an art, & I think my role
model is kindof like "Better Call Saul" but without the illegal activities. He
starts off as a sketchy, unlikable guy but then you notice that his clients
are always satisfied and they are all well-paid. :D

It seems much easier to reach that type of relationship by doing some high-
velocity business rather than dragging the process down &, as you said,
letting everyone dwell too much on $$ signs.

------
fat0wl
Just throwing this out there since I know the common wisdom is to "have a
contract, duh".

I have a few clients who basically put me on a retainer, then I send them a
bill. If you give an hourly rate + an estimate clients seem to be cool,
provided they are actual businessses. The only clients I've ever had issues
with are individuals (usually artists since I freelance electronic media) and
that stems from budget / rampant psychotic narcissism. But with businesses, I
state my rate I estimate hours & then I bill them.

I'm sure there is a more secure way of handling this with contracts but if a
company I work remotely for ever stiffs me on a bill: 1\. They better be
closing up shop the next day or I'm gonna come after them hard. 2\. They lose
access to the skills I offer them. 3\. I probably have accounts/services in
their name that they can't alter/operate without my help, so they're really
just shooting themselves in the foot & will likely come to realize this rather
quickly.

Anyway worst case scenario I lose 1 payment (maybe it was 1-3 grand?). Maybe
it's scary to think that a 3k payment might disappear but the reality is,
after discussing with them they'll probably just hand it over anyway or you
can settle in between. Even if I one day lose a thousand dollars (which I
highly doubt) I can look back and smile knowing I never had to deal with a ton
of legalese.

The reality of it is that businesses can't just stiff you on a bill if they
agreed to pay for your services, and if you have nice clients who are trying
to build a business they have no reason to hurt you if you do good work for
them. But I understand not everyone has the luxury of sane clients. I
certainly didn't back when I was dealing 1-on-1 with artists.

~~~
LukeShu

        > The reality of it is that businesses can't just stiff
        > you on a bill if they agreed to pay for your services
    

That _feels_ like it should be true, but it's not. I'm not just speaking about
software; a large portion of my family is in construction, and I'm shocked at
how often client businesses think they can get away with just not paying them.

Perhaps it actually is better in the software world, where clients (hopefully)
know they are going to need you in the future.

Anyway, good for you that you can find clients that know they need to pay you;
but not all businesses have figured that out.

~~~
fat0wl
Hmm I'm sorry to hear that. :-/

But if they brought a civil suit they would win easily, no? That's what I
really meant by that line. My father is a lawyer & every time I bring up
something like that to him he laughs. "Of course they have to pay, it's just
too much trouble sometimes. Usually just the threat of legal action is good
enough."

Maybe it's not so simple but that's a shame.

~~~
LukeShu
Oh, yeah, they eventually get paid. It's just shocking how many people try to
not pay them.

------
ritchiea
Question for other freelancers: how do you handle changes in a spec?

I've been nervous about this lately because I'm doing freelance work and the
contract outlined a spec that we've now deviated from greatly. I'm not
incredibly worried because we do bi-weekly billing but do you regularly ask
clients to revise contracts if the spec changes?

And when you begin a contract, what level of specificity in a spec is a good
idea? Obviously some level of specificity is a must, but an overly detailed
contract leaves you in the position I described above where the contract does
not actually describe the work in progress.

~~~
tptacek
There are two different functional components of a contract; the "terms" and
the "statement of work" (SOW). They're often combined in a single "standard
contractor agreement" with a fill-in-the-blanks "SOW exhibit", but just as
often you have a distinct master agreement with terms and a SOW for each
project.

The SOW is responsible for laying out what work you're going to do. If a
changing spec is a project risk, a typical consultant response to that would
be to build some of the spec language into the SOW, so that if the spec
changes in a way that materially harms your ability to complete the project,
you have recourse with the client.

The typical best case scenario for spec slips on projects is a client that
extends the contract to account for them, and a somewhat rigorous SOW is a
good tool for making that happen.

------
barsky
If you're a freelancer of any type, you should _always_ work under a contract.
This talk (about 40 minutes) sums up why:
[http://vimeo.com/22053820](http://vimeo.com/22053820).

~~~
kunvay
I _LOVE_ that video! He's right on point. Here's our take on the subject:
[http://kunvay.wistia.com/medias/4272c23ee2](http://kunvay.wistia.com/medias/4272c23ee2)

------
InTheSwiss
In short you can, and will, get fucked by your client. Never do work without a
contract. I would have thought it were common sense but I have seen far too
many people owed thousands from clients they did work for who then gave them
the finger. Most people/small companies don't have the money or don't want to
spend the money on getting the money as it will end up costing them more so
they just put it down to "that is the price you pay". Well that is a fucking
stupid attitude and you are a fool for doing the work without a contract.
Watch [http://vimeo.com/22053820](http://vimeo.com/22053820).

------
graeme
I outsource work on eLance, and this made me investigate. For anyone else
wondering, eLance's terms state that any IP for a project belongs to the
employer after payment is made:

[https://www.elance.com/q/sites/default/files/page_pdf/legal/...](https://www.elance.com/q/sites/default/files/page_pdf/legal/independent-
contractor-services-agreement-13.pdf)

[https://www.elance.com/q/blog/elance-protection-dead-
bolting...](https://www.elance.com/q/blog/elance-protection-dead-bolting-door-
your-intellectual-property)

