Hiring a Developer? Get It in Writing and Signed First.
March 16, 2016 | By Kevin Vela
Here’s an unfortunate, but common call we get from clients at VW each week:
Client: “Hi, we’re having a problem with our web developer. They started the project and took our initial payment, but are now way behind schedule and have increased the project estimate 3X.”
VW Attorney: “Okay, why don’t you let me take a look at the contract and tell you what your rights are.”
Client: “Uhh, yeah, we don’t have a contract.”
Being strapped for cash, as most startups are, startups oftentimes enter into agreements with developers/designers/contractors without a good written contract. This is a huge mistake and one that can be easily avoided. Ideally, you’ll reach out to your attorney prior to entering into any contract with any service provider. At a minimum, there are a few things to make sure that you have covered, in writing, before paying anyone anything.
The Bare Necessities:
- A clearly defined scope or statement of work, and a mechanism for communication and feedback. Are you going to make changes via email? Or over the phone? And make sure that the developers commit to response times.
- A payment schedule whereby payments are predicated on deliverables. It’s okay and customary to pay something up front.
- A clear termination clause for failure to perform, delays, missed deadlines, increases in costs, etc.
- A confidentiality clause which sets forth that your ideas, inventions and plans are confidential and not to be shared.
- Intellectual Property ownership language which states that once you pay for the work, even partial work, you own all of it. If it’s a high dollar amount, consider using source code escrow during the development cycle.
- How well does the developer understand your business and your vision? Make sure you are communicating clearly what you want or need. Many people think that design is about output; it’s not. Design is about input. This goes for development work as well.
- Shop the job around. Get multiple bids.
- Ask for referrals. This is easy and critical. Talk to other former/current clients.
- Ask what language/codebase will be used for the work. Make sure it’s a common language so you can find someone else to use it in the future if you need to.
This is by no means an exhaustive list. But the terms above are crucial and you should never enter into a contract without these five at a minimum.
Look, we get it. Not all startups can afford the best big development shops in town who will utilize fair and tested contracts. And there are plenty of amazing developers and small shops out there who deliver great work at reasonable prices. But all too often the smaller shops don’t employ formal contracts, and this can be a huge detriment to both parties.
Preferably, you are getting your attorney involved to help you draft or review developer/design/contractor contracts. In the long run, the investment you make in legal fees could save you tens of thousands in development fees, or worse, litigation fees. And don’t forget the “signed” part too. You’d be surprised.
Posted in Employment, Intellectual Property, Startups
Kevin Vela is the managing partner at Vela Wood. He focuses his practice in the areas of venture financing, mergers & acquisitions, corporate law, capital raises, and real estate investment activities. You can see Kevin’s attorney profile HERE.