Archive for the ‘Legals and Contracts’ Category
Now first off, we have to assume that you have provided an estimate based on a project cost (rather than a day cost). If the customer is paying by the day, then you have to let them know when you think you are going to take more time than agreed or budgeted, so that a higher than expected invoice will not come as a surprise. But if you are using a cloud based project management system, this is an easy task and they will be alerted by the system automatically as tasks slip.
But project based under estimations are a different ball game altogether. When such a project takes longer than you estimated, you could end up making a loss on the project – or cutting corners which means the customer will end up unhappy and unwilling to pay the bill.
Keeping Track to spot problems
First of all, its critical to both you and the customer that you keep track of the project progress in terms of the work agreed, the work you have completed, and if the work is on track. Again, project management software will allow you to do this, so everybody knows what is going on all the time.
The important thing is to spot slippage or extra work as soon as possible. There may be elements that you thought the customer would supply but you are now being asked to deliver, or a misunderstanding of requirements, or a delay from unavailable resources (either on your side or on the customers side). But again, the important thing is, the moment you spot a problem; that is the time to take action.
I have seen too many projects where the project manager thought things could be made up towards the end of the project, either in cutting corners elsewhere or everybody ‘working harder’ to make up the lost time. Yes, this could work – but generally this is just making a situation worse or delaying the pain. Much better to start having a conversation and coming up with a solution sooner rather than later.
Control scope creep or customer based delays
One of the major problems with projects for paying customers is scope creep. This is where the scope of the project is agreed up front, work is started, and then the customer will want more than agreed. This can come about from comments such as ‘But I thought it would do this as well….’, or ‘When you said A, I thought you meant A, B, C and D’. Then there is the external customer influence factor, where your main contact will say things like ‘Just got word from Joe in Marketing, who insists it should do this….’.. Good project scope documents should have a good limitations clause to avoid such problems, but lets assume its too late for that now.
In this situation, it’s important to control the creep. Say “That’s a great idea, but why don’t we deliver what we agreed on, and then we can look at B, C and D after the initial delivery“. This is called change control – and the beauty of change control is that you can then create mini-sub-projects after the main delivery, all of which are chargeable (or at least have the changeability discussion after the customer has paid for the main part of the project).
Customer delays can also come about when they promised to deliver something (data, specifications, resources, hardware, whatever), and fail to do so – or at least, they deliver it late. Once again, having the customer based tasks on a cloud based project management system will stop this from happening. Their responsibilities are scheduled, they are informed of the upcoming requirements, and automatically nagged when it goes overdue.
When customers are late, you have every right to ask for more money if it means delays or additional work for you. I would phrase it along the lines of “The project agreement was that you would provide a widget by the start of November. Unfortunately, the failure to deliver has impacted the project delivery and has resulted in xx lost days which are outside of the original estimate. We are therefore in the unfortunate position of having to bill for these additional lost days at the end of the project”. Again, do this as soon as possible, as this will mean fewer delays in the future (they will not want to get caught out again).
They may of course object to the extra charges, but now you have turned the discussion into a haggle or negotiation. You could of course be the good guy and agree that “Ok, we wont charge you THIS TIME, but will have to in the case of any more delays.”
How I would tell them about under estimation
So now we come down to the tricky business of what to do when you have agreed work and you find that your estimate is nowhere near the amount of work that will actually be required.
Of course, the first option is just to bite the bullet, accept you have made a mistake, learn from the mistake and continue with the project to completion. Deciding to take the hit will need to be based on how much money you will lose, and how much future work is likely from the customer. Generally speaking, I personally side on the rule of “bird in the hand is better than 2 in the bush” and never assume that the customer will provide future work (even if they promise it). If the lose is acceptable, then I will just stay quiet, but if it’s a major hit, then the difficult conversation has to be had.
I would recommend that the conversation never be held either by email or on the phone. When going cap in hand to the customer, a face to face meeting is really the only option that will work. If that is not possible, try to get a face conversation with Skype, otherwise a phone call. An email is going to be last route you should try.
