Young designers often perform services for clients
without written contracts. Unfortunately, this
means opening the door to problems that could
have been avoided. But once you’ve been burned
a few times, you come to realize the importance
of having formal agreements in place with clients.
A good contract prevents confusion and protects
everyone’s interests.
THE BIG PICTURE
In order to develop a good understanding of how
contracts work, it helps to know a little bit about
two different aspects of the U.S. legal system: statutes
and common law.
A statute is a written law passed by Congress (at
the federal level) or a legislature (at the state level).
On a case-by-case basis, courts then interpret how
those statutes apply to particular situations. Court
decisions establish precedents—meaning when a similar
case comes up in the future, earlier court decisions
will be used as points of reference.
Most of the laws relevant to contracts are state
statutes. For designers, though, federal copyright
and trademark laws are very important as well.
Separately, some contract issues are guided by
common law. This term refers to the fact that courts
are often called upon to make decisions on topics
that are not covered by statutes. Because such
decisions also establish precedent, common law is
described as being judge-made.
Now that we’ve gone over the basics, we’re ready
to discuss the nature of an individual contract.
WHAT IS A CONTRACT?
A contract is an exchange of promises among two
or more persons or entities (referred to as the parties)
whereby each party agrees to do—or not to
do—something. A contract comes into existence
when one party accepts another’s offer, provided
there is consideration. Consideration is something of
value that is provided by each party—for example,
a designer will provide creative services and a client
will provide payment. It’s important to remember
that if there’s no consideration, a contract has not
been formed.
Oral contracts
Some designers provide services to clients based
on nothing more than a handshake. This is not a
good idea, even though most oral agreements are in fact enforceable, as long as the parties sufficiently
indicated they intended to make a contract. There
are important exceptions to this, however. Certain
types of agreements must be in writing in order to
be legally binding, including agreements for projects
that will not be completed within 12 months. This
is one of the restrictions in a widely adopted state
law known as the Statute of Frauds.
Implied terms
Even if your contract is in writing, state and federal
laws will affect how it is interpreted. Most legal
agreements are subject to implied terms and conditions—general standards or practices that apply
even if they’re not directly stated within the contract
document itself. For instance, some states impose a
warranty on transactions (such as California, which
imposes a warranty of good faith and fair dealing).
A warranty is a promise in a contract. It’s a guarantee
that the subject of the agreement is as represented.
For example: A design firm might warrant
its work is original, or that a finished digital project
will function well on a specific operating system, or
something of a similar nature.
Indemnification
This raises the important issue of indemnification.
Indemnity means that, in the event you breach any
warranty you’ve given, you agree to provide security
against any hurt, loss or damage that might occur. A
breach can be any failure, without legal justification,
to perform as you have promised in the contract.
For example, if your design firm has warranted that
its work is original, you might then indemnify the
client against any third-party claims of intellectual
property infringement.
Disputes
If your written contract is vague on any point—or
if you don’t have a signed contract at all—it’s quite
easy to get into disputes. If a dispute with a client
turns into a lawsuit, how is the court going to
interpret anything that was not specified in the
agreement? Apart from relevant statutes (such as
those concerning implied terms and conditions)
and legal precedents, the court might also consider
the following:
1. How the parties have dealt with each other in the
past under prior agreements—referred to as course
of dealing
2. How they’ve acted in performing their current
agreement—called course of performing
3. How other people like them usually act—known
as usage of trade
If a breach of contract has occurred, a remedy is
how the court will solve the breach. The court may
require specific performance—such as requiring
you to finish the project. It may grant an injunction—such as preventing the client from using your
work—and/or it may order the payment of damages.
DESIGN-RELATED CONTRACTS
For designers, certain types of contracts occur more
frequently than others. The most common types of
contracts include:
Confidentiality/nondisclosure agreements:
These are usually signed in the first meeting with a
new client in order to protect confidential information
that may be disclosed about the client’s business.
Individual project agreements: These are
detailed proposal documents from the design firm
to the client that include a full set of legal terms
and conditions.
Retainer agreements: These are common in PR
and advertising, where a client agrees in advance to a
certain level of monthly activity on their account.
Keep in mind that there’s a first-strike advantage
in getting your draft document out there as the starting
point for negotiations. It’s not a good idea to wait
for the client to draft something—chances are that
it will not be a good match to the issues involved in
creative projects.
A USEFUL RESOURCE
AIGA, the professional association for designers,
provides a useful resource to help designers prepare
project agreements. It’s a sample contract called
the Standard Form of Agreement for Design Services.
It can be downloaded as a free PDF from www.aiga.org. By distributing recommended contract
language, AIGA is influencing the usage of trade
for the design community. Added weight comes
from the fact that another leading organization, the
Association of Professional Design Firms, has given
its endorsement to the AIGA recommendations.
As you read online through the sample contract,
you’ll see it’s composed of modules. The first
two address general concerns that are shared by all
design disciplines:
Basic terms and conditions: This first module
covers issues such as payment terms, change orders,
client approvals, project termination and responsibility
for legal fees.
Intellectual property: This second module clarifies a range of intellectual property issues, including
ownership and permitted usage of both industrial
property and copyright.
Beyond these shared concerns, many other issues
can come up that are quite particular to specific creative
disciplines. For this reason, there are three additional
modules to be used when the project involves
print, interactive or environmental/3D design. The
PDF includes an introduction explaining how the
various modules should be used and clarifying the
key legal concepts involved.
AIGA is in the process of developing additional
resources and educational activities to help designers
with business issues. The initiative will be called the
Center for Practice Management. More information
about it will be available in the months to come on
AIGA’s website.
THE RIGHT LEVEL OF DETAIL
Because of the number of issues that need to be
addressed, good design contracts are not particularly
brief. Some designers are uncomfortable with this.
Even though the work that we do as designers has
become more complex in recent years, a nostalgic
few are yearning for shorter contracts. This is not
realistic. It reminds me of a quote from H.L.
Mencken: “For every complex problem there is a
simple solution … and it is wrong.” To cover all of
the essential issues, the contract for a large project is
going to be a long document. However, you do have
the option of negotiating an underlying set of terms
and conditions just once at the beginning of each new
client relationship. Then you can just refer back to it
for future projects.
THE GOAL
As a smart businessperson, your goal is to prevent
problems before they occur. Many misunderstandings
and difficulties can be easily avoided by getting
your agreement in writing and making sure it
includes terms and conditions appropriate to the
services you’re providing.
