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I have seen multiple types of contracts:

  • Independent Contractor Agreement
  • Master Services Agreement
  • Statement Of Work
  • Verbal Agreement

Are any/all of these types of contracts applicable for freelance work, and are there clear lines for choosing which specific contract type (or combination) should be used?

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  • 1
    agreement which is helpful in point of legal view should be use .. in case verbal agreement makes no use here ... – NullPoiиteя May 22 '13 at 3:47
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    I may be misinformed, but verbal agreements are considered legal and binding (at least in US). – Brad Ullery May 22 '13 at 4:00
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I used to be an IT contractor for many companies, so I will speak from the service area:

I always start each with a verbal agreement, just so we can get an idea of what needs to be done. In this time, I write down what I interpret their requirements/requests to be, any questions I want to ask about certain aspects of the project, and how much time I believe I would need. Once this is done, and all questions have been answered (again, writing down all the information, or recording with a voice recorder), I can put it into a written form.

In my statements of work, I always leave some leeway on time for "unforeseen interuptions", including emergencies (personal, family, work, etc). I don't add it as a separate item, but I include it in the labour charge, as that is usually what it would come out as. If I believe I need parts, I can add an approximate cost based on past projects, or leave it blank stating that I would get prices later and get the client to confirm. Remember, your Statement of Work should have EVERYTHING that you, the contractor, and the customer want to have completed, with a list of possible costs. It's easier to ask for more money just in case up front, then to go half-way through a project and then explain why you need more.

Depending on where you live, you may need to also charge extra taxes or fees for programs such as Worker's Compensation while on site, and you should also have liability insurance against any mishaps that happen, whether your fault or not. I include this all in the statement of work, and make sure that the client and myself sign it. We both then take a copy, and we can start on the work.

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  • if possible can you share a template so to speak. It will help. – Sidharth Shah May 22 '13 at 14:04
  • I work a day job now, but once I get back home and find one, I certainly can – Canadian Luke May 22 '13 at 14:55
  • Thanks for your insight Luke. All of the answers are very similar, and since you were the first to answer, and have the highest score, I will select this one. – Brad Ullery May 23 '13 at 16:56
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It depends on what you are doing. The key thing is to make sure you understand the contract and that it fits the work. In general verbal agreements are fine for very small amounts of work IMO. You want something written (even if it is only a quotation with detailed scope) for anything larger. Something like "Can you fix this computer?" "Sure. And I charge $60/hr." is fine. "Can you customize my accounting software?" probably needs something more.

Typically, unless a customer wants something more, I am happy to resort to a simple bid/acceptance process which specifies scope of work and basic terms of work. If a customer wants more, I will go with a contractor agreement, NDA, etc. However usually this is sufficient. If it is going to be a longer-term contract, then maybe I may request that we actually have a contractor agreement.

IANAL, TINLA and all other disclaimers imaginable apply....

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Verbal agreements are most certainly legal and binding in most modern countries, there is however the practical problem of the legal principle that "he who claims proves".

When you get into a conflict, and the customer claims there was no contract, it's up to you to prove there was. Which is kind of hard with just a verbal agreement without impartial witnesses. Verbal contracts should only be used for 'small stuff', or for relatively small extra work on top of an existing assignment with an agreed upon contract in writing - in that case the judge will be on your side because the bounds of the cooperation are already defined and a legally binding agreement on rates etc. in place.

As for the others, it doesn't really matter that much from a legal perspective, it depends more on what level of professionalism you want and require, and the stakes, and simply common sense. For a $50k job, don't just make a single page statement of work, and for a $500 job, don't go writing contracts longer than the actual job will take.

Another legal consideration that at least holds valid in European countries is that your responsibility will rise with the total cost of the project - if you cause $50k damage on a $500 job, the base assumption will be that the client should've done more due diligence, and perhaps forked out a bit more if he could've known such amount of damage could occur. If you cause $50k damage on a $50k job, it is far more frequently considered your problem - for that kind of money you should've taken more care in risk analysis and taken proper precautions. Your contract should reflect the risks and how to handle them, and be more detailed about the deliverables and timeframes, if there's serious money going your way.

As a general rule of thumb - the amount of pages your contract should contain is the linear sum of the money involved, the risks to be covered, and the personal history with the client (the longer you deal, the less you have to define what wasn't previously already decided on).

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Use verbal discussions to build the relationship with your client and gain mutual understanding. However, don't use verbal discussions as the source for a binding contract. Instead, through verbal and written discussion, work out a mutually satisfactory, written Master Services Agreement (MSA).

Now for each project, or for each set of new scope, create a Statement Of Work. The Statement of Work is contract that refers back to the MSA and focuses on defining the scope of work and any project specifics not covered in the MSA.

The SOW should feel like a formalization of what will meet the client's need based on your problem-solving discussions with them. It shouldn't feel very legally-oriented (even though it is a legal document), since the MSA focused on the business legalities.

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Ultimately, it all depends on the project at hand. I, myself, would first ask as much questions (verbally) at first and try to understand what is requested of me. In the process, I write down every little details and also take notes of potential issues that might arise during the working process (health issues, potential changes to specifications, how will they be arranged/paid, etc).

Afterwards, I will (still verbally) review what we agreed upon, including any additions I have made or I am requesting. Afterwards, we will generally sign a contract (two copies for each of the sides) that describes all the details surrounding the project and the work may begin.

Of course, for simple projects, where the hassle or expenses of preparing a legal document are significantly larger than the potential gain from the completion of the project - we may simply agree verbally, which doesn't remove the necessity of clearing all possible details and specifications, as with any other (larger) project.

Also, in order to insure myself, I usually propose the following terms: a percentage of the payment is to be done in advance (before I start doing any work, let's say 50% of the sum) and the remainder (50%) is paid either in full or in milestone completion during the working process. This way, the client and I are sharing equal risk when it comes to non-completion of obligations from the other side in the agreement.

A side note: for larger projects, always use an "escrow" service to make sure that the client indeed has the money and so that you can be sure that you will be paid in time.

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