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Ever get screwed without a contract in place?

> I've known contractors who were screwed mightily (myself being one of them) by not having a written contract in place.

This seemed like an interesting thread topic, so I'm starting it off.  Bored, care to elaborate on your experience?  This could make for some enlightening discussion.

Bella
Thursday, February 20, 2003

No. More by good luck then good management though.

One thing that did happen to me whilst I had a contract was finishing the work before the end of the contract term (about 2 weeks of a 3 month contract) and then having pressure put on me (via a number of standard techniques) to simply not to show up for work anymore as I was finished.
This amazed me, particularly as they were extremely pleased with the work I had done.
Still, once my usefulness was finished they treated me badly, even though contractually they owed me 2 weeks work. I ended up working two 30 hour weeks, so the pressure worked, but not as much as they would have liked.

14 year contractor
Thursday, February 20, 2003

OK, I'll take you up on the offer.

Example #1: The "hourly" contract that is promoted by the client to fixed price.


Here's what happened. I spoke with a company (prospective client) that an online acquaintance hooked me up with.

In a meeting I stated that I could do X in about 25 hours. I stated my hourly rate. Weasel manager (the acquaintance's kid actually) seemed OK with it.


Went off, developed the thing.


Came back with working code and an invoice for about 40 hours.


Manager/weasel goes "homminahomminahommina"... won't pay for more than 25 hours.


I sez, our agreement was hourly, not fixed price. Lookit, two onsite meetings, slight overrun on technical work, it adds up. Asshole kid manager sez, no, you said 25 hours and that's all we will pay for and we also won't pay until it does this and that.


Accusations fly back and forth. Basically, this guy was going to deny anything he said or implied that was convenient and stick me with the full letter of the "law" his style. I finally ate a couple more hours of work to get it done, delivered it, got check from lying s***breath waste of flesh kid, and went around the block and cashed the check ASAP.

In this instance - a standard hourly T&M contract stating that each and every hour billed shall be paid, would have lead to a dead stop in negotiation as the weasel said "look, we need to limit what we pay to what you said earlier."  In other words it would have flushed out the problem early.

A secondary mistake was believing that my relationship with this moron's father would protect me from needing anything more than a handshake to prevent misunderstandings.
Example #2: The psychopathic clients from hell.

I interviewed a company that had retained an extremely "colorful" and big talking front man/CEO.  We signed only an invention rights agreement, no actual contract. Rate was agreed face to face. Client keeps me at (low) starting rate after several weeks due to my "lack of productivity" yet the psycho CEO is threatening me with fantastical legal consequences if I bail early or don't deliver. Constant accusations, hell on earth. The motherf*cking CEO said "my word is my bond" to any suggestion that we get things in writing, yet later embezzled $100s of K's from this company, which was run by selfish and self righteous new ager whackos. I delivered nominally what was expected, ramped my work down to nothing and left after a few months. The people that I worked with who hung in there later were out one month's salary when the place folded about 6 mo after I left.


In this instance, a contract would have given me protection from unlimited liability for non delivery or early quitting - it was hourly 1099 work with no up front specs in writing or otherwise, after all, and the client retained the right to end the contract early anyway.

These are two horror stories relating to lack of a written contract. I have a few more with respect to one-sided contracts but I'll save them... they're not quite as "interesting.".

Bored Bystander
Thursday, February 20, 2003

[not legal advice]
For what it's worth, in example #1 I would say you were in the wrong - you stated
"I can develop x in 25 hours at $y per hour"
That sounds like a firm fixed price contract to me, especially if you consider that the reasonable person would interpret it as such.

Compare with:
"My rate is $y per hour. I expect to be paid for every hour I work. I anticipate that this project will take 25 hours, but it may take longer."

Also consider that in common law, if two parties to a contract understand different terms (you - hourly; client - FFP), then the burden is on the party that will more reasonably understand the situation. In this case, you are the professional software developer - it's your job to manage client expectations, both in software and in pricing. Client is just joe average.

Philo

Philip Janus
Thursday, February 20, 2003

Was principal developer for a multi-million dollar product for another company that installed new, aggressive management.

The new management suddenly discovered they were broke and stopped paying me, the external consultant. All I got were excuses and promises.

One day, after advice from a more experienced consultant, I told them I was stopping work until they paid me. They paid the next day. I also discovered that while they had claimed to be broke, they had been paying themselves and all the executives expense accounts and so on.

I won.

