What Exactly is a Client Agreement?
Client agreement contracts form the bedrock of nearly all professional relationships. Their primary purpose, is to outline the terms of service between the client (or customer) and the professional service provider. As such, they establish the scope of services to be provided, and more importantly, the conditions under which those services are performed. In this role, client agreement contracts provide essential protection to clients and service providers alike.
A client agreement contract will stipulate what products or services a professional is required to provide the client. It will also explain how the services are to be provided, how long they will take, and how much they will cost . A client agreement contract creates a clear expectation for both parties, and can act as a point of dispute resolution should anything go awry.
Although client agreement contracts are not legally binding in the same way that some other contracts are, it is important to keep in mind that they are legally enforceable. A client agreement contract essentially acts as a promise – it is an agreement that you will deliver the specified service or product within the time outlined, for the price outlined. Contracts related to the provision of goods and services are governed by contract law. This means that if a party falls short of their obligations under the client agreement contract, they can be held liable for damages by the other party in a court of law.
The Essential Components of a Client Agreement
Client agreement contracts can be helpful in both protecting the IP of your client and relieving some of the financial vulnerability that can accompany custom projects. These agreements are typically a hybrid of services and work for hire. Because these elements are incorporated into a single contract, they are fair game for negotiation. Selecting the right template can help you get the most out of the agreement; however, these templates generally fail to put sufficient emphasis on the most important aspects of the contract. A standard contract template is often not enough to make sure your contract will protect you. If you create contracts from scratch, you can neglect to include important components of a contract as well.
1. Scope of Work
The scope of work (or statement of work) defines what the particular project will entail. It should list every activity that will be performed during the course of the project and the intended deliverables in order to notify both the client and contractor about their obligations and commitments regarding the project. Having a substantial, detailed scope of work is paramount to the presence of a well-constructed agreement. It is an essential component of a client agreement contract because it will allow you to minimize the risk of having the work or the obligations of the project change over time. This section of the contract should detail all processes and deliverables, including metrics, status reports, deadlines, amounts of payment, and other important information about the project.
2. Payment Terms
Payment is arguably one of the most important aspects of the entire contract because, at the end of the day, payment is king. The payment terms should specify how much the contractor will be paid, how often the contractor will be paid, when the contractor will be paid, and any other relevant details concerning payment, such as whether payments will be made in installments or how the payment will be calculated.
3. Confidentiality Agreements
Confidentiality clauses are also critical to the success of a contract because you want to make sure that non-disclosure provisions are in place in order to protect vital information about your company and its clients. A confidentiality agreement (also known as a non-disclosure agreement, or NDA) prevents a contractor from sharing any sensitive information about the company with other companies not involved in the project. If your agreement does not have a confidentiality clause, anyone involved with the project could share sensitive information about your company.
4. Termination Agreements
A termination agreement will define the conditions under which the contract may be terminated. This is especially important to custodians of IP because an IP owner may not want the other party involved in the project to retain any IP, tangible or intangible, after the termination of the agreement. This clause in the agreement should also clarify the consequences of a breach and what is expected of the contractors upon the completion of the project. If the project ends prematurely and the agreement does not conform to these standards, your company could be subject to more losses than you expected.
Why it’s Important to Clarify Terms
Clear, precise, and unambiguous terms between the parties are critical to the enforcement of Client Agreements. In fact, vague terms can often be the most crucial factor to whether or not a prevailing party is able to recover fees or other relief while also tipping the balance of power in favor of the party drafting the ambiguous term. The goal is to use clear, precise, and unambiguous terms between the parties which leaves little room for interpretation. This will allow courts to easily enforce the terms as well as entertain no argument that the terms are vague, arbitrary, or unenforceable.
An example of one such clause reads as follows:
Client shall make all payments due and owing under this relationship, including the Notes and the Term Sheet. All payments are, unless otherwise specifically noted herein, due and owing when invoiced, regardless of when or how any collateral is liquidated by Service Providers, and all payments shall be deemed fully earned when invoiced to Client, notwithstanding any liquidation of any collateral or other event. Service Providers may continue to demand and collect such amounts until the same are paid in full. Client, notwithstanding anything contained herein or in the Notes or at law, shall have no right to avoid, set off or offset any amounts due or payable by Client to Service Providers.
Negotiating with your Clients on Client Agreements
The foregoing discussion touches on many important principles of client agreement and form contracts. But how does one go about negotiating a client agreement? One of the remarkable things about the market for legal services is its relatively informal nature for both lawyers and clients. Although there are big, formal law firms out there, almost as many lawyers practice in small offices, or in small groups, where the principal relationship is among partners and associates, and/or with their clients. Even if a law firm has many lawyers, it may have only a handful of clients (although one client can sometimes be too many). Lawyers develop a bond with their clients that often resembles friendships, marriages, and families. In short, the relationship is often much more than a business relationship.
Having said the above, it is important, and fair, to clients, and good business practice, to discuss fees and expenses, and any engagement letter, at the outset of an attorney-client relationship. Regardless of whether a law firm has many partners and clients, or only a few partners and clients, lawyers have a lot of responsibilities, and are required to perform at a very high level of skill and competency. Many lawyers work in a business-like fashion, but often deal with clients on an informal basis. The bonding of clients by lawyers is important. It often leads to great personal relationships. However, lawyers must also deal with matters concerning fees, and risks, up front, and as early as possible. It is certainly important that lawyers be respectful and professional, while discussing fees because clients and lawyers have a vested interest in such matters. In fact, no law firm can survive and flourish without its clients, and liability concerns need to be properly handled as well.