The conversation with them needs to be honest, lay it on the line, and start a negotiation. Try and find an additional payment which works for both you and the customer. They will of course be deeply unhappy, and may force you to complete the project at the agreed price – in which case your only option would be to walk away and make a total loss (with the possibility of legal action against you, subject to whatever legal document you drew up prior to starting work).
I would always try to get a balanced agreement – you are in a bad situation, so your aim would actually be an ‘everybody looses’ balance (e.g., you pay me more, and I will throw in free training and support). The agreement will vary depending on your situation, your project, the customer and your own charisma. But, I would start the conversation with something like:
Here is the situation. I produced the estimate for delivery of the project based on my understanding of the requirement. I am sorry to say that as we worked on the project, my knowledge grew clearer and as a result, I have realised that I have underestimated the effort required to deliver this. We need to talk about reshaping the project, either by re-estimating the effort and cost required to deliver to the agreed scope, or by shrinking the scope of delivery to fit with the agreed budget.
Then, stop talking, and listen to what they have to say. Negotiate!
One thing I can guarantee is that yours will not be the first project that the customer will have ordered that will have gone over budget, and I can also guarantee, yours will not be the last.
Once an initial project has been completed for a customer, the project invoice raised and the hand over done, it does not necessarily mean that your relationship with a customer is over. In addition to staying in touch in the hope of future sales and new projects, one thing well worth considering is arranging a Support and Maintenance contract with the customer.
There is no right or wrong way of selling Support and Maintenance. Sometimes, I will mention it during the prospecting stage (“of course, once the project is over, happy to discuss the support of the system”) or sometimes I will mention it on project completion (“So, that’s all done. Now are you happy to support the system in the future, or will you need support going forward?”)
Charging Support and Maintenance can be the icing on the cake of a project. Once the project is complete, the customer pays you an annual support payment upfront, and in return, you agree to fix any problems that come, up, answer questions etc, without further charge for the year.
Think of support and maintenance (S&M) as an insurance policy taken out by your customer for the year ahead.
What to charge for Support
Within an IT industry (other industries will vary), the going rate of support charges can range from anything from 10% to 20% of the original delivery cost. Typically, 15% is viewed as ‘fair’ – so this is the amount I generally try to aim for – charging 15% of the original project development cost per year. Sometimes, it is easier to work out how much time I am likely to spend supporting a customer (based on the help needed during initial development and handover), add a ‘fudge’ factor for the unexpected and then multiply this up by my typical day rate to find the annual cost for a customer.
And don’t forget that support charges also need to go up in line with your annual price increases on the anniversary.
Some customers prefer a call off support arrangement, where they pre-book a number of days of support in advance and use (and pay for) them as required. This may seem like an attractive option for a support and maintenance agreement, but unless they are paying up front, all the advantage is with the customer. It is a much better option to organise a proper and full support agreement.
Be specific about support dates and times
In addition to the cost the customer will pay for support and maintenance, the other major factor which can influence the price will be the dates and times of support.
Will you provide support from Monday to Friday? What about weekends? And will support be from 9am to 5pm, 8am to 6pm or will you provide support 24 hours a day? Also bear in mind that if your customer is in a different time zone to you, their 5pm may be your 2am.
Whilst there are again no hard and fast rules for how support charges change for different days of the week or times of the day, my general rule of thumb is that any weekend day is TWICE the cost of a week day (so 7 day support is actually charged as 180% cost of a standard working 5 day support contract – ((2 days * 2) + 5 days)). Then, for the extended hours (beyond 9am to 5pm), I add 12.5% per hour (so 8am to 6pm adds 25% again).
Companies who demand 24hour support will be used to paying through the nose for this constant level of support. Again, in an IT industry, typically a 24hour 7 day support contract will cost between THREE and FOUR times the cost of a standard Monday to Friday 9am to 5pm support arrangement (although I do know some BIG IT companies who charge upto 20 times a standard support cost for 24-7 support – and their customers pay it!!!).
Bear in mind that for extended hours or 24 hour support, you need to work out how they will contact you. In needs to be using a method that will wake you (if you yourself are providing the support and they decide to call at 3am) and that you can respond to.
