Negotiating as an Independent IT Contractor?

C3ntaur asks: "I've been doing IT work -- System and Database Administration -- for over 10 years now, and I recently decided that it's high time I went freelance. I had done occasional side work before, but now I'm in the thick of it, with most of my income generated by contract work. One of the challenges I've encountered is in negotiating a fair contract, and I'd like to pose it to the Slashdot community: How do you deal with the PHB types who hand you boilerplate contracts that they themselves haven't read, let alone understand?" "I've patiently tried to explain my objections to legalese that translates to 'we own anything you've ever invented, or ever will invent', and 'you must obtain our written permission before working for anyone we deem to be a competitor', but it falls on deaf ears. In fact, I'm often told that it doesn't mean what I think it means. I am willing to hand over all rights to work I do within the scope of a contract, and I'm willing to protect and keep confidential a customer's IP and trade secrets, but the contracts they want me to sign are far, far broader than just that.

IANAL, but I do have a pretty good understanding of the English language. So unless these contracts are written, interpreted, and enforced in some Orwellian world where the lingua franca is Doublespeak, they could seriously hamstring my ability to earn a living. I cannot sign them, but my would-be customers won't do business with me if I don't. Any ideas?"

Comments

Simply put...

[databank]

Tell them that if what you read in the contract doesn't mean what u think it means then its not clear enough in the contract that it means what they say its "suppose" to mean. If they truly don't mean what they say, then they should write it down or be willing to make the minor alterations such as "within the scope of..." to the contract. If they won't make the changes ask them if theres someone else to talk to..or turn down the job because if they're not willing to at least talk about it..theres usually a reason....

Why not...

[Anonymous Coward]

draft up your own contract, and hand it to them.

After all, *you* are the one selling your services to them.

Well put

[marcus]

As databank says, make them live up to their words. Either make the contract say what it is supposed to say or skip out.

As far as negotiation tricks go, it is good to have a lawyer-friend. Find a trustworthy attorney and arrange a low cost deal. All you need is his stationery, signature, and sometimes advice. When the PHB hands you the contract, say "I will have to have my attorney take a look at this" and take it with you. Forward your copy of the contract with your objections noted to your attorney and have him send a letter delineating HIS objections to the potential PHB. Usually folks will negotiate if they see that you mean business.

An alternative is to incorporate, at least as an LLC and get an EIN. Then they don't "hire you" rather they contract for services from your company. The types of contracts for corp-to-corp are generally much more flexible and since your corp can be under contract with several other corps at once, usually they can be reduced to a simple NDA. There are other advantages, as well as costs, to this approach, but overall if you are going to work for yourself, I think it is best to incorporate.

An alternative that I have voiced before is to simply say that you cannot sign in good faith. Say that this contract conflicts with other, previous contracts, and you are not at liberty to say who those other contracts are with due to an NDA. If they still don't budge, display your spine and walk.

The Power of Attorney (Moohoohoohahahahahaha)

[BrynM]

I'm guessing that the contracts you're negotiating pay decently right? Hire an attorney. Not to sue them. Not full-time. Maybe not even to look at a specific contract. To change the way these negotiations happen.

You don't need to spend a lot of money believe it or not (and you can write it off as a business expense). Use the resource wisely: If you can only afford to consult with him/her once, then just do that. Ask about the legal ramifications of insisting on the types of contract changes you want. Ask for advice in speaking to the PHBs (a lawyer's job is language). Ask for advice on making such arguments for changes and coming across as more professional than the PHB (which always works). If you can, come up with your own boilerplate contracts and have the lawyer edit/check them - when the PHB hands you a boilerplate contract counter with your own. This technique works well.

If you can afford to tap the attorney occasionally (lawer friends are great to have), then tell the PHB that you need to pass the contract by your "legal department" and ask if there is a contact person at the client company that you should coordinate contractual changes with. This gives you more bargaining power and eliminates the "well that actually means" responses.

Basically it comes down to treating yourself as a business. Always keep in mind what your "staff" is and who will want oversight of particular things (even if the only people are you and you). If you were an employee of a large company negotiating, you would have to pass the contracts by the legal department right? Then the company of you has to as well. I know this is starting to get metaphysical - think of it this way: departmentalize yourself. Think of the different aspects of your "business" as it's own department like you would in a company (accounting, legal, billing, customer service, janitorial, security). If you sould like a mega-corp, the PHBs will treat you with a different level of respect.

Legalese isn't english -- hire a lawyer.

[McMuffin Man]

The clauses you're worried about may actually mean what the PHB says they mean. They may mean what you think they mean. They may mean something else. They may be entirely unenforcable in your jurisdiction, and thus not worth arguing about. I don't know, and neither do you, because YANAL.

What a contract actually means is determined not by common sense, but by relevant contract law (which you don't know) and case law (which you don't know). If you really care about what a contract is actually enforcably commiting you to, hire a lawyer.