In these days of massive law firm mergers, social networking, and, the proliferation of junior lawyers, negotiations are probably handled differently than they used to be when law firms were smaller, lawyers had more agency (and liability) authority, and were confronted with different fee and conflict issues. When lawyers have significant clients, or even if they are important clients, such clients can be very picky, and try to negotiate to get the best deal possible. Also, although it is good that clients are actively involved in the negotiation process, oftentimes, they may forget the importance of loyalty to a valued lawyer, or the possibility that they may need the lawyer in the future. In short, clients do not always act in their own best interests. This is especially true when business people, who are holders of many, and/or important roles and titles, forget to remember to put their personal interests first and foremost.
As everybody knows, fees are negotiable. This is very important. In the past, the author of this article has heard clients state their belief that particular lawyers charge too much. However, the lawyers who charge too much are the larger law firms, and very few smaller law firms who can afford the expense and overhead of maintaining large offices (and in some cases, also large salaries). When the law firm is large, fees become an important issue. Fees are almost always much higher at large firms than at smaller, boutique, or smaller full service law firms.
Therefore, it is critical to negotiate fees up front. When negotiating legal fees and expenses, try to learn as much as you can about the firm’s experience and billing practices, especially as to the matter for which you will use the firm’s services. Also, consider negotiating a discount based the company’s loyalty and the hours of service. If your business has little cash flow, try to negotiate installment payments, and/or deferred payments. Also, if the lawyer and/or law firm do not need to maintain expensive offices, a valuable discount may be possible. Finally, compared to larger law firms, smaller law firms should be able to provide the same quality of legal services at less expense.
Fees should not be the only issue. Coverage is important, but if the law firm does not need the insurance, perhaps a discount can be negotiated, although keep in mind that some insurance is mandatory.
Navigating the Legal Implications of Client Agreements
When entering into a client agreement, there are several legal considerations that should be taken into account when drafting or signing the contract. The client agreement should abide by not only the relevant laws in the state or jurisdiction where the work will take place but also the governing law specified in the client agreement. If the governing law is that of a different state or country, consideration should be given to the enforceability and requirements of the contract in that jurisdiction.
There are various federal and state laws, regulations, and court decisions that affect the way in which personnel are paid, how their time is tracked, what agencies or departments require products or services be processed in a certain manner, and what taxes must be considered and/or withheld. There are also federal and state administrative agencies, such as the Equal Employment Opportunity Commission, the United States Department of Labor, state Departments of Labor, the Internal Revenue Service, and other organizations that might affect the way in which this client agreement is drafted or interpreted.
When drafting the client agreement, care should be given to defining the precise services to be provided and the parties’ rights and obligations under the agreement. Careful definition can avoid complicating legal issues later down the road, if there are disputes as to the scope of services to be provided , any applicable jurisdictional restrictions, or the extent of liability and/or indemnification.
When signing the client agreement, it is imperative that you have read and understood all terms of the contract. All defined terms should be clearly defined and unambiguous – if there is any misunderstanding of the defined terms (or the terms contained in the client agreement itself), you should seek clarification from your legal counsel prior to signing. A legal advisor can help to identify and remedy any ambiguities or potential issues with the agreement and can protect you from unforeseen liabilities, which can arise from a poorly worded contract.
The client agreement should be easy to read and in a language and form that a regular employee or contract employee could understand. The more clearly the client agreement is drafted, the easier it is for the client to understand its terms and obligations and the disputes are less likely to arise in the future.
The client agreement should specify what responsibility each party has in fulfilling the terms of the contract and how this might affect any other aspects of the relationship, including liability. If your company has multiple locations with employees in different states or regions, or operates in multiple states or countries, you should also consider how the client agreement may affect each of these locations differently.
Common Errors in Client Agreement Contracts
Too often, clients procure client agreements online – or simply cut-and-paste from another agreement. There is nothing wrong with using boilerplate language, but it needs to be tempered with regard to the services you are providing. The most common errors in agreements arise when these two practices are used and the client misunderstands the true nature of the agreement.
First, failure to use the appropriate agreement. Do not use a subcontractor agreement or a franchise agreement to memorialize your deal with a client. A client agreement may look like a subcontractor agreement, but it is not the same. Similarly, franchising laws are very complex and you need to use a franchise agreement to comply with the law. When you use the wrong type of agreement, you can end up with a lawsuit on your hands.
Second, limitations of liability. These provisions are not always enforceable. Particularly when it is a consumer against a large corporation. In almost every case of a consumer who has agreed to arbitration, the arbitrator will side with the consumer, not the corporation. Moreover, if the liability limitations clause is in very fine print or located, for instance, at the bottom of the page, the court may invalidate it.
Third, arbitration clauses. Arbitration is becoming more and more popular and could be crucial to protecting your business. Make sure the language in the arbitration clause follows the contractual agreement with your client.
How to Create a Strong Client Agreement
One of the best practices for securing a robust client agreement as part of your business practices is to engage a lawyer with experience in drafting client agreements in your specific industry and to guide you to tools to help you prepare a strong client agreement tailored to your circumstances. For those lawyers or professionals who will do it themselves, seek templates or guides that can help you draft a legally enforceable client agreement.
Some companies even provide templates to help draft client agreements . In some cases, you can simply purchase a template agreement and fill in the blanks, but in others, it is advisable to consult with a lawyer to ensure the clauses are tailored to fit your specific contractual needs. Several Practical Tips can help ensure that client agreements are as robust as possible: Specific trade information and industry-sensitive terms should always be carefully evaluated to ensure that your client agreement is appropriately tailored to your specific requirements. How you tailor the client agreement will, of course, depend on the nature of the products and/or services you provide and the amount of information you will be providing to your clients.
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