Navigating Client Relationships: The Importance of Contracts in Creative Services

You guys hear me okay? Who here— who— Thanks for coming. Who in this room is now, or has at some time, been in creative services?

Raise your hand — higher. I’m old; I can't see. Great. Who here has, at some time, had trouble

getting paid by a client for work they were doing? Alright. Raise your hand if any of these are familiar to you:

“We ended up not using the work.” Alright. “It’s <i>really</i> not what we wanted after all.”

Alright. Who's familiar with <i>Goodfellas?</i> Alright. “We got somebody internal to do it instead.” Fuck you. Pay me.

“We cancelled the project.” Fuck you. Pay me. “We actually didn't get the money that we—”

“—the funding that we thought we were gonna get.” – Fuck you. Pay me. – There we go. “We, uh, think we’ve already paid you enough.”

Fuck you. Pay me. “It’s <i>really</i> not what we were hoping for.” Fuck you. Pay me.

Thank you, that’s the title of our talk today: “Fuck you. Pay me.” So, my name is Mike Monteiro. Some of you may know me from Twitter as @mike_ftw,

so the profanity shouldn’t be a surprise. When I— when Erika Hall (who’s sitting supportively over there) and I... started Mule ten— ten years ago now,

we wanted to run our own design shop, because we... wanted to pick and choose the clients that we were gonna work with, and we wanted to be responsible, ultimately,

for what we were putting out in the world. And we had worked together at a couple places, and we were naive enough to think that we could run a business

better than the people who we were working for. We didn't— We were so excited about working together that it didn't occur to either of us—

or, maybe we each thought that the other one had it— but neither of us really had enough business experience to be running a company. Because of that, we ended up leaving a lot of money on the table.

We ended up not negotiating contracts properly, we ended up not <i>renegotiating</i> contracts when we should have renegotiated them, but since we’re still here, and we’re doing pretty well,

I think we’ve learned— we’ve actually learned a little bit about how to run a design business. And if you're running a design business, this stuff is part of the job,

as well as the creative work. Because this is a business. And you gotta keep the lights on, you gotta pay people, you gotta meet payroll,

and most importantly, you gotta get clients. We love our clients at Mule. They are people who have, for the most part,

worked their butts off to get a budget enough to hire a design team to do the work, and of all the choices they coulda gone with, they went with us. So, we wanna do really great work for ’em.

And most— well, well, I— All clients, I think, start the business relationship with the best of intentions. And things go wrong. Things that you weren’t expecting.

The market changes, or the person who hired you leaves, or, y’know, somebody has a bad mood day,

but things change. And when those things change, you need to make sure that the relationship between you and the client is set in place in something like a contract.

We recently came across this on Quora, which is apparently a site for posting questions to show how smart you are. So: “What is good advice for how to deal with a client

who refuses to pay for design work because of obviously false, irrational reasons?” Let’s leave off the “obviously false, irrational reasons” ’cause we’re not doing therapy today.

But the answer that we found under this question was “you could try a heart-wrenching letter.” I’ma go get some water.

You <i>could</i> try a heart-wrenching letter. And you could lose all credibility that you have with that client. Because the minute that you write a heart-wrenching letter,

the minute you appeal to their emotions, you have given up any bit of leverage that you had in that relationship; you have shown them your belly.

You have shown them that you don’t think you have a leg to stand on, other than playing upon guilt. You have become a bottom in that relationship.

It’s good, right? And more than anything, I would like designers to stop being bottoms, and realize the amount of power that they actually have in a relationship.

I guarantee you that this person did not have a contract in place, because this is the sort of thing that a contract irons out immediately: what happens in a situation like this.

And if this person had a lawyer... well, actually, if my lawyer were here... actually, my lawyer <i>is</i> here.

Hi everyone. I'd like to sit on what's been called “the Lawyer Perch.” Gabe Levine, everybody.

This guy’s been keeping me out of jail for about six years. I don’t know why I deserve applause, but when Mike asked me to come participate in this,

I said yes right away. My relationship with him has been great. He’s a fabulous client.

