RFM175 - Building get out clauses into your contracts

Speaker A: Foreign. FM in this episode, Pete speaks from his own experience of when projects have gone wrong. He outlines the clauses and processes he has in place to make sure that his business and his clients are protected if a project or retained agreement need to come to an unforeseen end. Hello and welcome to this episode of Retain fm. I am your host Pete and it's brilliant to have you with me today. Today we're going to be talking about building get out clauses into your contracts and project agreements. But before we get on to that, firstly welcome to the show and secondly, if you are, ah, enjoying the content that is being created here on Retain fm, please do subscribe in your podcast player of choice or follow our YouTube channel. And of course we have ah, our Facebook group of 500 or so agency owners from around the globe, uh, who all communicate within the safe space to discuss uh, issues in their agenc, to get advice to support each other. So come and find us at uh, Pete everett.com forward/group right now. Get out clauses in contracts. This isn't going to be the easiest or the nicest uh, topic to cover, but it is a really important one. And in all honesty I've had this idea for this podcast on my uh, on my crib sheet for a while uh, because I unfortunately am um, involved in too many discussions where agency owners are in projects that are going wrong, they don't really know how to get out of them. They're going to lose a whole load of money or a load of effort or a load of time or all three and they don't really know where to turn. And I'll put my hands up and be honest, the process and what I'm about to talk to you through today is because I've got it wrong in the past as well. I'm not saying that I have always got it right. And the advice that I'm going to give you is, is very, very much based on experience, being burnt myself and making sure that that's not going to happen again. So before we get on to the actual clauses themselves and things you might want to consider, uh, let's firstly just quickly cover why projects do go wrong. What are the most common reasons that projects or even retained agreements go wrong? The first is scope creep and not, you know, not quoting enough essentially or not not understanding the full scope of a project before the quote's created, uh, or the client asking for additional functionality midway through a project, uh, and, and that pushing the budget, budget out. The second is misaligned expectations and um, with misaligned expectations come, can come a misaligned budget. Then of course there can be inaccurate or insufficient discovery that in all honesty. And uh, we've done podcasts and shows and webinars and all sorts about running a discovery session before. But all of that really could lead to any of the uh, any of the issues above. And then look, there's also just simply an understanding that even the longest standing clients, even, ah, the longest standing monthly retainers that you might have, the vast majority of them will have a lifespan. And that could be something that's completely outside of your control. You know, um, companies get taken over, uh, bosses change, departments change, companies get bought, struck, you know, company structures get moved around and all of a sudden the people or persons you were dealing with aren't necessarily the same. And uh, the new people might come in with their own preferred suppliers. There's whole, loads of reasons. They don't all have to be bad or a negative reflection on you, but there's a whole host of reasons why things open quotes go wrong, close quotes. Um, and in all honesty, apart from the last one, which is very much on the client side, the vast majority of them you are in control of as the agency. But you need to be on the front foot with this stuff. You need to have a process in place, have the right documentation in place. And the worst place you can be is to have gone into something without the right protections in place and then being desperate for the money because you're not turning over enough. And then you feel you can't part ways with a client or can't have that awkward conversation because you're so desperately trying to please them to get this project over the line because you need that final check. So now I also realize I've spoken quite a lot about in the past the client being king, uh, you know, customer relations, customer service. And that's all true, but that all has to be laid on this solid foundation that you have the right clauses in place for delivery and termination of any project or any agreement that you're in. This really, this podcast really could be summed up in the one sentence. This is the importance of thinking about how to get out of something before you get into it. I suppose that's really what I'm trying to say. Now, one more piece of housekeeping before we get onto the clauses that I have in my contracts. The first and this, this piece of housekeeping is, um, the difference between a quote and an estimate. Now I've got to say right up front here, this m, this advice may not apply to you where you are. I'm not a financial advisor, I'm not an accountant, I'm not a lawyer. So please, please make sure you're getting the right financial advice or legal advice in the, in the country or the state that you are in. Um, that is a uh, given in the uk however, there is a difference between a quote and an estimate. A quote is a fixed price fee for a job. This, this is the project and this is how much it will cost. And um, the, the you know, it is a fixed price. An estimate on the other hand is exactly that. It's an estimation of what you think the costs will be. But you can also include um, uh, sort of gates where money can't, uh, money can't be determined. So for example, to give you an idea, um, now I should say that all of this comes from my business partner. When we set up, uh, so my agency, he said to me that he has never and will never send out a quote