Formality of contracts

Question

I'm currently taking on one or two odd jobs, but without formal contracts. While these two in particular won't likely require contracts, I still would like to present one.

Is there a particular guideline to how formal/informal a contract should be? While my plan is to make it informal enough for the client to not need a lawyer to decipher it, I'd still want it to be enforceable. Also, would it be worth it to have two templates depending on the client: one formal, one less formal?

Currently, I have the following sections:

• Definition of Parties
• Brief Description
• Time Spent (max hours before re-evaluation)
• Cost
• Post-Project Support
• Penalties on Breach by Either Party
• Signatures

Answer 1

Short answer:
A contract must be as formal as possible.
You should be ready to sacrifice everything not covered by a contract.

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While my plan is to make it informal enough for the client to not need a lawyer to decipher it, I'd still want it to be enforceable.

Sorry to discourage, but I really think you are willing two opposite things.

A contract is a tool used when "everything is bad." It's like an airbag in a car. It can't be both reliable and not hitting on face in case of an accident.
When "everything is good", there is no need to even look into the contract. You only need it when there is an evident conflict of interests.
The major problem in any relations is ambiguity, when two parties assume different things. A contract solves those ambiguities. So, the more things a contract covers, the better it serves its purpose.
In worst case, you are taking the contract to a lawyer. With a badly written contract, even a good lawyer may not help, no matter if you are completely right.

would it be worth it to have two templates depending on the client?

Yes, but it's not about "depending on the client". It's about how much you are ready to lose in worst case.

As per myself, when I'm doing something for my old partner, I don't need a contract at all. Even if they claimed my work is bad, I'm willing to sacrifice my entire effort to save the long-term relations.
OTOH, if I'm doing something for someone I'm not yet familiar with, I would try to make it as much formal as possible.

Is there a particular guideline to how formal/informal a contract should be?

This site has a plenty of real Consulting Agreement contracts. Don't panic, they are not that difficult to read.

In general, you are pretty much close with 7 major sections. @ckpepper02's answer has better names for everything. I would only add:

• Termination - terms on which the contract shall be broken by either party;
• Governing Law - defines specific local laws to stay "over" your contract;
• Intellectual Property and NDA (may be a reference to a separate document);

Answer 2

Is there a particular guideline to how formal/informal a contract should be?

I think you've gotten it down correctly. The template I use has 6 different sections:

1. Description of Parties
2. Description of the Services
3. Compensation
4. Liability
5. Arbitration - (what should happen in case either party should file a claim)
6. Signatures

Also, would it be worth it to have two templates depending on the client: one formal, one less formal?

I certainly believe it's good to have at least two versions of a contract template. I've been burned before (as I'm sure many of us have) thinking a job was small enough that did not require a contract and the client didn't hold up their end of the bargain. Also been burned by friends asking for services that I didn't feel comfortable enough running after for the payment.

So my answer is "Yes", create different contracts that tailor to the different levels of comfort with the client. Perhaps you change the tone in one version for the client that's a friend.

In the end, just be sure to protect yourself no matter what the job or the client!

Answer 3

I am missing "Scope description" - you should definitely have there what is in scope and what isnt (big emphasis on the second part) - because thats where most of potential conflicts originate. Otherwise I would consider this as sufficient for informal contract.

PS: You might want to consider adding short part, that will say laws of which state apply in case of events not foreseen and covered by the contract or which concrete law act will be used For example in Czech Republic we can use two different law acts (one is in general more appropriate for deals between business and final consumer and one is more suitable for business2business contracts, but you can choose which one and go against common practice) and that has impact of how potential lawsuits will be handled by the court, so this diclaimer is used quite often.

EDIT: What you described is good as generaly containers for contract contents. The answer above mine made me realize that I have to point out that actual wording should be always tailored to the contract, do not use one universal template and "fill-in-the-blanks" approach - that would bite you in the lowerback one day...

Answer 4

I am going to differ a bit from others. In general, formality needs to be proportional to the size and length of the job. "How much do you charge to fix this computer?" "$60/hr" "Ok" is probably good enough for consumer tech support. It is probably good for "How much do you charge to migrate an accounting database from LedgerSMB 1.2 to LedgerSMB 1.3." But it isn't sufficient for any job of any complexity.

On the other hand, "we would like you to migrate us from Sage 500 to LedgerSMB and make the customizations necessary for us to run our business" really needs a formal contract. A simple hourly rate is not enough.

In general the way I work is:

1. Per incident or per hour tech support is on a verbal contract only usually.

2. Customizations to LedgerSMB go through a scope/bid/acceptance process. This is all in writing, but there is usually no need for lawyers to review. The bid document includes some basic terms such as cancellation fees, but basically just enough to cover the common problems. This is how most of my business is.

3. Larger/longer/more open-ended contracts also have an official contract.

4. NDA available at customer's request. I do have a standard privacy policy that covers the same territory and includes specific terms for medical clinics and the like.

In general the goal is to ensure that if someone needs a small job done (tech support for example) they aren't asked to review and sign a 5 page contract. Well-scoped tasks expected to be completed within a short time also need less in the way of formality than do contracts that will on-going work for months. Similarly, a project that can be expected to take a week can have a standard cancellation fee (say 10% of total plus work done), while an open-ended project may need terms, notice, etc.

I have been self-employed for 8 years. I have had projects go sour a few times, but this process has always proved adequate for me. The real key though is making sure the scope is properly agreed to.

Remember, the primary goal is to have a document or set of documents you both can point to that specifies exactly what has been agreed to. The complexity and formality need to fit the work.