A little bit about me, real quick: I started my law practice at a big firm, as so many young lawyers do. After two years, I realized it sucked,

I went and joined a small firm where I get to serve small companies like Mule Design, and I enjoy working with them,

and what I enjoy most is <i>preventing problems.</i> Because when you have small companies as clients, you need to make sure that you—at the outset—take care of issues

that are going to arise. And in the context of your jobs, as web designers, you do that in your <i>client services contracts.</i>

You make sure that if something goes wrong and you’re not gonna get paid, that there’s a mechanism in there for dealing with that. And to be blunt,

with both Mule and other companies that have come to me in their early stages, their contracts can be— if they have them—a mess.

So today, we’re gonna talk a little bit about how you want to deal with that, have confidence in your business, have confidence in yourself,

structure your contracts to make sure that you're protected. We’re your favorite client, right? Absolutely my favorite client, hands down.

If there are other clients in here... Sorry. So the basic gist of a contract is: clear definitions, clear expectations.

Yeah, you wanna make sure that everybody understands what they’ve agreed to. All too often, when you’re negotiating,

people don’t understand what they’ve agreed to, and that’s something that I enjoy about working with Mike and Erika and all of their employees.

Because I can explain something, they listen, they don’t beat about the bush,

and the other side and Mule understand what they’re agreeing to when they go into a contract. You don’t wanna just ignore something and make it muddled—not clear.

Clear expectations, clear definitions. So we’ve put together a “greatest hits” of bad predicaments... that Gabe and I have... Gabe has helped us with.

We were working for a large organization... we were working with a new division for a new thing they were doing. And the project was going really great,

they were all super smart, everything was going fantastic. There was absolutely no sign that anything was gonna go badly.

One day, we walked in for a presentation; we waited in the lobby for thirty minutes. And then finally, they walked us up to an empty VP’s office,

who came back in and said, “I’ve had the worst day.” “I just had to lay off so many people.” Prick.

That entire division that we were working with was laid off that day. And we were told the project was over. At this point, there’s nothing left in the room.

They’re gone, we’re gone... There was a contract that stipulated they had to pay us. Had a contract not been in place,

we would have spent a ton of time and energy and money trying to get paid for that job, and probably ended up getting— and we would probably end up getting paid

a signification portion less. It's a difficult conversation to have when somebody comes to me and says, y’know, “I’ve got a job that I’m working on,”

“I’ve done <i>x</i> hours, and they refuse to pay me,” and my first question is, “Do you have a contract?” “No” is a really bad answer.

The situation you find yourself in there is that... The truth of the matter is, I can write a mean letter. Or, I can try the persuasive phone call.

But if you have to file a lawsuit, you’re gonna want a written contract. If you want to avoid a lawsuit and have persuasion early in your talks, you’re gonna want a written contract.

You’re gonna want a written contract that has attorney’s fees, so you don’t have to worry about paying me $20,000 if it’s gonna cost that much to collect $50,000.

They know that they have to pay that if they lose. So, yeah, you would have collected significantly less without a contract. And the other thing to note in this particular project

was one of the people who was actually laid off that day ended up sticking around for a couple weeks, and ended up being an incredibly good ally for us.

And when they were trying to get out of paying us, she basically told them, “Fuck you. Pay them.” As happens often with their clients.

How many people here have been hired to do a project, and halfway through the project, project requirements change, project goals change,

it becomes a totally different project than the one you initially agreed to? I see a lot of nodding heads. Thank you.

At that point, the way our contract works, at that point if you’ve changed goals in a project that much,

that project is <i>done.</i> That contract closes, you settle up, and you open up a new contract.

I’ve heard from way too many people who have kept on working for the initial job even though it turned out to be something totally different

than what was originally agreed to. Yeah, and this can be a sticky point, but again, one of the things about working with Mule

and clients that I generally enjoy is, they have confidence in their work, so when you’re negotiating a sticky point like this,

I’m able to say that you hired them for their presentation and the scope of work that they outlined for you.

So if you want to change it, you need to negotiate a new contract, or at least amend the scope of work,

which can act as a new contract. This is the biggest red flag in client services. If you ever hear this phrase, just walk away.

Yeah. It's not a matter of trust. Lawyers frequently have conversations with each other where one says to the other,

“What, you don’t trust my client?” No, that’s not the case. I don’t know your client.