Finally, when working out the costs, factor in the response times. You need to provide details of a) How quickly you will email/call them back, b) provide a solution or at least a get-around and c) A full solution if it’s a major issue. These times will vary from project to project, and industry to industry. My starting position for support agreements is 1 hour for call back, 4 hours for a get around and 48 hours if it’s a major issue or requires a fix.
What to Include and Exclude
Which leads us onto the big issue of what is and is not included. This list should be stated up front, and be in all discussions, all emails and in the final support agreements – as it is pivotal. Once agreed, if you leave holes, it is possible the customer could use the support agreement for all new future work or you may end up supporting things you never initially supplied.
Again, this will will be vary from project to project, and industry to industry. However as a starting point, here is my standard inclusion and excluded list:
- Support is provided only in terms of the project (name the project)
- Support is provided only in terms of hardware and software provided for the project by your company (name your company)
- Support is provided only for errors or questions relating to the existing functionality of the project
- Support is provided for any questions or software errors within the project, including data generated or stored by the project
- Support is provided in scope of the current functionality of the project or additional functionality added to the project by (your company) on a paid for enhancement basis in the future
- Support is provided on all functionality explicit to the project, including GUI front end functionality, back end database, supplied interfaces and data held in the database
- Support is not provided for errors resulting from 3rd party software, 3rd party hardware, interfaces or data (including database software, operating systems and the like)
- Support is not provided for additional features, additional data to be held, new entry prompts, changes to interface definitions or data entry changes – these would be provided under a separate enhancement quotation
- Support is not provided for additional reports or enquiries, either from within the software, or using 3rd party tools – these would be provided under a separate enhancement quotation
- Support does not include any additional training of staff. This can be provided separately as an additional service
- We reserve the right to charge separately for corrections or time required resulting from your staff errors (such as invalid entries)
- Support if provided on the basis on standard working days, excluding bank holidays, Monday to Friday, from 9am to 5pm… (etc)
If you want to see what my standard support agreement looks like (the wording), I offer you a copy to download for free.
Put it another way, what happens if a prospect from a few years ago knocks on your door and expects you to honour the quotation you produced which is based on your 2006 prices? Do you honour it, or do you expect that you can refresh the quotation with the current prices and everybody will be happy?
On the flip side of this, do you produce quotations and fall foul of saying “this quotation is only valid for 90 days from the date of quotation” (or other such words?) After all, if a prospect wants to raise an order on day 91, I am sure you will be happy to take their money.
For me, the compromise is to reference the date of your annual (hopefully scheduled) rates review, and make that the cut off date when quotations will be valid up to.
Something along the lines of:
This quotation is valid up to and including the date of our annual rates review, which is scheduled on the 2nd of August each year. On the next review date after the date of this quotation, the prices shown will need to be refreshed with any amended prices to be valid.
A few months ago I talked about the different emails I use for chasing late payers. Judging by the interest this post received, it seems that late payers are becoming more and more of a problem for freelancers and small business owners.
As regular readers will know, I am an advocate of using cloud based accounting software – and my choice for this type of service is FreeAgent.
As I received so much interest in the late payment email templates, and a few questions on how I set up automatic chasing of late payers, I thought I would today share how I set up Freeagent to do the escalation for me.
I am sure that many, if not all, of the other accounts systems out there have similar late payment escalation systems in place – so this will be just as relevant.
Setting up Late Payment Chase Escalation in FreeAgent
One of the things I love about freeagent is that in many aspects of the accounting process, you can set something up and forget about it. This is equally true for chasing late payers as it is for setting up standing orders or salary payments. In terms of setting up late payment chase emails, it’s just a matter of setting up the email templates, and letting FreeAgent get on with it.
Within the Freeagent system, under the main settings menu (at the top of the screen), there is an option of Invoices and Estimates, and under this, an option for Invoice Emails. This option allows the definition of all kinds of email templates – initial invoice cover email, thank you (for payment) email, and of course late payment chasing emails.