Mr Developer
Friday, February 21, 2003

I have some sympathy for situation #1, although I agree that if I had been the client, and heard "25 h at x" I would not have been happy to have been presented with a bill for 40 h (especially if it were not made obvious to me early along the way that it was taking longer than anticipated, and nor how long it was going to take over all).

But #2 confuses me.  I don't understand why you didn't quit providing your services, if you were not getting paid. 

You said:
"We signed only an invention rights agreement, no actual contract."  Yes, that means that your rights weren't exactly covered - but it doesn't sound like the company's were either.  I would have briefly consulted a lawyer to double check, and then quit.

Confused
Friday, February 21, 2003

In #1, I agree with the replies.  Miscommunication on both parts, but I don't really blame the client.  If you said 25 hours, you should stick w/ it, unless written otherwise, or explicit agreeed upon that it is just an estimate.  Considering it was a new client, I would not have haggled over 15 billable hours,  You should have eaten those hours, and left on good terms.  Instead, you made a fuss, and lose a client and a reference, and over something that was at least partialy your fault.  As far as not getting paid until it did "this and that", well, you didn't meet the requirements spec.  If there wasn't one, that again, is at least partially your fault.  As a consultant, its your job to deliver to them what they need.  And when you quote a fixed price, you need to nail down exactly what you will and will not be providing.  But that's more design docs, rather than a contract.

In #2, he never said he wasn't getting paid.,  He was just threatened w/ a lawsuit if he quit early.  Ouch, that's scary stuff, b/c no matter how frivolous, it always costs big bucks to retain a lawyer, and get sets a very us "vs. you" atmosphere.

Bella
Friday, February 21, 2003

[not legal advice]
By the way, as a point of information - be aware that if you do work without a contract and you don't get paid, you have every right to sue and win.

The law recognizes a right to be paid for work you have done. Where a contract may protect you is if the client has issues with the terms of your payment. For example, they argue your hourly rate after the fact, or they argue firm fixed price vs. hourly, or they say some emergent requirements weren't met, or they argue who owns the rights to the product, etc, etc.

But as far as "we're not going to pay you" - that's a flat out loss in court, so long as you can prove you did the work and the amount you're owed.

Mind you, working without a contract is still flying without a seatbelt - I just wanted to point out that if you find yourself in that position don't just give up.

Philo

Philip Janus
Friday, February 21, 2003

Ok, everyone, just to make things a bit clearer...

On scenario #1 - the client was a software development company and they understood and verbally acknowledged going in that the verbal agreement was hourly. Being a software company I ASSumed that they understood that hourly work is somewhat open ended.

However, YES, I also see things from their point of view, that they got a bill for substantially more than the verbal check I wrote and signed with my mouth.

Point is, a written contract would have flushed out the misunderstanding from both ends and forced us to deal with it.

BTW, the company in question had a reputation for being a hellhole, and I found a posting from the weasel manager on a mailing list for lawyers a couple of years later that indicated that he was trying to get out of a non compete agreement with the same company! Heh, heh, heh. Man of his word, yeah, right.

On #2 - the issue was that I was being held to unlimited liability and I was getting paid, just not what I was "promised" (verbally) at the outside.

Bored Bystander
Friday, February 21, 2003

Bored, it's not clear from your posts whether you had ongoing communication with your customer about your progress, so forgive me if I'm stating something obvious. Anyway, had I been in your shoes, when I got to 50-75% of the hours I'd initially quoted, I'd have gone to the client and said "Hey, this is how far I've gotten, this is how much work I estimate to be left (and why my estimate was low), and it doesn't look like we're going to make it in the 25 hours I originally estimated. We can either go over with hourly billing for the excess, or we can cut requirements so I finish within 25 hours; which do you prefer?" (Actually I practice a slight variation on this myself, which is simply to give my customer regular status reports -- I'm done with N% of the task and have consumed X of the Y allocated hours, so we are on/ahead of/behind schedule. That way, no surprises.)

I sympathize with your experience with the ahole CEO. But since you mentioned non-compete agreements, I thought there's one thing people on this forum might like to know. Non-competes are legally unenforceable in some states, notably California. In CA, non-competes are invalid on their face except in some very specialized circumstances (such as if you sell a company you own to someone and agree not to create a company that competes directly with the one you just sold). This is well-established both in statute and by precedent in the courts. And it's a factoid that might come in handy someday. [the usual "I am not a lawyer, nor do I play one on TV" applies here, of course.]