~~~
ChristianBundy
Just so you know, it's Elance – no weird Apple iSpelling. :)

~~~
JohnTHaller
You mean aPple, right? :)

------
w0rd-driven
I'm no lawyer but wouldn't email communication at the very least be used as
evidence, if not an "informal contract". The scope of the work had to be
defined somewhere. Obviously this falls apart if this was all done via verbal
communication but its always a good idea to have this in some form you can
store for safe keeping. Even recorded phone conversations count.

A purposeful contract makes sense in every situation but if you have clear
documentation without one, you should be pretty well off when a problem
arises.

The notion of hourly work is something I try to divorce from my thoughts. Yes
I do base what I do on some hourly metric but the complexity has to matter to
some degree. Generally more complex = way more hours but that's not always the
case. Most of my problems in this area come from uncovering a hornets nest
when something just seems simple enough on the surface.

I like to think of it this way. Office is still $x per seat. I may have
figured out 98% of a domain but I should charge the last customer the work it
took to get to that point from customer #1. I may have to do much less work if
I've done my job right but there's no telling exactly what of that they'll
want to unravel in the process. Unlike Office I don't have a bankroll for r&d
I can charge a premium for to recoup my losses over clients. Clients need to
assume that just because they want what someone else has its never what they
paid - the hours it takes to just tweak it for them.

------
benjamincburns
I may be misunderstanding something here. To paraphrase, the argument this
article opens with is "we didn't agree that you were working for me, so I
don't have to pay you" along with "because we didn't have an agreement which
protects your ownership of your work, I can do whatever I want with it." I
thought the law (shop law?) defaults to an independent contractor owning his
or her own work in most (every?) states? Even if the law defaults to a work-
for-hire agreement (where the client owns the work outright) for independent
contractors, how could the client reasonably argue that he/she somehow doesn't
need to compensate the contractor (essentially saying "Me? You weren't working
for me!"), while simultaneously arguing that somehow the client has any/all
rights to the work?

I'd hope that anyone in this kind of situation would think through this kind
of logic, short circuit to "okay, I'm dealing with a ripe asshole here" and
take the same action which they would toward anyone else outright stealing
from them.

Edit:

Regarding contract/no contract, experienced/knowledgeable clients will
_require_ a contract when dealing with an independent contractor, even if for
no other purpose than to protect their ability to make use of the output of
said contractor's work.

------
phamilton
Recently, I've been using contracts that do not transfer copyright. We grant
them unlimited license to our copyrighted content. We also signed an NDA,
preventing us from relicensing the codebase to a competitor. We haven't done
anything to take advantage of keeping the copyright yet, but I like keeping
the rights for ourselves. I imagine of anything it would make it easy for is
to open source code that doesn't tie in directly to the product.

~~~
benjamincburns
I'd love to hear more details about this. Is this something you came up with
yourself, or did you write it with an IP attorney? Would you be willing to
share your template agreement somewhere? Has this been a tough sell to any of
your clients? Does your agreement include language which either defines what's
proprietary or specifies how to define what's proprietary and therefore
subject to the NDA?

~~~
phamilton
Here's an excerpt (condensed):

“Work Product” shall mean all design and applications... excluding the
“Elements”. Developer assigns to Client all right, title and interest in and
to the Work Product. “Elements” shall mean Developer’s algorithms, libraries,
scripts, user interface and experience designs, architecture, objects, graphic
files, [etc.]. The Elements shall remain the sole and exclusive property of
Developer; provided that, subject to/upon full and final payment for the
Services, Developer grants to Client a royalty-free, nonexclusive,
irrevocable, perpetual, worldwide, subliceseable license in and to the
Elements to use in connection with the Application.

So we do give up copyright for the application as a whole "Work Product", but
retain the copyright for individual components "Elements".

The client is not in a technical space, and quite frankly doesn't know much
about software development. We may be pulling a fast one here that other
clients would refuse. In any case, it hasn't caused any problems in our
working relationship and everyone's happy.

~~~
tzs
If I were a client, a big concern I would have with this license is what
happens if one of my competitors rips off my product that is using the
licensed software, and I want to bring a copyright infringement lawsuit
against them.

Generally, a licensee cannot sue for infringement of something they only have
a nonexclusive license for. There is some discussion of this here:
[http://www.copyrightcodex.com/enforcement-
toc/22-plaintiffs#...](http://www.copyrightcodex.com/enforcement-
toc/22-plaintiffs#Non-Exclusive_Licensee_Can_Not_Sue)

Even if my product contains copyrighted material in addition to your material,
and I either own the copyrights on or have an exclusive license on that
material and so do have standing to sue over it, the presence of your material
would complicate things. The defense is going to argue that if they did copy
my product, they only copied the parts that I do not have standing to sue
over.