I don’t know him from Adam. If I don’t, as an attorney, do my job to make sure that my client’s protected—

which is <i>assuming bad faith by the other side</i>— I have to not trust them. And the fact of the matter is, when you’re doing business deals—

and that’s what you guys are doing when you’re agreeing to provide services for money that you use to live—

you don’t wanna <i>trust the person to pay you,</i> necessarily, you want to <i>make sure that you get paid.</i> We were actually negotiating a pretty large project

with a client that we were very excited to be working with. We had agreed on <i>everything.</i> We were down to payment terms. And they didn’t want payment terms in the contract.

And they said, “You can trust us on that.” The project was scheduled to kick off, like, two days later, and we ended up walking away from it

because you <i>cannot</i> start a relationship like this. If you agree to something like this at the very beginning, you are going to have to agree to things during the project

that are as onerous as this. So let this be a sign of what’s to come, and walk away from it.

I am sure <i>nobody</i> has had this happen. Client brings in another client to work on the project? That’s a fireable offense.

We have been hired to solve a problem, It’s our job to solve that— to work with the client to solve that problem. If the client decides to bring in somebody else,

we’re now in competition for that person for the client’s time, and we now have to compete with that person. That is not what we signed up to do.

We’ve been in situations like this where we have had to fire clients. And, yes, you can fire a client,

as much as they can fire you— it should be in the contract. We— one in particular,

the situation had deteriorated to such a point that we knew that there was no way out of it other than to walk away.

And it led to a very uncomfortable phone call with the client, and they threatened legal action, and that’s actually how we found Gabe.

– Almost six years ago, yeah? – Yeah. – Mic. – Mic. So, the two things that I hear most—

Like, I get people who contact me, and they’re telling me, like, “Hey, something just happened with this project,” “I’m having trouble getting paid,”

“I’ve submitted my invoice weeks ago; I haven’t heard anything,” My advice to them is usually, “You need to talk to a lawyer about this stuff.”

And there’s two things that I hear most often: Lawyers are so— a lawyer’s too expensive. I can’t afford to talk to a lawyer.

And the second is, “Are we at that point already, do you think?” To answer the first, this guy makes me money.

This guy has gotten our contracts to such a point where... we’re no longer leaving that money on the table, we’re protecting ourselves really well.

What I pay him is a pittance of the money that I would have lost... had I not had him taking care of this stuff. And secondly,

you’re at the point where you need a lawyer when you’ve decided to stop being a design amateur and become a design professional.

It’s time to bring in a legal professional to at least look at those contracts that you’re signing with clients. There are two checks that I write every month that I’m very happy to write

the first one is to him; the second one is to my therapist. And on the money front,

that’s uncomfortable both in your situation with your clients, and in my situation with my clients. It’s uncomfortable at least for the clients that are coming in,

so I try to make them comfortable, and I think any good lawyer would. Ask questions. If you’re worried about how much you’re gonna pay,

I’m happy, and I’m sure most lawyers are happy to tell you— at least decent ones, if that term isn’t an oxymoron for you— what you’re gonna expect to have to pay with regard to a particular project.

And most attorneys will give you 30 minutes, maybe even an hour of free time. So, that’s not to say you should go around

trying to get a bunch of free advice from lots of different attorneys, but, y’know, interview a couple attorneys, just like you would anybody else, do your due diligence on, y’know,

there’s websites out there, I don’t know how much Yelp— but other websites that talk about attorneys. And ask questions,

and if they don’t answer your questions about how much something might cost in a way that satisfies you, go find another attorney. So we’ve got a quick list of the top six things you need to know about contracts

that we whipped together. We’ll go through ’em real quick. Number 1, most important thing:

contracts protect <i>both parties.</i> A contract is in place to protect you, and a contract is in place to protect the client.

Should anything weird happen on either end, what to do is stipulated in that contract. Yeah, and we’ll actually hit this in a slide or two,

but the process of negotiation makes the thing fair. And if you roll over or you just sign blindly, whichever side does that, it’s not gonna be fair.

Don’t start work without a contract. Starting work without a contract is like putting a condom on after you’ve taken a home pregnancy test.

It is just not going to help you at that point. You have lost any leverage that you had. Yeah. I mean...

There’s not a lot more to say. I don’t know how you follow that. Don’t blindly accept their terms.

We have had contracts handed to us by clients that were written years ago by people who are no longer working there. They have no idea what’s in the contracts.

We’ve seen contracts that stipulated that work needed to be delivered on 5¼″ disks when we were done; they don’t know what’s in ’em.