Consult a lawyer,require time limits with retainer

[NZheretic]

If a PHB hands you a contract that appears to severely limit your ability to work for other customers then:
1) Ask if you can have the document examined by your lawyer. If the PHB quibbles, say that you are just following the advice you have had from your business adviser.
2) Actually consult a lawyer -- I mean it. Even if is only the lawyer from your local Citizens Advice Bureau (CAB) or local small business/enterprise bureau. If your strapped for cash either agency is usually able to point you to a local lawyer is quite willing to do a quick consult on the expectation of future business.
3) If the contract limits your ability to do work for other customers then ask your lawyer to add some form of time limit ( sunset clause ) to the contract, with a clause demanding a suitable retainer to cover the time your restricted. Have your lawyer add an opt out clause so that the PHB can decide to stop the retainer with the automatic effect of you no longer being obligated by the terms of the contract.

In most cases the business in question wont even bother with the retainer and will just cross out and initial the offending restrictive clauses in the contract. If they choose to keep paying the retainer, and yes it happens, you may just have to renegotiate or just wait until the sunset clause applies.

Nice

[Safety Cap]

The most common reaction is to just sign the contracts, and ignore them.

Anyone who signs a contract without running it by a lawyer deserves exactly what he or she gets.

In most cases, they *are* just using a boilerplate agreement, and don't even know what's in it.

You got that right. If I had a nickel for every time...

Being an independent, I am usually the one who provides the contract, as they are paying me for my services and produced product, not the other way around. Usually, I run into NDAs, and that's pretty much it. If someone were to hand me a crazy contract (overly restrictive terms) and my lawyer gave me a thumbs up anyway, then my fee would just go up to cover the additional restrictions.

I have lost a few contracts when there was a strong disagreement regarding terms, but my time is too valuable to take any old job that could end up screwing me out of future business. I also don't do charity work (except on odd weekends) when I could be out beating the bushes for the next gig.

Protect yourself by incorporating

[Corpus_Callosum]

Incorporate a company, call it "mycompany inc." or whatever. Doesn't matter.

Write yourself a little contract with your company that it gets none of your ip and everything you do is your property. You don't really need a lawyer for this.

When you contract out, you are contracting out through your company. Never sign a contract from person to customer. Only sign from your company to customer.

Now you can sign anything they hand at you. No worries. Worst case? Dissolve your company and incorporate a new one. You are protected by the corporate shield.

Re:Protect yourself by incorporating

[Corpus_Callosum]

I have done this in the past. I consulted for over 10 years in the Bay Area and never once had to consider the implications of my contracts, as those contracts were always between my company and my clients.

I did have to sign personal non-disclosures, of course. And my company did have to honor the requirements of my clients in terms of intellectual property (e.g. work for hire). But the corporate shield protected all of my prior work as well as non-related work.

As far as taxes go, professional services are not taxed and if you choose an S Corp, you will not incur double taxes (because an S Corp profits fall down to the principals).

You can dissolve a company at any time, but of course it does not relieve the company from financial responsibilities. The company is still responsible for it's debts and bancruptcy can cause you problems (e.g. you could go to jail for fraud for taking a company into bankruptcy just to avoid debt).

You can and should dissolve a company (that is just you consulting) in a case where a client is harrassing you badly (i.e. "Okay, I give up, I will close my company"). That doesn't prevent them from trying to file suite, but they will look pretty silly suing a company that is out of business (not to mention making it rather difficult for them to get any remedy). But generally, things never go that far. In 10 years of consulting, I have never been threatened with a suite. Why would a client bother?

On top of all of this, a corporation is an excellent tax shelter. You can expense things you never thought of before it gets posted to profit (and therefore declarable on your income). There are many benefits.

The thing to remember is that contract law and doing business is nothing like programming. Wetware dynamics revolves around perception and boundaries, not strictly adhered to executable recipes. Many software professionals get this confused because their minds are so trained to think in terms of strict cause-and-effect.

Don't take things too seriously in the business world, most of what you see and hear are there to confuse, impress and intimidate you, not to actually be executed against you.

Use your own contract from your own lawyer

[pocari]

My proposals always make it clear that my quote is a quote for work done under my standard contract. If the client then shows me their contract, I explain that I may have to charge more, especially since I will have to have a lawyer review their terms. Since at that point, the project managers are usually in a hurry, they will stand up for using my contract, just for the sake of time.

My standard contract was developed by a lawyer who specializes in software, who went over it with me very carefully. I know the importance of each clause. I also know that it is fair to both sides, unlike some clients' contracts I have been presented with. Sometimes, clients are just testing to see what they can get away with, since most contractors are naive about such things.

One thing I learned is that contracts drawn up by clients do not say that you must be paid before they own the intellectual property. Something this basic could be disputed if they didn't pay you in full! My standard contract says my clients must pay me in full before the IP rights transfer to them. Obviously, no PHB or lawyer can with a straight face suggest removing that clause from my contract, but many have tried presenting contracts without saying exactly when the rights transfer. This is a subtle point I would have missed had I not spent time with an attorney.