When your firm is hired to deliver services for a client, you should formalize that relationship with a legal agreement. A contract will protect both parties and clarify the rights and responsibilities of each to ensure that proper expectations are set from the beginning. In the unlikely event that there is a significant dispute during the engagement, the agreement will have a major impact on your course of action and whether or not you get paid for services rendered.

There are several reasons your firm should have a good legal agreement. Such an agreement will:

• Describe the services and deliverables that will be provided to the client. Alternatively, the contract may incorporate other documents (such as specifications) that describe the services in detail.
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• State the schedule that the services will be delivered upon.
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• Identify the bill rates or fixed fee that will be charged for the services. If the fees will accrue on specific milestones, those should be stated.
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• Name the roles or, if possible, specific individuals that will provide the services.
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• Make clear which party will own the intellectual property (“IP”) being created during the project. If your firm is leveraging its own IP within the solution, that should be stated and the client should be extended a license to that IP but not given ownership of it.
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• Identify the payment terms and any penalties for late payment.
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• Describe how each side can terminate the contract and if there are any penalties for termination.
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• Restrict the client from attempting to directly hire your employees (or vice versa).
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• Establish the warranty period within which you will fix any defects at no cost to the customer. Without a good contract, the customer might come back a year later and ask you to fix defects for free.
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• Limit your firm’s liability to an amount that will not cause unreasonable damage (i.e. to the fees received under the contract in the past 12 months).
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• Contain confidentiality and nondisclosure covenants such that neither side can disclose the other’s proprietary information and practices.
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• State any additional specific obligations of both parties.
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• Identify the legal jurisdiction under which the agreement will be governed.
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This list above is a brief subset of the topics that should be covered in your standard legal agreement. This is by no means a comprehensive list.

Agreement Structure and Format

While you could have a single legal document for each and every project, this tends to be inefficient. It is far better to have a single master services agreement (or “MSA”) that contains the primary legal covenants and then a statement of work (or “SOW”) for each specific project.

Why split up the MSA and SOW? Because the bulk of the legalese will live in the MSA and you’d prefer to only go through legal review once with your clients’ lawyers. Since the SOW generally doesn’t contain material legal language, it can usually be signed by client sponsors without going through legal review. By splitting up the MSA and SOW, you set your firm up to engage in future projects far more quickly without the latency caused by lawyers.