Don’t Sign That Subcontract Agreement

November 23, 2009 by yelena
Filed under Articles, My BIG Mistakes, blog

If you think client-vendor relationships can get out of hand, then here’s some news for you – subcontractors are in for a special “treat” altogether.

In particular, I’m talking about instances when a client contracts a vendor who, in turn, sub-contracts part or all of the project to a bunch of freelancers. In all likelyhood freelancers in all niches have their horror stories. Well, I’ll be focusing on what I know best – virtual assistance industry and, more specifically, on working with multi-VA agencies.

But first, a DISCLOSURE – I’m not a lawyer and in no way qualified to provide legal advice. What follows is my honest opinion based on my own experience both as a vendor manager and a sub-contractor.

So, it all starts with a sub-contract agreement. Ok, so it really starts a bit earlier than that, with applying to the agency or answering their inquiry. But the next step is surely signing a multi-page agreement full of legal jargon. The single most-important thing to remember about this agreement is that it is an AGREEMENT – something that satisfies both parties and that is open to negotiation.

This means, if you don’t like some of the terms for one reason or another, you can request making changes to the contract. Most freelancers simply sign on the dotted line, even if some of the terms make them cringe.

Some do it because they hope for the best. To these I say, from my recent experience, hope for the best, but prepare for the worst.

Others do it because they think if they don’t agree to all terms and conditions, the agency will simply dump them for a more pliant freelancer. Here’s my two-cents on this (and these come from my experience as a vendor manager) – if you are an average unremarkable easy-to-replace cog, then yes, the agency will go with someone else. If, on the other hand, you bring unique value, they will be more willing to discuss changes to the agreement with you.

So, what kind of changes am I talking about. A typical services agreement has a few standard sections and clauses that warrant close attention:

Scope of Services (aka Services to Be Performed) - If the scope of your services will vary over time and from project to project, then make sure to include that such services will be described on separately executed Statements of Work or Work Orders.

Term – Check if there’s a automatic renewal clause or “effective until terminated by either party” clause. If there isn’t, take note of the date the contract will terminate. Some multi-VA agencies, especially the ones that don’t have good vendor management in place will forget to renew contracts or to let you know to stop work (yes, weird, but it does happen).

Termination – IMHO, some contracts are particularly unsavory in this department. How about this example:

The Agreement may be terminated by either party upon fifteen (15) days written notice to the other party. If Independent Virtual Assistant terminates agreement for any reason other than an emergency, the Agency reserves the right to withhold payment of any monies not paid for work performed.

The Agency reserves the right to terminate the Agreement without notice or less than 15 days notice for failing to meet standards of performance and /or non-compliance with any term included in the Agreement. The Agency reserves the right to withhold payment of any monies not paid for work performed.

Notice, that in this case, if a contractor terminates the agreement for any reason (other than emergency) with or without proper notice, the agency has all the rights to not pay the contractor for completed (and delivered) work.

And here’s a caution about standards of performance (non-compliance with which would also prevent a contractor from getting paid) – make sure that these said standards are specified very clearly in the agreement. Otherwise pretty much anything can pass for “failure to comply with standards of performance”, especially if turns out you’re dealing with a unscrupulous agency.

Rates – clearly specify your rates and whether these are time- or project- based. If time-based, specify your time-increments – 1 minute, 10 minutes, 30 minutes, etc. For project-based rates, I’d suggest simply stating that rates and fees will be specified in the applicable Statements of Work.

Payment Terms – I was once foolish enough to accept, without negotiating, a no-retainer no-downpayment monthly invoicing terms with a very small one-person agency structured as a sole proprietorship. After a few months (call me slow on the uptake), I realized how risky such an arrangement was for me and asked to change the terms to bi-monthly payments. The response was a resounding NO (which swiftly put an end to that relationship, but that’s another story).

Records and Reports – basically, if you do hourly work, then the contract needs to state how your hours are to be tracked and reported, including on invoices.

Work Product Ownership – typically, an agreement specifies that a sub-contractor transfers all ownership to the product produced under the agreement to the agency. This is another area that can be negotiated along with whom to credit for the completed work.

Non-compete Clause – make sure that a non-compete clause is both fair and not overly restrictive. Also, it’s worth noting that, at least in the US, many states have their own laws regarding non-compete agreement. Different states might have different limitations on the terms of non-competes as well as geographical areas they apply to.

Ok, this seems to be it. So don’t be in a hurry or feel pressured to accept the terms of the subcontract agreement “as is”. You have the right to negotiate the terms to be more advantageous to you.

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