Contracts 101

Posted in Entrepreneurship by WP Engine

Last updated on April 5th, 2023

Contracts really are the key to setting yourself—and your clients—up for success. Working through the contract-writing process gives both parties the chance to set their expectations and avoid surprises, conflicts, and payment issues. Plus, nothing makes you feel like a pro the way a contract does, especially if you haven’t used one before.

There’s no shortage of information about how to set up a contract, but it can be confusing, conflicting, or downright overwhelming if you’re just getting started. Take a breath—we’re here to help!

This is the first in a three-part series where we’ll go over some contract basics. You’ll get enough information here to set up your own contract, as well as links to more information to help you feel more sure of things.

What Every Contract Needs

Some elements of the contract vary from project to project, but every contract needs to cover basically the same ground. In no particular order, this includes:

Contact information
Confidentiality
Liability, warranties, and/or indemnity
Disputes
Scope of work, conditions, and revisions
Copyrights and ownership
Termination
Payment terms

Let’s start off with the most basic clauses today: contact information, confidentiality, liability, and disputes. Check off these “low-hanging fruit” clauses in your contract, and we’ll discuss some of the more complex ones next week in Part 2.

Contact Information

image of glasses and an iPhone sitting on a grey notebook atop a wooden desk

Having a client disappear on you is no fun, especially when you’ve already begun working or you’re waiting to get paid.

Save yourself a few headaches by capturing all their contact information up front. That way, if and when the day comes that you need to bombard them for their attention, you’ll have several avenues available to you. You’ll need to get:

The client’s name
Mailing address
Telephone number
Main contact’s email address and a backup email address

You should also list all of your contact information in the contract, usually at either the very top or bottom of the contract. If you’re a freelancer working from home, consider renting a mailbox or post office box. You’ll be able to present a legitimate mailing address without pasting your home address all over the internet.

Confidentiality

a greenish-gray filing cabinet with gold hardware

The purpose of a confidentiality clause, also called a nondisclosure agreement or NDA, is to agree that you won’t go sharing the client’s proprietary or otherwise valuable information with competitors or other third parties.

Confidentiality clauses are fairly standard. You’ll want to agree to keep the client’s information confidential and also require the client do the same for you.

If you really want to go in-depth with confidentiality, you can read this incredibly detailed breakdown. Otherwise, here’s a nice sample to get you started. It’s written in first person, but you can change it to third person if that’s how the rest of your contract is written.

Each party shall maintain Confidential Information in strict confidence, and shall not use Confidential Information except (a) as necessary to perform its obligations under the Agreement, or (b) as required by a court or governmental authority. Confidential Information includes proprietary technical and business information, Preliminary Works, and any other information marked “Confidential.” (source)

Liability, Warranties, and Indemnity

a man jots down notes in a small notebook at a desk in front of a window. to the left of a desk sits a small plant

Limited liability is how you, the freelancer, can limit the amount to which you’re on the hook for any harm that your work does to the client (for example, if a page you design doesn’t work properly and causes them to lose business).

A limited liability clause can specify the amount you’ll have to pay out in that situation—it’s a good idea to say that your liability is limited to the amount of the project fee and no more. This sample should do the trick, especially if you’re new in the contracts arena:

Unless a result of gross negligence or willful misconduct, the liability of either party to the other for any type of damages is limited to the amount of (your name)’s total fees under this agreement. (source)

You may also want to include a warranty section, sometimes called an “agreement” section. You’ll outline some basic principles that state what you’re doing for this project isn’t going to get the client sued. This is a set of very specific promises that you make to the client. For example:

Designer represents and warrants to Client that:

The Final Deliverables will be the Designer’s original creative work, except that Designer may incorporate Client Content, work from its Designer Agents and third party material (for example, stock photos, or Software as a Service).

For any Final Deliverable that includes the work of independent contractors or third party material, Designer shall secure sufficient rights for Client to use the Final Deliverables for their intended purpose.

To the best of Designer’s knowledge, the final Deliverables will not infringe upon the IP rights of any third party. However, Designer will not be conducting any type of IP clearance search (for example, Designer will not be conducting a copyright, trademark, patent or design patent clearance search). (source)

Indemnity clauses and warranties are linked to each other, and they address actions a third party might take against you or the client. In return, you are indemnifying the company for the very specific things in your warranty. In general, you probably don’t need to offer an indemnity clause. If you’re asked to sign one, though, you need to look out for these things:

Check the indemnity clause for something like “defending against reasonable claims” or “defending against all claims.” There’s a big difference, and you need to be sure you understand what you’re signing.
Phrase your warranty so it says you won’t be infringing on any known intellectual property rights. Sometimes these can say all IP is covered, with or without your knowledge.
Be sure that your liability in any indemnification clause is only addressing the actual promises you’re making about your work in your warranty.

Disputes

a man looks at an iPhone while seated at his laptop

It’s helpful to include language about the jurisdiction governing the contract, in case any legal action needs to be taken. Not a happy thought, but it’s very important to know in the worst-case scenario. Your contract needs to specify which laws will govern the contract.

Some contracts state they’re “governed in accordance with the laws of [your state]” while others will name the client’s state. Really granular contracts may specify both, stating the agreement is governed by the client’s state except when the legal action is for the collection of outstanding invoices, which would then be governed by the freelancer’s state. The Freelancers Union contract template has this structure.

There’s no wrong way—just be sure you have something.

Again, keep in mind that these are just the basics, and obviously The Layout can’t make any promises about the legality of a contract you craft from this post alone. We hope this series will be a great addition to your own contract research! Be on the lookout for Part Two later this week.