Business

Back To Business: Contract Documents For Engineering Services

First off, thanks to all of you for your continued readership. We sincerely appreciate it during these most unusual times for the commercial AV industry. Healthy wishes to you all.

With layoffs having been rampant over the last few months, I imagine that many might be leery of the possibility of signing with any particular company, fearing job security. Many might have opted to join the independent contractor ranks in our industry. (Another reason for this, even if you are employed, might be that you’re now expected to return to work, even though you want to continue to work from home. Even now, for many employees, working from home is not a long-term option.)

If you’re looking to partner with a person, a company or an entity that will hire you and pay you as a subcontractor, meaning you get a 1099 form at the end of the year, there are many different aspects to consider. I will touch on some in this article, but this might turn into yet another multi-part series!

It all starts with the beginning negotiations with your prospective client. Make sure you have a pen and paper, or a blank document open, so you can take notes. You’ll ultimately have to convert those notes into a letter of engagement. It need not be too long—just a page or so—but it’s crucial. At this stage, you set expectations (both for yourself and for the client) on all aspects of the work you’re going to perform. I’ve had issues arise from missing details; that goes to show it’s better to talk about everything before you start—and get everything to which you’ve agreed in writing beforehand.

You might find that the client is calling you at the last minute because of an emergency of some sort: Team members couldn’t get important work done, even though they said they could; a deadline is approaching and something has to be done quickly; etc. The prospective client might push you to start without a written agreement or without a deposit. Take my advice: If the prospective client tells you that there’s no time to discuss everything and put it in writing, decline the opportunity. It should be your policy not to start without a written agreement, period.

Let’s discuss some pertinent points to include in your letter of engagement. Here are the most crucial: (a) the work you are to perform, (b) the documents/information the client is to deliver to you, (c) the documents/information you are to deliver to the client, (d) the deadline, (e) your hourly rate, (f) the time frame within which you’ll be paid and (g) possible discounts for prompt payment.

Payment timing is something that must be discussed. Believe it or not, I’ve subcontracted for some consultants—more than $10,000 worth of work, mind you—and been told that I’d be paid when they were paid. Ouch! Take my advice and never agree to that.

Quite often, architects take months to pay their consultants; naturally, consultants might therefore want to avoid laying out money. But you shouldn’t allow yourself to be caught up in that. Too many things could go wrong. For example, consultants are fired from jobs all the time, as most agreements state each party can terminate the other. Don’t be caught in the middle of disputes that you cannot control. If you do the work you contracted to perform, you should be paid in a timely fashion, regardless of whether the organization for which you’re subcontracting is paid timely (or at all)!

Continuing with compensation, let’s discuss hourly pay versus flat-rate pay. This is a complicated issue. Often, even when working with you for the first time, clients will want you to agree to a flat rate based on their experiences and the project budget. I have had this backfire on me severely in the past! It’s best to have an hourly rate with a cap or limit on what you will charge. (There can be verbiage that, if you get within five or 10 hours of the cap, a conference can take place and you’ll make a mutual decision at that juncture.)

If that conference does take place, be prepared with reasons why you expect to go over budget. Have detailed daily timesheets that outline the work you’ve done, along with any discrepancies you’ve found. Finally, be prepared to consider lowering your rate, if necessary, to compromise with the client. That way, you can retain your client!

Here’s an interesting issue: What if you agree to, say, $85 an hour with a planned 20 hours of work, totaling $1,700 as a flat rate, but it only takes you 12 hours? Do you tell the client it only took 12 hours and charge for the actual hours worked? Or, alternately, do you just say you’re done and bill for the full $1,700?

I can tell you that I, for one, would feel uncomfortable charging for hours I didn’t work, so I don’t do it. However, I discuss this aspect in advance with the client so we can reach an agreement whereby the honesty runs both ways. If the contractor agrees to charge less if fewer hours are actually worked, the client must agree to pay for additional hours, if necessary, to complete the job. Trust is something that’s earned, and I’ve found that, after working on a few jobs and consistently coming in under budget, my clients have been understanding in the rare instances we go over budget. Dare I say, we’ve built trust!

That’s it for now. I’ll have more next month on this subject. For a sample agreement and a timesheet, be sure to look under “Engineering” in “Doug’s Docs” at Sound & Communications’ site: www.soundandcommunications.com! Let me know if you have any questions, comments or stories you would like to share. If you do, send them to me at dkleeger@testa.com. I am always grateful for your feedback!

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