When I initially started using FreeAgent, I just set up a single email reminder template which sent a chase email 3 days after the invoice was due, and then sent the same email every 3 days until payment was made. This worked for a while, but if you got the same email over and over, would it persuade you to make payment? So I made it more sophisticated and gained better results.
Using the template emails defined in my late payers rules, I set up 9 different late payment rules – 2 emails for each stage (in case the first one was missed). For each stage of the chase process, I created a new chase email, and set the Reminder Rules for the days after payment is due to send the email. I have found that sending an email every 3 or 4 days seems to work best.
For each stage, the subject of the email changes to reflect what is about to happen – a warning, about to raise charges, on stop, debt recovery etc. The text of the email also changes as per my late payers email templates already discussed.
Note quite automatic
Now whilst this does all the late payment chasing for me, its note quite fully automatic. I do have to raise late payment invoices (with charges and interest) now and again – and even if FreeAgent was able to do this, I would still prefer to do this by hand (using the FreeAgent invoice creation screen) just to remain in control.
To allow me to keep track of what I need to do next (raise a late payment charge, put them on stop or pass them to a debt recovery company), the 2nd email of each stage in the sequence is marked to be copied back to me. That way, when the email arrives in my in tray, it acts as a trigger and reminder for my next action.
My sequence and dates of my chase emails in FreeAgent are then as follows:
Last week I learnt an interesting fact from a friend who works in a contract placement agency. Of all the emails he receives in his in tray from people looking for placement in contract or freelance positions, he only ever looks at about 10%. Put it another way, 90% of people responding for a contract job fall at the first hurdle.
He suggested to me that this was fairly typical now for most of his fellow workers – they all ignored the vast majority of CVs and Résumés that were sent to them. And this ‘ignored’ number is growing.
When I enquired why this was the case, he shared the following tip, which I now pass on:
That was the word he used. He had no idea if any of the candidates were relevant to the positions he had open.
He was in no doubt that the contract and freelance market was tough – very tough – and getting worse by the week. Two years ago for every position he had managed to open in the market, he would have between 10 and 20 applicants. Today, it’s more like 70 to 100.
Of course of these 100 applicants, many are also applying for 5, 6 or 7 contract positions in a day – and there lies the problem. If he posts 3 contract positions online, by the afternoon he will have around 300 emails with attached CVs – it would take him more than a day to go through all of them.
How could he possibly know which to pick from all of that noise?
Why the Cover Email is King
In his view, the cover email (or letter) was far more important than the CV. The contract or freelance agent is the first (and main) filter between the candidate and the client. That is why the cover email needs to give enough reason for the agent to open the CV.
He suggested the following tips are the difference between him calling a candidate, and simply pressing the DELETE key on the email:
- Keep It Short – The cover email needs to be short – as short as possible. They don’t have time to read war and peace in an email – keep to the facts.
- Reference the Position – If you are applying for a contract role, quote the contract reference number or as a minimum, the job title. He said it was amazing how many emails he got which talked about “applying for the role” when he was juggling 12 or 20 roles.
- List the skills THAT MATCH – the only way your CV will be looked at is if you have skills that the client needs – so list why you are a match for the position in the cover letter. Cover the skills required, but don’t expand into unrelated skills.
- Current Status – Show your current status. Are you currently in a contract, in a full time job, available now, looking for something in 6 months time – he needs to match your availability with his clients requirement.
- 5. What you are looking for – Indicate where you will work in terms of geographical location. Again, this needs to match his clients requirement. Also, say what your minimum day rate is – most jobs are listed as “Market Rate” – but he needs to know what you would accept.
- Contact Details – Finally, make his life easy. Include a telephone number that he can contact you on – mobile is best.
What to Take Away from all of this
In a nutshell, make the cover email specific to the role. If you are applying through an on-line contract search system, NEVER use the option for a standard cover letter – this is what most people use, it does not cover the points above, and it will mean that your CV will end up in the recycle bin.
A real quick one from me today on a new resource I have come across.
Predominantly this is for UK business to business (B2B) companies, but will be useful for business to individuals based companies and companies/freelancers from anywhere outside of the UK.
