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DECEMBER 2, 1999

SMART ANSWERS
By Karen E. Klein

Drafting the "Goldilocks" Contract — Not Too Simple or Too Complex
Many service businesses use agreements that afford little


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Q: I'm interested in starting a computer consulting business and have the education and certifications necessary. However, I'm not sure about how to develop a contract for my services. Can you give me some advice?

---- L.D., Los Angeles

A: Contracts are all-important for independent service businesses, yet too often entrepreneurs use inadequate, hastily drafted documents — when they bother at all. A contract that doesn't cover such essentials as fees, payment methods, and scope of work won't protect you in the event you and your client have a conflict. Also, beware of contracts that don't allow deadline changes on consulting projects or that ignore the client's responsibility to cooperate for a successful consulting job.

A contract can be a one-page letter of understanding or a multipage document full of legal jargon. Neither is ideal. If your contract is too simple, it won't protect you. Yet, if it's too technical, you'll appear rigid or litigious and will scare prospective clients. Where's the happy medium?

There are many sources — including industry organizations, books, and Web sites — for sample contracts. Business attorneys have boilerplate agreements that they can tailor to your practice. Prospective clients may want to use their own format, and you can find do-it-yourself contracts in legal bookstores and online. If you are going to do different kinds of consulting projects — some one-time and others ongoing, for instance — you may need to use several distinct contracts.

William T. Mooney Jr., a consultant's consultant and director of the Center for Consulting & Professional Practices in Torrance, Calif., advises his startup clients to collect sample contracts from friends, colleagues, organizations, clients, and books. "Get as many different contracts as you can find and identify the pieces of them that would apply to your particular consulting products," Mooney says. "Take the language that speaks to the important issues you'll be dealing with — especially the responsibilities of the consultant and the responsibilities of the client — and gather it together. Then take it to your attorney, making sure you hire someone who is familiar with consulting businesses, and ask two questions: 'Will this protect me?' and 'If not, what else do I need to include?'"

Clients who go into their attorneys armed with relevant materials save on legal fees, says Mooney. And they don't end up with boilerplate material that includes unnecessary language. "The attorney should be able to look over what you've collected and tell you what to include, what to add, and what to delete. You take it from there," Mooney says.

Henry A. Burger, an engineer who has studied contracts used by technical consultants, says a good contract covers all the important details of a work agreement without getting too technical or too wordy. Yet no contract will protect you every time. "Be careful who you're dealing with. The best-written contract will do you no good whatsoever if you're dealing with a dishonorable person," Burger cautions. The best way to find good sample contracts is to join professional organizations specific to your industry and talk to others in your business about what they have used, he says.

The Independent Computer Consultants Assn., based in St. Louis (800 774-4222) has sample contracts for members posted on its Web site, www.icca.org. The Institute of Management Consultants, www.imcusa.org, has a code of ethics, standards and practices that might include language you will want to include in your contracts. The group's Web site has additional resources you may find helpful, as does the Web site of the Institute for Electrical and Electronic Engineers, www.ieee.org.

Mooney recommends three books that include advice on contracts: The IRS, Independent Contractors and You! by James R. Urquhart III, The Complete Guide to Consulting Contracts, by Herman Holtz, and The Contract and Fee-Setting Guide for Consultants and Professionals, by Howard L. Shenson. All of the titles are available online at amazon.com.



Have a question about running your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 6th Floor, 2 Penn Plaza, New York, NY 10121. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.

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