You need to have your lawyer review them and make sure that they're okay, and if something’s not working for you,

strike it. Again, the process of negotiation is what makes the contract fair. If you’re blindly accepting terms from your client,

and particularly if your client is an established business, chances are they’ve had a lawyer draft a contract for them, and when I’m doing that, I usually start with my wishlist.

and I tell the client that “these are items where <i>your</i> clients are going to push back,” and frequently, they do, so if you just sign on the dotted line,

you’re going to be agreeing to a lot of things that you probably can’t deliver, and you don’t want to agree to, and we’ll hit those points a little bit later.

There’s always gonna be some amount of negotiation, but there are things that you shouldn’t back down on. This is the stuff that we don’t back down on:

IP (intellectual property) transfers on full payment. This is the most leverage that you have on a project, is, the work that you’ve done is yours

until the client pays you for it. If they use that work before they’ve submitted a final payment, you can sue the hell out of ’em.

Termination. Kill fee. Yeah, real quickly on the first point: again, if you’re getting a contract from an established business,

what you’re gonna get is two pages of intellectual property assignment where you give them everything and you keep nothing. And the way it’s gonna be written is,

it happens instantly when you sign the contract. Y’know, I had some difficulty when I started dealing with this at first in trying to parse out, y’know, what transferred when, and blah blah blah.

And I found that the easiest way to deal with this is just say, at the beginning of this very long, two-page assignment provision, “Upon full payment for the services...” everything happens.

So in conjunction with that— that’s something that really does help guarantee payment. In conjunction with that, you have a termination (or a “kill”) fee in your contract.

And this is something that I’ve seen in a lot of the web services contracts that I’ve looked at, so it seems to be something of an industry standard.

You get your payment—your deposit— and then maybe you have a second payment, or you break it out into three payments. And what the kill fee is is— it’s an amount that the client is going to have to pay

if the client terminates without some very good reason that is over and above what they’ve already given you in the deposit to make sure that you haven’t done a bunch of work and invested a bunch of time

and turned away other projects that you could have been working on for no good reason. – Liability. – Liability.

Which you told me is legal for what? Gosh, what did I say? “You’re in trouble.” So, “liability” is just a broad term,

one of those legalese that means, “Something’s gone wrong,” “and now, you bear that responsibility for dealing with that problem.” And in these contracts that you get from established businesses,

and sometimes, not even established businesses you can pick ’em off the Internet now, so somebody could be handing you a contract that, y’know,

somebody from some giant law firm drafted to protect their client, even though that wasn't their lawyer, and what these contracts say is, y’know,

you will have a couple pages of representations and warranties that you make about the work that you’re delivering, and it represents, y’know,

and I’m not just talking about good work, it’s, y’know, you’re not infringing on anybody else’s rights, maybe it says there’s no open source code in there,

maybe it says, y’know, there’s nothing that you’ve purchased such as stock pictures, and if you ignore that and just sign it,

and you get in trouble later— some of them say there’s not gonna be any bugs. “Nothing’s gonna go wrong.” If something goes wrong with the website and it costs the company money,

you signed those contracts without looking at ’em, you might have to pay that company money. That’s liability.

Lawyers talk to lawyers. If I’m talking to a client and they tell me that they have legal on the phone, we finish— we wrap up the call.

And we wait ’til <i>we</i> have legal on the phone. With us. People hire lawyers to protect them. And they’re very good at it.

He’s very good at protecting me. And if he’s not on the phone with their lawyer, then they’re gonna be telling me things, and I’m gonna be agreeing to things,

because I’m nervous, because there’s a lawyer on the phone, so the minute they show theirs, I have to show mine. I didn’t mean it that way.

I’m used to it. Be specific and confident about money. Money is an <i>incredibly</i> nerve-wracking thing to talk about.

But if you are trying to convince somebody to give you their money, and that you’re the right person to give it to, and they’re asking you how much something costs,

And the first thing out of your mouth is, “Um...” you just lost $10,000. If you know how much something costs, stand up confidently and tell them.

If you <i>don’t</i> know how much something costs, then say, “I don’t know, but I’m gonna find out,” “and I’m gonna get back to you as soon as possible.”

but just sound like you know what you’re talking about, even when you don’t. ’Cause you can always find out later.

