If you’ve begun discussing work and a ballpark price with a new client, the next step is to get specific about various rights and obligations. Both parties need to understand the work to be done, the fee to be paid, as well as the timelines and scope of the project. Whether you call it a master services agreement (MSA), client services agreement (CSA) or some other variant, this is typically the standard terms that are not project specific.
While the MSA is the overall legal framework of your business relationship with a client, you also need a document providing details about the specific project you will undertake for the client. This is typically handled in a Statement of Work (SOW). Collectively these documents make up your “contract.”
Whether it’s an MSA you’ve drafted or one coming from a client, you should use the same criteria during your review. However, if it’s an MSA from a client, recognize it’s likely to be tilted in favor of the client with more risk allocated to the agency.
Time and budget won’t always allow for negotiating the perfect MSA, especially when it is your client’s form of agreement. Sometimes the goal is getting it to a place where you can live with it. To that end, there are a number of key issues we focus on in every service agreement negotiation.
No list should be considered a substitute for legal advice, but this is a good place to start. Once you’re familiar with the most important elements of a service agreement, you can better flag the areas where you might want your lawyer to advise you.
That said, here are some of the terms and clauses to be mindful of when preparing or evaluating an MSA and SOW:
Include What’s Excluded When Defining Your Agency’s Deliverables
The best way to describe what your deliverables are is oftentimes to describe what they are not. Use exclusions in the SOW to define your scope properly. Don’t just say what you’re going to do, say what you’re not going to do.
Without key exclusions, some clients will often think anything related to the project is included in your fee. For example, if you are building a website, you might describe the page templates you will create in Wordpress, but you might specifically exclude the job of uploading content to the CMS from your scope to make clear that work is on the client.
Don’t allow a client to make assumptions about what’s included. Otherwise you might wind up providing some work for free or getting into a dispute over who’s painting the fence.
We All Know What Happens When You Make Assumptions
Most projects will require a client to get back to you on certain aspects of a project. You need them to choose from different options, answer a question, provide certain content, or approve a final version.
If a client is slow to respond, that can affect your timeline. Use your SOW to spell out the assumptions behind your fee and the consequences if the client fails to meet those obligations.
If your fee is based on the client responding within three business days to keep a project on track, but they take 10 days for each iteration, you would have charged more had you known that from the outset. So in addition to describing what the client’s obligations are, you need to say that if the client doesn’t meet those obligations, there will be consequences. That might just mean an adjustment to the schedule but in severe situations, allowing you to terminate.
These assumptions and client obligations need to be made clear. That way you’re in the best position possible if and when you need to have a conversation about timelines or deliverables. You’ll have the protection you need when you tell your client that they are taking too long to respond and you need to re-evaluate your fee.
If Acceptance is the Standard, Will It Ever Be Acceptable?
What does “acceptance” even mean? “Satisfaction” or “acceptable” are subjective and vague. The better approach is for you to spell out that payment is due upon delivery or when the work substantially complies with the SOW. Delivery is very clear because something has been sent over.
Clients Shouldn’t Get To Use Your Work Until You Get Paid
Rarely do we ever get to use a product or service before paying. This clause is about putting the agency in the best position if a client doesn’t pay and you need to turn the screws a little bit.
Whether you are transferring ownership of your work to the client or licensing use, make clear that those rights don’t transfer until the client has paid in full for the deliverable.
Let’s say you created a new logo for a client and they didn’t pay you for your work — but it’s already up on their website. If your contract specifies that rights aren’t transferred until payment is made, you can send them a cease and desist saying they need to take the logo down until you’re paid.
You Always Need a Way Out of A Bad Relationship
If you are receiving an MSA from a client, their termination terms will likely be very clear: they can terminate on 60 days or for cause or for whatever reason. But you also need to make it clear when you can terminate your contract.
Obviously if you don’t get paid you can terminate. Or maybe your client is a real pain in the neck, refusing to cooperate or going dark for months. Your right to stop work or terminate should also apply if the client materially breaches the agreement.