in his life or everything we send out is project estimates based on our understanding in the discovery process. But just let me give you an example. So in all of our project estimates we have a section when it comes to population. Now we have a, we have a, the way our process works is we will build and populate around about 10 of a website during the build process as long as the client has uh, the copy and images ready. And we will then um, we will populate that and we will then train them on how the rest of the system works. So the expectation through our documentation is that the client will populate the website. We won't. The client will. However, we then have an entry on our estimate that says population support. And we say, it then says that population support can be offered at a rate of 85 pounds an hour plus VAT. So as you can see that that one line means that the, the price specification page in uh, our, in our contract, uh, in our project agreement is only ever an estimate because we have no idea how many multiples of 85 we might need to add to that for population support until we get there. Now, you know, we, we do have conversations with the clients. We give them, if client needs support, we remind them that this is going to cost them some extra money. We, we sometimes give them an estimate or, or offer to, for them to buy a block of hours for population support. So you know, okay, we're not 100% sure how long this is going to take, but look, why don't we buy a block of 10 and see how we're getting on, um, so we do do things to, to try and give uh, a steer to the client. And, and so they are not, they're aware that costs just aren't running away without them knowing what they are. But in the project agreement it is an estimate because that is not a fixed price element of the project. We may also include it in other parts. Um, you know we, we may include, if we're designing a new logo for something, for example, we may include uh, an element for design, uh, development which may also cover additional offline collateral which we don't know what that's going to be when it comes to the um, uh, you know, when we're writing the estimate. So that's, that's how we do it. That's the difference between a quote and an estimate. And I would fully support if you can legally in your country or state or region offer estimates. They are by far the better way to go and allow you to put in these clauses where, where not everything has to be costed down to the penny and you can uh, you can massage those costs when you get to them. So that's, that's all the housekeeping done. Right. So what are the actual get out clauses that we have in our uh, project agreements? So the first thing, uh, this is for projects. All of these next set is for projects. The first thing is we have our ah, project uh, specification linked to an estimate. So if the project specification changes, we reserve the right to change the estimate. Now we can only do that because our process is very much based around when uh, a new lead comes in, we, we give them a ballpark figure of well the project could be between 5 and £15,000 let's say. Um, but actually the way we get started is we do a discovery session. The discovery session costs 800 quid and at the end of it we will be able to provide you with an estimate for our delivery of the project. But also project specification that you can take anywhere that is yours and you can um, yeah you, if, if you want to go and get quotes from elsewhere then that's up to you. So that's how we word it. I know that sounds like it's insane, but actually it's such a huge trust building factor, it's untrue. Um, anyway, that's where we get the project specification from. So I'm not expecting anybody listening to this or watching this to go and write project specifications that for free. That is not the point. But before you can provide an accurate estimate you do need to be able to put together a project specification about what are the pages that are going to be involved if you're building a WordPress website, what are the templates that are going to be involved? Is there any custom coding? Um, you know, uh, what are the requirements from the client? Are there any integrations that need to happen? What are the third party bits of software that need to come in? Are there any automations or funky uh, you know, functions that happen off the back of form submissions? How does lead capture work? All of that kind of stuff. Who is the um, who is the mailing list with? Uh, are there, is there a CRM to be included? All of that kind of stuff. We have to get all, a full picture of all of that before we can realistically provide an estimate. Ah, so yeah we get that through discovery. But the terms on our estimate state that this estimate is linked to xyz, uh project specification. We give all our documents reference numbers so we'd include the reference, the reference to the specification. Ah, and should that specification change, we reserve the right to review this estimate. And that is how, that's exactly how it's worded. So the next thing we have in uh, in our project agreements is a clarification about where the intellectual property of a project lies at different stages of the project. So uh, to be clear with this, we don't own WordPress, you don't own WordPress. WordPress is an open source platform. We may own some licenses that we have put in WordPress and we may have you know, done more work than we've been paid for in uh, uh before depending on the invoice stages, you know, at that moment in time, um, through development. So we may have more invested in the project than the client has actually paid at some point. And that's why it's important to have things like a deposit so the client has some skin in the game before you get started so you kind of catch up. But of course somewhere along the line you're going to have to have a final invoice. Um, and ah, we'll talk about where that is in a minute. But when you're approaching that stage you've