A couple of... About a month ago, I did a podcast with Dan Benjamin where I talked about being confident about asking for your rate. And a couple days later, this came up, this guy who I don’t know:

It says, “I quoted a company an absurdly higher rate than I ever have after listening to you,” “and I got the gig.” 1) I bet that wasn’t an absurdly high rate; I bet this guy had been undercharging for years.

But he had the confidence to go in and ask for the rate that he actually could have been getting all that time, and he got it.

So that made me feel good. I just hope his client isn’t following him on Twitter. – That was good; you got one off. – Thanks.

So to sum up our three-point winning strategy: Contracts up front. Make sure you’ve got a contract in place before you start working.

Make internal allies when you can. You need to have somebody working with the client who knows the ins and outs of how the client runs their business

and who to talk to, should something weird happen. And then work with advisors like this guy on your side, who are helping you and giving you good advice.

I hope so. Yeah. And I know this wasn’t as much fun as coming in here and talking about like, typography and color and design and layout and grids,

but if you learn a little bit about this stuff, and just feel a little confident about this stuff, you can do that stuff, the stuff that you really love doing, that much longer and that much better,

if you just get this stuff locked up. Then, you can enjoy what you really love doing. ’Cause I love design, and I love designers,

and I want designers to know that they actually have a lot more power than they think they have. It’s Friday; you’ve got one more day in the workweek.

Go out there and do something really awesome. Thank you. Alright, so I’m gonna let Gabe use the mic here.

We’ve got ten minutes for questions. If you want to ask a question, please stand up and speak very loud. Are you still on?

– Hello? – Yes. Yes. Any questions?

I have a question about the scenario you talked about where the client goes rogue and they decide to change the project, and so you have to— you’re in that moment,

say you’re, like, halfway through, and at this point, you could either— you could do the kill fee and charge them by the <i>[indistinct]</i> Y’know, like, I’ve done this kind of work for you now, so I’m gonna charge you this,

or do you just charge them for the whole project, <i>[indistinct]</i> this is what we agreed on,

and even though you’re making me change in the middle of it, <i>[indistinct]</i> The reason I ask is that I’ve had that experience where

I could do the kill fee and charge you for what we’ve done, but then there’s all this opportunity cost – Right. – Like, what I can be earning.

Let me address one thing you said before I turn it over to Gabe for the legal answer. Not legal advice. Disclaimer provided. You said the client was making you change something.

A client cannot make you do anything. If you are not comfortablewith what a client is asking you to do, walk away.

You are—nobody here is held hostage to a client’s whims. Sorry, are you asking how we have it structured in their contract, or...? So there’s various ways to deal with it,

but I maybe misspoke, but it goes— when I talked about it, it goes over and above sort of, y’know, what—the hourly work that you’ve done. Um, so there is, y’know— say you’re in Phase 2 of three phases in the project

and each phase is $10,000. The kill fee might just be— you’ve got your $10,000 deposit. And then Phase 2 is gonna be $10,000,

and they pay it upon some receivables deadline. If they kill it without a good reason in the middle of Phase 2, you get the whole $10,000 for the second phase.

That’s a somewhat common example of a kill fee. Does that answer the question? Okay.

Anybody else? When you’re drawing up the contract, how do you approach late payment?

<i>[indistinct]</i> You might have a, um... you know, a small...

we don’t like to call it a “penalty” in the legal world, ’cause penalties aren’t enforceable, but it is a penalty.

It’s a, y’know, call it interest or whatever you want, but it’s a small percentage for, y’know, something if you’re working net-30 that’s not paid 30 days after you send the invoice,

and then if it’s out 60 days or 90 days or 120 days, Boom, you kill the contract, you get the kill fee, and, if you have to sue ’em, your attorney’s fees.

<i>[indistinct]</i> What’d he say? Do you have any tips on firing your clients?

That’s such a softball. You need— well, the reason that you’re firing the client needs to be solid. And it needs to be in writing.

And the client needs to be very aware that they’ve... they’ve transgressed against <i>x</i> thing in the contract, and this is why they’re being fired, and do it quickly, and do it clearly.

They should know they’re getting fired. And do it as kindly as possible. Because again, this isn’t somebody who walked into a relationship with you to be a dick,

this is just a relationship that went sour. So do it with as much respect as possible. Bet you weren’t expecting that.

