Put it in writing: Contractors need contracts

Written agreements are essential for IT professionals who contract independently

IT professionals and the gig economy seem to be made for each other. As this recent ITWorld article points out, the tech industry was one of the first to make heavy use of independent contractors, and now more people are taking advantage of the benefits that freelancing offers.

Working as an IT contractor, however, has its risks. One of the most common is conducting business without formal agreements. In a world that prizes agility and speed, writing up contracts and outlining procedures may seem like an unnecessary drag. But written agreements protect better than verbal ones in a lawsuit — and can even minimize the chances of a suit in the first place. Commit to moving away from an “oral tradition” in your business dealings by putting these three practices in place, and you can avoid some of the costliest and most time-consuming risks that threaten technology professionals.

Use written contracts

Surprisingly, not all IT contractor put their deals in writing. After examining data from the more than 10,000 micro IT businesses, we found that 13% don't use written contracts at all. While that may not seem like a high number, we expect that since this data comes from businesses already thinking about risk (and hence applying for insurance), the actual number among the entire population is much higher.

Further, among those who do use contracts, there were some fundamental flaws in how they implemented them. Notably:

  • 12% lack descriptions of services.
  • 13% don't have “hold harmless” language for actions of a third party.
  • 34% don’t have a limitation-of-liability clause.

These oversights are a recipe for trouble when you're being hired for a project or subcontracting work to someone else. The better choice is to use written contracts that clearly outline the terms of the agreement, the nature of the relationships and the scope of the project. It puts everyone on the same page and minimizes the chance for frustrations later.

Act like a project manager

Contracts aren't the only example of written documents that can help you avoid lawsuits. Consider, for example, this blog post on ERP implementation from Toolbox.com. The author offers insights that apply to all kinds of IT projects, not the least of which is how failures and lawsuits can often be traced back to people problems, not technical issues.

What does that have to do with writing? Think about it this way: when you became an IT contractor, you took on the role of project manager, too. That means you're responsible for:

  • Adhering to the original client agreement.
  • Keeping the project on schedule.
  • Meeting budget expectations.
  • Communicating the project's status to the client.

Seems easy enough, doesn't it? Yet less than 50% of IT projects finish on time and on budget. Moreover, analysis of our small IT business applicants shows that only 46% use internal project management audit procedures.

A procedure that includes written documentation has a couple of benefits. First, you can also use it to review your processes and improve your performance. More to the point, you can send a written report to your client, who will probably appreciate the update even if everything is going smoothly, or use it as evidence in a lawsuit should things go south.

Establish a process for client complaints

The temptation to avoid an unhappy client can be strong, but it’s a bad idea. According to “Common Sense Tips for Avoiding Litigation,” many lawsuits start when one party doesn’t respond to the other’s complaints. Unfortunately, our research shows fewer than half of our IT applicants have a formal procedure for dealing with dissatisfaction.

A complaint resolution policy doesn't have to be complicated. It can even be as simple as a to-do list that reminds you to:

  • Acknowledge and document the complaint.
  • Record the steps you take to resolve the issue.
  • Communicate the resolution to your client.
  • Follow up to ensure resolution is satisfactory.

Writing down your procedure can make dealing with complaints less overwhelming, and that alone can help keep you out of court. But if you do end up being sued, written documents can be evidence that you took appropriate steps to appease your client.

Taking the extra time and effort up front to document things in writing can save time and money on the back end, and can help prevent litigation.

Ted Devine is the CEO of Insureon, a leading online provider of small business insurance. Prior to joining Insureon, Devine held senior leadership positions at Aon Corporation and McKinsey & Company. He lives with his family in Chicago.

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