John C.
Friday, February 21, 2003

I've gotten in significant contract conflicts 3 times in my consulting career.  In one (possible two) I was in the right (by the letter of the contract).  The other was caused by an ambiguous point.  Regardless, the fault was mine in each case for not setting expectations properly or making other mistakes in managing the relationship.  The result in all 3 cases was a compromise.

Case 1... a project for a web tool.  We did everything right (I thought).  We met with the client, wrote a spec which was approved, then signed a contract for $35K for Phase I.  The prototype (by design) only included basic functionality and wasn't usable by the end customer.
We implemented it to the letter and delivered it.  However, the client (a small startup with limited funds) had done a little research in the meantime, thought they were getting a bum deal, announced they wouldn't pay. 

My mistake?  Not understanding the context when we wrote the contract

-- there were some overhead development costs for getting started on a new technology which we included making the price on the high side

-- the husband and wife founders were spending their own $$ (no external capital) and were highly cost conscious

-- the end tool needed to get to the marketplace quickly to earn the startup some revenue

-- the founders came across someone else using the technology, who (rightly or wrongly) told them we were overcharging them

So, regardless of our fixed price contract, we ended up with unhappy customers who refused to abide by it.  Suing them was impractical (and dangerous to future business even with other clients).  In fact, the client was already so POed they didn't want to work with us again.  The solution... we hired a third party developer local to the client to do a specified amount of further work, at which point the customer sent a check for the original amount. 

The moral-- expectations matter, and righteousness over legal details is irrelevant.

If I did this again, I'd charge less for such a price-sensitive client (amortize the learning cost over other clients), understand the customer needs better, and deliver just a little more than they asked for.  Better yet I would have created a prototype usable by an end customer generating the client some revenue.  (if possible).

Customers who think you provide high value for the $$ pay their bills, promptly, recommend you to others, and give you repeat business.  Conflict is expensive.  Even though this client paid their bill in the end we could never use them as a reference.

The Voice of Rationality
Friday, February 21, 2003

I once got screwed without a contact in place. It made my eye sting like hell.

Oh, you said CONTRACT.

Easily Confused
Friday, February 21, 2003

Voice of Rationality: I hope you don't mind if I micro-analyze your situation, because everyone certainly did so with mine :-) :

Mainly, I don't agree with some of your conclusions:

>> Case 1... a project for a web tool.  We did everything right (I thought).  We met with the client, wrote a spec which was approved, then signed a contract for $35K for Phase I.  The prototype (by design) only included basic functionality and wasn't usable by the end customer.
We implemented it to the letter and delivered it.  However, the client (a small startup with limited funds) had done a little research in the meantime, thought they were getting a bum deal, announced they wouldn't pay.

>> My mistake?  Not understanding the context when we wrote the contract

NO. A deal is a deal. The client breached the contract, pure and simple. Let's turn this around. What if you had hired a subcontractor to help deliver this work, based on the contract, and you had spent real money out of your pocket to deliver? You may be rationalizing (perhaps, I don't know)  that since you hadn't spent 'real money', only time, that you could excuse it due to their circumstances.  (Wait, below you say that there were upfront expenses, so it did cost you something besides time.)

It doesn't *MATTER* if the client changed their mind. A written contract covers you EXACTLY for the purpose of protection from a client that changes their mind (among other things).

>> -- there were some overhead development costs for getting started on a new technology which we included making the price on the high side


You were entirely correct in doing this. A very common business mistake made by people in our field is to believe that they will do "just this one" instance of a new technology and will absorb the hit. The client may buy more or they may not buy more. I have seen custom software developers literally ruined financially because they were thinking "I will take a beating on this first job and then the money will roll in."


When it comes to billable services, I am in favor of making money up front ALWAYS - NEVER counting on a future stream of work, NEVER. Why - each prospect (it seems) will have a "story" that their one off project is a "great opportunity" as long as you take a beating on the first job. To which I answer "yeah right" or "yo mama" (depending on how professional I feel. :-) )


>> -- the husband and wife founders were spending their own $$ (no external capital) and were highly cost conscious


Wah, wah, wah. I will serenade them with the smallest violin made. I'd see 'em in court. Doesn't matter as far as the issue of them reneging on a contract that they signed in apparent good faith.


>>-- the end tool needed to get to the marketplace quickly to earn the startup some revenue
>> -- the founders came across someone else using the technology, who (rightly or wrongly) told them we were overcharging them

NO!!!!! Dammit! The time for the client's due diligence is BEFORE the contract is  signed and real work begins.  A deal's a deal. You were already absorbing startup costs, real costs. Doesn't matter. A deal is a deal.

