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  • Writer's pictureJoel White

(Stop) Working without a Contract

I'm coming across more and more examples of companies working without contractual coverage, which to me includes any of the following:

  • starting a new project before a contract is signed

  • performing services outside the scope of a signed contract

  • working beyond contract expiration before a renewal is signed

This situation is especially risky at smaller companies where the opportunity cost of key personnel engaged in such work seriously impacts profitability.

Steps to avoid these situations:

  • Internalize the fact that working without a contract is a choice, not something forced upon you.

  • Implement a policy requiring high-level approvals to perform billable work without a contract, define what "billable work" is, then you use that policy as grounds to not work without a contract.

  • Explain to clients the risks that working without a contract poses to both parties.

  • In cases where some such out of scope is acceptable, agree in writing the limit to which such work will be performed.

Breaking these steps in more detail:

Working without contractual coverage is a choice.

Do not play the victim- if you work without or beyond contractual coverage, you are doing it with intent and rationale. Maybe you're concerned whether the client will actually ever sign, and this is your way of guilting them forward. Maybe you've seen other companies do it and thus believe if you don't then they may give the project to someone more "flexible". Maybe you just have spare capacity and it doesn't hurt to get started early.

Regardless- it's a choice you made, so don't blame the client if you end up holding the bag while hoping they'll do the "right thing". You allowed it to happen.

If you're not willing to accept this fact, there's no need to read on.

Implement a highly bureaucratic policy making it difficult to work without a contract.

I despise bureaucracy and excessive policies except when they're useful. Bureaucracy is bad at encouraging people to do the right thing, but can be great at preventing undesirable things from happening.

Such a policy can go into any existing policy or standalone as a short document. Components would include:

  • Opening statement that the company's default approach is to never work without contractual coverage except in rare instances.

  • Approval levels (as high as possible) and manner for requesting approval (slightly painful).

  • Requirement that an approval only allows such work up to a certain point (financial and/or duration)

  • Requirement that the client provide written acknowledgement of the out of contract work, to pay for such work if a contract is not signed, and their commitment to finalize a contract by a certain date.

Explain to clients the risks that working without a contract poses to both parties.

Working without a contract creates legal, operational, financial and, in some industries, regulatory risks to both parties. That's usually all you have to say, as this fact is self-evident to most people with any business experience.

Also, not only can you use this as the rare opportunity to say "we can't do that because our policy says...", but most client companies also have policies prohibiting vendors from working without contracts.

Related note- it's often easier for your customer counterpart to not pay you for uncontracted work than to explain their process deviation to superiors...

In cases where some such work is acceptable (remember- it's a choice), agree in writing the limit to which such work will be performed. These limits can be financial (up to $5,000 worth of services) and/or based on duration (up to 2 weeks).

If a client isn't even willing to acknowledge this kind of limitation in writing, that's a huge red flag.

Extra tip:

If a situation arises where it makes sense to start some work without a contract, consider requiring the client to make an upfront payment prior to contract signature. Many clients will have already approved the funding internally (via PO or other means) and can make a one-off startup payment prior to contract signature.


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