PayOnTime (www.payontime.co.uk) has everything you need to deal with late payers. It includes the details of UK laws regarding late payers, templates for letters and emails you can use, rules regarding interest and late payment fees, a discussion/advice forum and a late payment interest calculator.
If you have ever had a late payer, a bad payer or think this situation may arise, you need to visit and bookmark this great FREE web resource.
Let me ask you a question? What is the worst thing that could happen to your contracting, freelancing or small business?
I would imagine right up there with going bust and being sued is a visit from the tax man. It’s never happened to me (and touch wood never will), but we all know that when the HMRC (or whoever your particular taxman works for) comes-a-knocking, we better have good records to back up all our business activities.
But do you really want all that paperwork floating around or sitting in files taking up space?
Paper Vs Electronic Storage – the UK Law
Following the UK Electronic Communications act 2000, an electronic form of document is deemed sufficient evidence in law. That goes for contracts, agreements and of course receipts (seek your own legal advice to be sure).
This means if you have a scanned copy, then that is good enough for the taxman. This also means you no longer have to store paper copies of everything.
Scanners and their problems
However, there is a problem in transforming everything from paper into bits and bytes. When you go out and buy a dedicated scanner or multi-function printer/scanner, the device does not know what you are scanning. It doesn’t know if that page of A4 is an invoice or a purchase order.
Scan all your invoices, receipts, orders or contracts and all you end up with is a big mess of PDF files named SCAN0001.PDF, SCAN0002.PDF and so on. Whether you scan to JPEG, TIF or PDF – the sequential numbering of files generated actually makes the problem worse.
How do you find that critical contract when you have 5,000 PDFs and they have file names of SCAN00001 through to SCAN05000?
If you are lucky and prepared to spend the money, some scanners will perform OCR (Optical Character Recognition) on the documents. Whilst this will slow down the scanning process, it does mean you can Windows (or Mac) search the PDFs for a known phrase. But what about if you don’t know what text was on the contract?
There is a solution.
Decent PDF names
Over time, I have come to find that scanning to a PDF is the best option. PDF scans will deal with multiple pages and front/back scanning (the term for this is Duplex) a lot better than scanning to a graphical format such as JPEG or TIFF.
Assuming you also want to scan to PDF, there is a free utility available created by a chap named Michael Weiner which allows the batch renaming of PDF files. The great thing about this utility is that it cycles through all PDFs in a directory, displays them on screen, asks what you want to call it, and then renames the file for you. The utility can be downloaded free here.
The way I scan my documents is that I scan any documents on receipt (or save received PDFs) to a directory then each weekend I quickly run through them using this utility, giving them decent names. Once renamed, I then file them away.
Incidentally, I also save invoices and notes that are emailed to me in the same way. I simply print any documents received to PDF (using the Free CutePDF virtual printer). This installs a new virtual printer on your computer and you can then print any format of document to a new PDF file (via printing to the virtual printer) which I then save in the same location.
Once you have your collection of PDFs, what to do with them? The system you select will depend on how fancy you want to be, how secure, how many documents you are likely to store, and of course how much you want to spend.
Here are some suggestions:
Accounts System – For any business money based documents (receipts, invoices, etc) I would recommend uploading them to your on-line accounting system. I use Freeagent for all my money business processing, and I upload all documents associated to incomings and outgoings as I record them on Freeagent. Everything is then easily at hand and Freegant deals with the storage and backup of the documents.
Evernote – If you are an Evernote user, then all the documents can be uploaded to Evernote. This has the advantages that Evernote will automatically OCR your documents for later searching and you can create folders for different document types. However, whilst the basic account of Evernote is free, uploading large amounts of PDFs will soon move you into the realms of a paid account.
Windows/Mac File Store – the cheap and cheerful solution is to simply keep them in a windows or Mac file directory somewhere on your computer’s hard disk. As with Evernote you could keep them all in one big directory, or have sub-directories for different categories and document types (such as invoices, contracts etc). Just remember to perform regular backups of your file store.
Sharepoint – My own personal product of choice is Microsoft Sharepoint (as I have a home Windows server anyway). Sharepoint comes in a variety of sizes, styles and prices. As I was using sharepoint for the storage of my general business documents (via integration to office), it seemed the logical choice to store my PDFs there as well.