probably done more work than you've already been paid for because otherwise how could it be a final invoice? So um, yeah, that's really what I'm getting to that. Um, so our terms state that we hold. So Digital Communications Ltd. Holds the intellectual property of the project until the final bill has been paid in full. That is again the wording from our uh, from our Terms and conditions. Ah, so that means that, look, the website is ours. It doesn't matter. It doesn't matter who, who you are, what you do, how much copy you've provided, what images you've done, whether you've invested in a photo shoot or a video production company or whatever, this website remains ours until you've paid the final bill. And only on that final bill will we release files and will we send the website live. Um, now that's the first half of the clause in the termination section of the contract. We also state that, uh, we may charge a termination fee. Should the project be terminated early, we may charge a termination fee. In which case, on receipt of that termination fee, any work that has been completed today or any coding that's been completed to date would become the intellectual property of the client. So we're not saying that they, they have to see the entire project out with us, but we do state that there is, uh, firstly, where intellectual property lies on a project that's successful, and secondly, where intellectual property lies on a project that isn't successful. And then I've just alluded to it. The next thing we have in our contracts is a termination process that is detailed, uh, from both sides. And this is really important. It's really important that you put in the structure of how you can get out of a project if the client's not going well. Uh, if the project's not going well, you're not getting on with the client. But it's also really important that you outline the process that the client might need to go through if they want to get out of the project. And these things can differ slightly. Ours is, ours is quite simple. Um, from both sides. Notice has to be given in writing from both sides. Uh, all invoices that are, uh, outstanding need to be paid. And then if we, we have an extra section if the client terminates the project, and I've had to action this last week, just to be perfectly honest with you. Um, you know, please refer back to our terms and conditions. We had a client that emailed in to say that, um, one of their directors has had to move some budgets around and therefore we can't complete, uh, a project that we've been working on. So, uh, you know, can we stop it? And I went back to them and said, uh, you know, I'm very sorry to hear that. Absolutely. We don't need to complete the project. Please refer to the terms and conditions that you signed on XYZ date that outlines the termination agreement here. The first part of that is that you will notify us in writing and I will take your former email of that notice. So that's the, uh, you know, again, you can all. Once this is all laid out, you can remain so professional throughout this. There's no emotion, there's no hard feeling. It just becomes a process. It is, uh, you know, it helps. You have far better quality of sleep, I promise you. Anyway, the extra bit that is in there if the client terminates things is that we then get the, uh, we then reserve the right to charge a termination fee. Now, our contract states that typically that is 50% of the remaining project value. Um, so. And in the case that I had last week, that's exactly what I offered. We do have, yeah, we do have exceptions to that because that's why we include the word typically. Sometimes we want the full project value. Um, and we also have a sort of agreement within the team that look, well, if, if a client has other work going through and that other work is of greater value than the, than the remainder of this project value, then we also reserve the right to waive the fee as well. So, um, it's not a hard and fast sort of figure, but actually the fact that we reserve the right to do it and what it typically is, that's what's in the project agreement. Um, two more things on the projects, uh, side of things. We then have full details of the payment schedule. Um, and we link all of those to stages that we control in the agency. So the critical one here is the final invoice. We never invoice on Go Live. The final invoice is always, almost always on completion of development and if it's not on completion of developments on training, they are the only two places we will provide a final invoice. And the reason for this is what follows that is, is population. Then we do a little bit of a browser test, which isn't, isn't really, you know, that's not a huge amount of work normally. But we do do a bit of a browser test with some of the contents in and then go live. Now we're not in control of the population stage. Um, you know, I've had sites that we have built wait years, literally well over a year, let me, I'll be perfectly frank, over a year before the content has been produced by the client. I can't wait that long for my final bill. My company, as I've already said, has put in all the time and effort. There's a fully functioning working website here. All it needs is the words and pictures and assets to go in it, and that's up to you Mr. Client. So I reserve the right to, for that money to be paid to me. Therefore, our final bill never goes on live. It's always on completion of development or training, depending on uh, you know, depending on how I'm working with the client and what, what's going to work best for that. All of that is linked. All of that is outlined in the project agreement. Typically speaking, we have a deposit. We then have a payment that is on deposits normally 50%. We then uh, have a payment, uh, on completion of a design phase and then final payment on completion of development. And that is where our uh, our uh, stages lie. It's Normally uh, either 50, 25, 25 or 40, 30, 30, um, uh, and that's, that's how, that's how