No one likes to think about getting out of a contract at the beginning of an engagement when everybody is getting along, but some relationships aren’t built to last. But sometimes early termination is inevitable. This clause lets you get out of that relationship when it’s not working.
If You Can’t Get Portfolio Use, Charge a Bigger Fee
You’ve done client work that you’re proud of and you want to show it to the world. But you don’t need to retain the copyright in your work to have portfolio rights. Instead, you just need a good portfolio clause.
For projects that will be released to the public, make sure the portfolio clause allows you to use the client’s name, the client’s logo, and images of the work in your portfolio, social channels, and submissions for awards and recognition.
Large corporate clients might refuse to let you feature the work you’ve done in your portfolio. You might try to negotiate with them, but if they won’t budge, insist on a higher price.
For example, if you offered a $20,000 brand package but you don’t have any portfolio use, maybe instead your fee should be $30,000 because you aren’t getting any value by adding to your portfolio.
Set a Clear Cap on Liability
Your agency is responsible for the scope and size of your own business. If you have a small design team creating logos and visual systems for Apple, no agency in the world can be responsible for the size and scope of Apple’s business.
That’s why you put a cap on liability. If it’s a $50,000 project, then specify that $50,000 is your cap on liability because that’s the worst it can go awry. If you’re concerned about bigger damages or problems than that, you should buy insurance.
Ideally, your contract has a conspicuous (bold, ALL CAPS) clause capping potential damages to no more than the total fee paid to you by the client. It’s fine if this clause also benefits the client.
Always Include Proper Intellectual Property Indemnities
Ah, indemnities. A provision only a lawyer could love. Regardless, this is an important, risk-shifting provision. If you get under the hood and start tinkering and editing indemnity clauses, you really need to know what you’re doing. If your client is asking for indemnity from you, simply creating a mirror indemnity clause from them doesn’t really protect you.
Make sure that any intellectual property indemnity (and related representation) in your agreement has a proper scope. Certain promises regarding intellectual property infringement (especially related to patent and trademark) should be limited to the agency’s knowledge. A properly drafted indemnification clause can help ensure you don’t have excessive exposure to an allegation of infringement.
Relatedly, if you do logos and naming, you should also be sure to disclaim responsibility for trademark clearance searches.
Stand Behind Your Work, but Include a Disclaimer of Warranties
Contracts are basically full of promises. Our agency promises to do this. You promise you are going to do that. Some are often labeled “representations and warranties.” Common warranties include promises about complying with the law, using qualified staff, not infringing third-party intellectual property rights, etc.
Once you’ve made all these promises, you need to include a disclaimer that says the only warranties that apply to a project are the ones written within the document. This is typically done with a conspicuous AS-IS clause. This clause makes clear that the only promises that apply to the work are the ones stated in the agreement. And all implied warranties are disclaimed.
A Legal Fees Clause Guards Against Bad Behavior
Finally, include a clause that says the prevailing party in any dispute can collect its legal fees from the loser.
This clause not only protects you if things turn litigious, but can act as a deterrent against either party making frivolous claims because, well, lawyers are expensive. This way there’s a consequence if either party makes a specious argument and loses. Even though it benefits both parties, the agency is the most likely one to use this clause to get paid.
If you can’t get a clause for legal fees included, then insist on getting most or all of your money up front.
A Firm Handle on Your Contracts Maintains Healthy Client Relationships
Understanding the role of each of these provisions leads to better MSAs and SOWs. It also gives your agency more leverage and clarity on the occasion you need to have a difficult conversation with a client.
These are tools for communication and dispute resolution before disputes happen. Some conversations are hard. Talking about money is hard. Saying no is hard. Talking about unmet expectations is hard. Having a contract that provides some infrastructure for those conversations can make those conversations easier.
If you’d like to have a conversation about how Matchstick can help with the language in your MSAs and SOWs, we’d love to hear from you.