------
tzs
You have a contract. You just don't know the terms.

You might be able to guess them with sufficient knowledge of the law of your
jurisdiction. In the US (other than Louisiana [1]), you'd need to know at
least State and possibly Federal contract law, common law, and a bunch of
court cases.

[1] Louisiana based its law on French and Spanish law, which derive from Roman
law. The other 49 states base their law on English common law.

------
misterjangles
I can see a client canceling a deal without paying after you have done work
due to not having a contract. To actually use the work you produced and weasel
out of paying with a "ha ha I tricked you into working for free" is really
malicious. I would say that client would probably never have paid anyway.
However you may force them to reveal their hand by signing a contract. They
will probably try to find some other loophole, but at least you have some
documentation that helps you to take legal action.

I have had client drag their feet on the contract and the down payment, but
rush me to start. My feeling is that if you can't get a check when they are
desperate for you to start, then it certainly will be difficult getting one
after the work is complete.

The more eager you are for the gig, you may be more willing to agree to
things. But definitely it's a always a good idea to be patient and make sure
both sides agree to the terms before you invest your labor.

------
EGreg
It works like this:

Companies have limited liability in the USA. They are subject to full market
discipline. The owners of the companies are not.

And thus ... business between companies should take precautions such as
getting paid a retainer, at milestones, etc. and assume that some payments
will not be coming.

Meanwhile people (e.g. employees) can rely on the government to put heavy
pressure on employers to pay them. I am in favor of more direct guarantees of
basic living standards -- i.e. a basic income -- such as some European
countries are doing. That way even the employer-employee relationship can be
less regulated.

------
vasundhar
For a Business:

* Its a Financial Risk in terms of Commitment to deliver for what is paid for.

 _You Don 't know if the person is really spending the hours he spent.

_ There is nothing that can save your system, your business, because the
business is your life, "Not Necessarily" his.

* Time and Commitment are absent in unwritten understandings.

For a Contractor/Freelancer:

* Its a Financial Risk with respect to the commitment to be paid for deliverable.

* You get only the advance, no matter how complicated the solution you have provided.

* Requirements may change any time, you don't know what you are working and there is no line between success and a failure.

------
auctiontheory
As enjoyable as freelancing can be, the headache of contracts on one end, and
trying to get paid on the other, really put a damper on the "lifestyle." This
looks like a great asset.

------
dpeck
Is there any value in a sample or boilerplate contracts?

I've asked some people in the past and they seem very guarded about sharing
theirs and always try to refer me to a lawyer. Good advice and I realize that
lawyers should save you money in the long run, but for on-the-side small time
consulting is there a base template that would get people through their first
few gigs?

------
primitivesuave
If you don't use a contract you're asking for trouble. Be like James Bond in
The World Is Not Enough- don't hesitate in jumping into bed with Elektra King
(the client), but don't overlook the possibility that she's been brainwashed
by an evil sociopathic genius.

------
larrys
"Federal courts now routinely accept an individual’s electronic “click” or
“tap” within an electronic transfer of copyright document as a valid
“electronic signature” fulfilling the signature requirements of the Copyright
Act of 1976."

See things like this are dangerous. To the uninformed the above looks so
simple. "Federal courts now accept" (and the rest of this article) totally
ignore the cost and practicality of bringing any legal action. And guess what?
The other side, when they are trying to screw you, is aware of that and will
use it against you.

Back in the late 90's we had the opposite thing happen. Paid $6500 +- for a
freelancer (related to a well know internet celebrity at the time) to write
some software (total cost maybe 20k iirc.) Time dragged on and on and they
were not able to deliver.

You know what? We just walked away from the money. What to do? Sue someone in
another state over $6500?

------
notwedtm
While #1 is getting a contract, in "Mark's" case, he has a claim for Unjust
Enrichment.

If you have a client that uses work you did, even if you have no contract, you
can still sue for damages under Unjust Enrichment laws in the US.

~~~
auctiontheory
There's theory (taught at Yale Law), and then there's practice. While you may
be theoretically correct, on a practical level, the lack of a contract makes
getting paid much more difficult. Unfortunately, I can't bill the client for
the time or stress of the legal case, and winning is never a certainty.
Consider that the client is much larger, and may have lawyers on staff full-
time.

~~~
ams6110
I'm guessing most freelance work is for pretty small amounts. Unless you are
talking about a claim in excess of $10,000, it's not going to be worth
pursuing, you will owe your lawyer more than that very quickly. If it's a
local client you might have some luck in small claims court where you
typically represent yourself.

------
gk1
Seems very helpful for someone who ends up in a messy situation without a
contract. But please, don't even allow this to happen. Use a contract!

------
spiritplumber
I generally just tell people that if they do the right thing and pay up, I
will do the right thing and let them live. Also see: OpenROV.

------
reggiecasual
Great article. Must read for anyone using freelancers to outsource work.