we do it. And then the final thing, um, which doesn't actually appear in our terms and conditions, but it is something we have in our documentation is a documented process for packaging up all files, sending them to the client and offboarding that client from our systems and processes. Um, and that's really, really key. Now we obviously only go through that process once the termination fee has been received. We don't do that ahead of time. But again it's about remaining professional. It's about making sure that you're not spending money on a client that is terminated with you. You know, we all run software, we have licenses. You might be paying for certain things per seat. For example, you might need to cancel some of that. You don't. If the project isn't going ahead, you want to make sure that you're not spending money on stuff that you don't need. So just have the, have the process written out. You only have to figure it out once or twice, run through it, make sure everything's covered and then you can look professional and know that everything from that side of things is taken care of. Because, let's be honest, the reason that this podcast in existence is because we've all been burnt by this. And when you're in it, it's hell, it feels horrible, particularly if you're scratching around and you're not sure what you're doing. This is about giving you professionalism and clarity so that you know exactly what to do and know that you're not losing out in the deal for work that ah, work that you've done. And that's, that's it in a nutshell. That's what's in our project agreement for uh, well, for projects. We then have a Similar section within our retained agreement terms as well. Um, now there is a lot of, it's the same, right? So we do outline payment processes. We do outline, um, we, there is a section to do with the termination process. The, the, there's really two changes to this, um, and uh, from the project side of things and they are these. The first is that we include a notice period within our retained agreements. So obviously retained agreements are billed monthly and uh, well in fact we have some annually things like hosting. We also have termination clauses in there too. Um, and uh, so the first thing is a notice period. How much notice does a client need to give us and how much notice do we need to give a client to find another supplier? So again that's important. That's from both sides. Normally it's a month each way, I'll be honest. Uh, but we do have um, we uh, do work with one client for example, that wanted to know that uh, they had security, that we weren't just going to disappear off into the sunset somewhere. So um, they asked for a three month notice period which I agreed to on the basis that I could increase our notice period also to three months. So now we have to give each other three months notice if either of us want to cancel. Ah, that's the first change having the notice period that isn't there so much in the, in the project agreement. It simply says you need to tell us in writing. And then instead of having the uh, termination fee like we have in the projects. The second thing we, the second section we have is details of when final payments will be due and what they will cover. So, so for example, in our hosting agreements we say that uh, you know, any current bill for hosting will not be refunded and if you have an outstanding bill, it will be due for payment. Um, for retained agreements, you know, we, we do state that uh, you know, your retained agreement, your fee covers X and that will be um, delivered up until the end of the billing cycle, for example. Ah, actually that's something we do put when, when we, when we talk about notice periods, we don't actually mention months, we mention billing cycles. So you have to give us one complete billing cycle. So if you've just been billed last week and you tell us now that you want to terminate, then that's only three weeks until your next bill. So that's not a complete billing cycle. So we will bill again and do one more month's worth, worth of work. Um, unless, well, you're going to receive the bill if you tell us to down tools and that's something different. But yeah, you will receive one more bill. So that's another thing to bear in mind. Um, so you may want to do that again with your hosting agreements, maintenance plans, that kind of thing. Just make sure that you've outlined what the final bill will be and what that's going to cover and when termination, when services will terminate. And again we have all of that documented out and we have a process for offboarding the client as well through our retained agreements. So that's um, yeah, that's it. In that documented process, we often cancel once the final payment is received. We do often cancel uh, clients direct debits as well, um, if they don't have other work going through with us obviously just to, to create that separation because that also triggers an M email to them from their bank to say uh, a, ah, direct debit's been cancelled. And they know that, you know, any future work they'll have to bill manually. So that in a nutshell, is it. I'm aware that this podcast actually gone on about seven or eight minutes longer than I thought it was going to, but um, I hope you found it useful. And if you haven't got any of this stuff in your contracts, in your project agreements, if you're sending fixed quotes and you're able to send estimates, all of that kind of stuff, please make sure that you have at least thought this through. Um, and if you've been burnt by it once and you think you've thought to yourself, oh, uh, well, they were just a bad client, this won't happen again. Believe me, it eventually will and you'll regret not having thought about it in the first place. So uh, I hope you found it useful. If you've got any questions at all, please jump over into our facebook group@petervrit.com group or search Facebook for Retain FM. If I don't see you in the group, I will see you in the next episode. Mhm. Sam,