These people sound like sleazy, self righteous a-holes who cost other people money by their broken promises. I apologize if you have another social relationship with these people. I would not have them as friends or business associates.

>> So, regardless of our fixed price contract, we ended up with unhappy customers who refused to abide by it.  Suing them was impractical (and dangerous to future business even with other clients).  In fact, the client was already so POed they didn't want to work with us again.  The solution... we hired a third party developer local to the client to do a specified amount of further work, at which point the customer sent a check for the original amount.

Well, good for you - I am always in favor of compromises, as long as you're not working for free for months.

>> The moral-- expectations matter, and righteousness over legal details is irrelevant.
I partially agree: expectations matter, but a deal is *still* a deal.
I think I know where you were coming from in this "tech melodrama" and I generally agree with your actual approach, just not your conclusions and caveats.

Here is a question and a suggestion: did you ask for any advance payment on the work?  Generally, in a fixed price scenario, most SW developers with business sense ask for a portion (say, 25%) up front to fund initial development. Further payments are staged against delivery of certain levels of the project.

This does several important things. Most important, it smokes out clients that are inclined to do just what happened to you. Secondly, it forces the client to commit to the project early and to perform *all* such due diligence before signing anything. Third, it forces the client to decide whether they trust you to deliver.
Lastly - while I have drum-beat on the 'deal is a deal' premise, I do agree that every contract developer needs to ascertain the level of expectation and the ability of the client to pay. My thought is that cold, hard moola, greenbacks, dinero... CASH ... is an excellent, BS free discriminant to ascertain whether the client is for real.

Better luck next time.

Bored Bystander
Saturday, February 22, 2003

Oh, one more thing about setting expectations: some prospects don't believe (or can't  understand)  that custom software development is incredibly more expensive than buying software off the shelf. They expect you to whip up a device driver for a couple of hundred bucks, for instance, because that's what a fairly expensive device driver would cost them if they bought one from a product company.


I think this does tie into your point about setting expectations: you need to early on inform the client that what they are getting may appear similar to COTS stuff but, because it's custom developed, is at least two orders of magnitude more expensive per line of code than a comparable (not identical) standardized product, because all development expenses must be recovered from them alone rather than hundreds or thousands of users.


Having a third party telling your client "there is a COTS product that would cost you 1/5 what the custom stuff does" is *absolutely* irrelevant in the matter of gauging the fairness of a contract price, because they are comparing two pricing universes.

Some clients don't (or choose not to) understand this fact. You - I - we - all need to rub the client's nose in this fact up front so they understand why it costs so much.

Bored Bystander
Saturday, February 22, 2003

"When it comes to billable services, I am in favor of making money up front ALWAYS - NEVER counting on a future stream of work, NEVER"

So I'm guessing you don't invest in the stock market? ;)

It's a risk/benefit analysis. I'm currently fixing bugs for a client for free in anticipation of additional work - sure I could charge him the $5k, but I'm more interested in the six-seven figures of profit sharing that may lay down the road.

This is the type of analysis that stores do when they have a "no questions asked" return policy - make the customer happy in anticipation of future business.

I'm not saying you're completely wrong, just that I don't agree in the absolute statement.

Philo

Philip Janus
Saturday, February 22, 2003

Phillip -

Right, I'm not saying that a prospect or a client asking a question should be asked immediately for a credit card number to bill in order to continue with them. :-)


I'll do small amounts of work without the meter running as a goodwill gesture if it makes sense. I've also done some quick hacks that lead to billable work later.


"Making sense" in this context means that it *must* be appreciated as a favor by the recipient. 


What I am harping on in this thread is the notion of not holding to standards of profitability for significant amounts of work that result in one not doing something else, that is, opportunity lost as well as actual money.

That is - as software people we're continually not respected as professionals and are shopped out by clients, so we need to resist "at all costs" giving away our livelihood.  I get the impression from a story like the one I replied on above that the client believed that this small business really isn't a business and didn't "deserve" to be paid, on a whim. I think that's a very common attitude and it leads to a sense of "apologism" (almost)  by some of us that we charge anything at all. It's a line of reasoning I jump on and attack with a vengeance.


Professionals BILL. Hacks and hobbyists do it for free because they're "playing." Even if not true in every instance, caving in to client pressure on this point generally leads to more disrespect later and creates a perception of not being serious as a business.

I agree with your point on non absolutism wholeheartedly.

Bored Bystander
Saturday, February 22, 2003

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