Third Party Applications – Finally, there are a variety of paid for and free Document Management solutions available, including products such as OpenDocMan which is one of the better open source document storage systems.
Health and Safety, Human Rights, Data Protection, Pounds verses Kilos, Gallons verses Litres and of course the Euro – all of these pitiful excuses for ‘making our lives better’ are brought to us by the fools that sit and pass laws for the whole of Europe in Brussels.
Clearly life is still too easy for us in the UK, especially if you run a small business, so the EU ministers have been at it again. You may be aware that there is now in force, a revision of the EU’s Privacy and Electronic Communications Directive that was introduced to protect users privacy by requiring explicit consent before (most)* cookies can be placed on a computer or mobile device by a web site.
Making the Web Unusable
If you operate a web site within the European Union (including the UK), you now have 4 options to get your house in order:
1. Do nothing (which can leave you open to possible fines for non compliance)
2. Don’t accept cookies (remove all the analytics, order processing and any other cookie code)
3. Ask for permission (which is what the EU wants you to do)
4. Move your company outside of the EU
Reasonably, only the 3rd is a viable option for any serious business which means working towards compliance. The problem is, most EU nations have no law in place yet, and there are no clear guidelines for which cookies are acceptable and not. Some fuzzy guidelines have been provided by the UK Information Commissioner’s Office – the UK’s information privacy cheerleader. The ICO has put together a downloadable document that serves as a “starting point for getting compliant,” rather than a definitive guide.
This will make the web a much more annoying place for all concerned.
You have until May 21st, 2012
If you were not aware, the law is actually already in place – you should be complying with the ‘guidelines’ now. However, the EU has granted a 1 year ‘settle in’ period, which means your changes do not have to be in place until 21st May 2012. This date will soon come around, so maybe it’s worth thinking about your options now.
What I am doing about it
I am fortunate that the only cookies I need on my web site is the ones used by Google Analytics and Google Optimisation. At a push, it would not be the end of the word to disable or remove them. For other businesses, removing cookies could be more serious.
I have decided not to produce pop-ups on my web site or my blog – simply because this is a law I really don’t agree with. However, at the same time I don’t want to leave myself open to possible business fines.
So my middle ground solution is, I am going to put a line at the bottom of all effected pages stating:
Clearly this is fairly long, so I imagine the text will need to be fairly small to make it fit. To this, I will like to another page that talks about the directive, what it means and why I use analytics. After all, one of the items detailed in the ICO’s document states “If the ICO were to receive a complaint about a website, we would expect an organisation’s response to set out how they have considered the points above and that they have a realistic plan to achieve compliance. We would handle this sort of response very differently to one from an organisation which decides to avoid making any change to current practice.”
So the simple statement means I have made a start, which means in the unlikely event somebody does have a word about my business, I am not avoiding the problem, which means I get a warning rather than a fine.
I have just completed a review of my companies Terms and Conditions and found that I was missing a Kill Clause. Without this clause, I was at risk of loosing a lot of money if a customer cancelled a project after I had started worked. Luckily for my company, this has never happened, but of course that doesn’t mean that it could not happen in the future.
So today I added an additional clause to my Terms and Conditions with a Kill Clause as follows:
3. Project Cancellation
In the event that the Client cancels the project before completion, the Company shall deem the project completed and will invoice for the outstanding effort, time and expenses up to the point of cancellation. This effort will be calculated as the actual time spent on the project up to the point of cancellation, and will be calculated using the daily rates agreed as part of the original quotation, rounded up to the nearest half day.
What this clause is effectively saying is that if you order work, products or services from my company and then just before delivery you cancel the project, you can expect an invoice for the work and expenses spent on the project up to that point.
I also have an abridged version of my Terms and Conditions, so I am also updating this version to include a Simple English version which simply says:
If you decide to cancel the project before it is completed, we will raise an invoice for any outstanding work effort and expenses up to the point of cancellation.
Do you have a Kill Clause in your Terms and Conditions?