Funky Contracting

Saturday, May 3, 2008 Saturday, May 03, 2008

A while ago I wrote an article describing a rather embarrassing contracting situation in which I had failed miserably to make proper contracting arrangements before starting on some custom work. I was sleepy and wasn't paying attention! Sorry! I learned my lesson, and told everyone about my mistake so they could learn too.

Today I've been reading about a similar situation involving one of Peter Stindberg's clients. Evidently Peter followed the prescribed contracting procedure:

  • Negotiate with the customer before work commences
  • Agree on the specific work to be undertaken
  • Agree on the exact amounts and timing of payments for that work
  • Complete the work
  • Execute the payments

Peter even went further by breaking the work down in phases, so that the client had an opportunity to review, change or even stop the work process in an agreed upon manner.

One interesting aspect of Peter's approach is the breakdown of payments:

  • An initial payment to begin the engagement before anything is delivered. This ensures that Peter will start work and also ensures that the client is in fact serious about the job.
  • Separate payments upon delivery of each completed work phase.

Alas, in spite of Peter's excellent contracting practices, the client did not pay as agreed. And that's the problem. No matter how you do it, there is always the possibility of non-payment (or non-delivery from the vendor). Both sides take a risk. Peter's technique of breaking down the work into phases accomplishes something very useful: reducing the risk faced by both parties. Since non-payment will happen only once in the sequence, the maximum amount that can be lost is minimized to a single phase.

But even after reducing the loss, what course of action is left for the victim? Simple: tell everyone about it on the blogosphere! There's nothing better for reputation management.

Moral of the story: be wary when dealing with clients.


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