Note to self: Always start with a contract

I started a one-man consultancy in September, and this week I ran into my first “situation”. I had already started working for a customer while we were slowly working out wording of a little 2-page contract. We had verbally agreed on a rate and confirmed this per email. Indeed, verbally. I guess that you can imagine what’s coming next.

So, woops. This week I learned the hard way that as an independent, I should not do significant amounts of work for a customer before the main points of an agreement have been put on paper and signed by both parties. Things have been resolved since, to the satisfaction of both parties, so I will spare you the details. Nevertheless, I did have quite a scare.

Trust

In practice, if an independent does contracting for a larger company, there is little real legal benefit to having the contract worked out quickly. After all, if things would really come to a legal conflict, I am an inexperienced single entrepreneur with a relatively urgent need to feed a family, while my customer typically has more legal experience, more business experience, and more patience. The best possible outcome of a court case will be that both parties lose, instead of just me.

In such an asymmetric relationship, I need trust, not paperwork. Because of this, a contract does not actually provide much real legal support. Instead, it is there to help ensure that all people involved at my customer’s organization agree to the terms. It increases the chance that whoever will pay my first invoice is also the person who signed the contract, and that all bureaucratic and company-political hurdles have been overcome. There’s no certainty until that first invoice has been paid, but I can’t usually demand payment on day 1. I can, however, demand a signed contract.