He’s learned. Horse head, in bed. And that’s what he did when I met him.

Anyone else? In the back, Ms. Hamwood. Um, relationships. You were talking then about relationships.

Well often, you really like the people, even though, y’know, like, we do design work, and we’re, um... you try and tie up [indistinct],<i></i>

well, they’re doing work, and maybe their ability to tie up contracts isn’t so great. So maybe they’re really messing us around,

but it’s partly because they just haven’t got their shit together. So we wanna keep the relationship, but we wanna protect ourselves at the same time. So what about advice for handling those situations,

where they are really messing you around, but you want the relationship? I’m sorry, I didn’t really... Okay, they’re messing you around...

Alright. Alright, the client’s messing you around, but in the same way that we don’t have our contract shit together,

they don’t have their contract shit together either, and they’re good people, but they genuinely are messing you around, – so it is lawyer time, – Lawyer time.

but, but you—yeah. And, I—seriously, I’ve had to do that. I’ve had to lawyer up, and it was the right thing to do,

but how do you— what’s advice around preserving the relationship, or, like, not just... y’know, that aspect of it. First of all, I can be really nice on the phone, with—

and lawyers— and, one of the things that, y’know, Mike would acknowledge is, this sort of stuff makes him uncomfortable, still. It doesn’t make me uncomfortable,

and it’s probably not gonna make the lawyer on the other side uncomfortable, so we can have a perfectly civil conversation about it. It’s not like pressing the atom bomb.

So if things are being held up, I think you’re asking, “How do you preserve the relationship and deal with the delay and the difficult issues?”

Let the lawyers deal with the delay and the difficult issues, and everybody’s always telling me— including these guys— “We need it done!”

So the lawyers are getting that pressure. we know how to deal with it; I mean, the other side has gotta turn it around quickly,

and then I’ve gotta turn it around quickly back to him. Yeah, and even when things go wrong, our—the first thing we try to do is preserve the relationship.

In ten years in business, we’ve only ever had— we’ve only ever fired two clients. And we’ve certainly had projects get weird. But most of the time, you can resolve that stuff by talking it out with the other person.

Don’t do it over email. On the phone if nothing else; in person if at all possible.

There are plenty of client relationships that I’ve—that we’ve been able to fix just going out and having a cup of coffee with somebody. And realizing that we both wanted the same thing,

but we just had a different way of getting there. Anybody else? How do you deal with the acceptance criteria, both for clients and contracts?

That’s really tricky. And I’m still learning, to be honest, on it. But ideally, they have, y’know, a certain amount of time to reject a deliverable,

and they have to do it in writing, and if they don’t, it’s deemed accepted. and of course, you want that timeframe to be as short as possible,

but, y’know, I’ve seen 5–10 days, or maybe 5–10 business days, I assume that’s what you’re talking about, the deliverable acceptance? Yeah, and there’s also, on the flipside, you working with a contractor that’s doing bad work.

You don’t want to pay them. Oh you <i>don’t</i> want to accept something from somebody? Yeah, um, I mean, I would— same advice as Mike gave in firing a client:

make the problems clear. Put it in writing. If you’re done with them.

And if the relationship can be salvaged, like Mike said, try and salvage it. But if not, yeah, make the reason for the rejection very clear. Hopefully, there’s something in writing to rely on,

y’know, a contract, or maybe emails that describe what was supposed to be done, Yep. We have time for one more. Mr. Sippe, in the front.

Uh, this is for Gabe. Are you worried about what he does on Twitter? No, there’s been some ventures...

From my standpoint, I don‘t want him to disclose anything we discuss that’s privileged, So he knows that; we’ve talked about it. ’cause some of the stuff we discuss is funny, and we’d like to disclose it.

Just for pure entertainment value. But also, in full disclosure, I don’t follow Twitter that much. I’m trying to get better,

but, y’know, my stream is full of San Francisco Giants stuff, and Mike. And so for me it’s just entertainment; I don’t actually worry that much about it. Just as a rule, I never, ever talk about clients on Twitter.

That relationship is sacred, Twitter’s, um... Twitter’s for dick jokes. So if a client... Even if a client does something in my office

that’s really funny, it’s part of our relationship, and it doesn’t go on there. That’s you and me.

Babe. Alright. Thanks a lot.