Contracts | Exploring Web Marketing and Project Management

In a capitalist society, most of us are firmly attached to our possessions. The prospect of losing one's home and/or savings in a dispute with a client can be extremely daunting. Most likely, if you work for someone else, you are insulated against this type of litigation, which might threaten your personal assets. However, as a self-employed contractor, you have to take steps to protect yourself, one of which is the regular use of a programming services agreement or contract.

This lab is not meant to replace a well-timed visit to a lawyer who specializes in contract law and understands the Internet. Rather, it explains how the contract fits into the project management process. If used correctly, a contract is yet another tool that protects not only the Web firm but the client as well. It further defines the relationship and what is expected, given several project outcomes. All avenues should be explored, even the one that no one likes thinking about while enthusiastic about a project kick-off: the possibility that one or both parties wants to terminate the agreement.

Contracts should be reviewed regularly and updated to reflect changes in the industry. In the coming years, the U.S. government will be looking much harder at Internet law. Newt Gingrich, Former Speaker of the House, speaking at a recent Internet Commerce Expo in Boston, said that the challenge with effectively regulating the Web is that Web entrepreneurs are extremely busy. The Web is literally exploding around them, and keeping up with industry and technical advances is more than a full-time job. These entrepreneurs may not yet understand how crucial it is to educate government officials with regard to effective implementation of Internet law. It's the common debacle where those that are talking aren't necessarily in the know, and those that are in the know are too busy to talk. However, the way this law is eventually handed down will affect everyone in the industry.

Intellectual property and copyright are other considerations for the client. Often, the client will ask the Web firm questions with regard to these issues. What kind of liability might the Web firm assume if it inadvertently consults on these issues? The Web firm is not a law firm. It's always better to refer the client to a lawyer when questions such as these arise or punctuate a response with, "We're not lawyers, so you'll need to consult one. This is only our understanding of the issue."

Contracts help to define what the Web firm is and is not responsible for. They identify liability in case the client is sued and the Web firm is also named in that lawsuit. Also, contracts define terms of use. The source code written by the Web firm is reserved for the client's use; if it is resold to another entity without the Web firm's permission, the Web firm could be due restitution. Therefore, the terms of use or licensing of the source code must be clarified within the contract.

Exercises

Identify Project Pitfalls

A company that specializes in adult entertainment wishes to contract with your firm to build a Web site that would incorporate X-rated material. Regardless of how you feel about free speech on the Internet, if the owner of your firm is considering the project, what questions should you as project manager pose to legal counsel regarding your firm's liability?

__________________________________________________________

Several entrepreneurs plan a Web site that would offer advising as well as brokerage services. What questions would you ask legal counsel?

__________________________________________________________

Your firm considers bidding on a site in which visitors are allowed to gamble. What kinds of questions might you have regarding liability?

__________________________________________________________

Create a Work Order

A work order, similar to those used in the construction industry, is a preliminary agreement between the client and the Web firm that states what services have been ordered by the client, how much they will cost, when they will be performed, and any disclaimers or guarantees. It is a piece of paper that essentially says, "You are ordering these services, and you are going to be billed this much." Draft a sample work order. What items would you have in it?

__________________________________________________________

How advantageous is a work order when the prospective client is discussing the reservation of development time with your firm?

__________________________________________________________

Evaluate a Sample Contract

The following is a standard programming services contract between a Web firm and its client.

This PROGRAMMING SERVICES AGREEMENT ("Agreement") is made and entered into this_______day of______, ______, by and between____________, with an address of ("Client"), and Acme Web Development, with an address of____________ ("Developer").

1. Definitions. For purposes of this Agreement, the following capitalized terms shall have the meaning ascribed to them below:

Code shall mean computer programming code. Unless otherwise specified, Code shall include such computer programming code in both object code and source code forms.

Confidential information shall mean Work Product and any other information that Client indicates to be confidential and Developer acquires (as a result of disclosure by Client, access to Client facilities, analysis of Client's products or enhancements, or otherwise) in connection with the Services. However, Confidential Information does not include information that rightly becomes public or that Developer independently develops or acquires without reliance on other Confidential Information produced or acquired by Developer.

Services shall mean programming and development services relating to existing and planned products and enhancements of Client or Client's customers, whether heretofore or hereafter provided by Developer.

Work Product shall mean all Code and other media, materials, or other objects produced as a result of the Services or delivered by Developer in the course of providing the Services.

2. Scope of Services; Compensation. All Services provided by Developer shall be subject to this Agreement unless otherwise agreed upon by both parties in writing. All Services shall be performed in a workmanlike and professional manner. Services are to be described more specifically in Work Orders, which shall be set forth in writing, shall be signed by both parties and, once signed, shall be made a part of this Agreement.

The parties are and shall be independent contractors to one another, and nothing shall be deemed to cause this Agreement to create an agency, partnership, or joint venture between the parties. Nothing in this Agreement shall be interpreted as creating or establishing an employer/employee relationship between Client and either Developer or any employee or agent of Developer.

The terms for compensation of Developer shall be agreed upon by both parties in writing in such Work Orders. Client shall be responsible for reimbursement of expenses incurred by Developer as stated in such Work Orders. On any bill (interim or final) remaining unpaid for a period of ninety (90) days, a service charge of one and one-half (1.5%) percent per month will be charged from the date the bill is rendered. This represents an annual rate of eighteen (18%) percent. In the event Client fails to pay any bill or expense reimbursement beyond ninety (90) days, then Developer may declare the entire unpaid amount immediately due and payable ("default"). In the event of default Client agrees to pay all reasonable costs of collection, including reasonable attorneys' fees and Court costs, to the extent allowed by law.

3. Confidential Information. Developer shall receive and hold all Confidential Information in trust and confidence for Client. Developer may not use any Confidential Information except as authorized by Client and for the benefit of Client. Developer may disclose Confidential Information only to those employees who have a "need to know" in order to help Developer perform Services and who are legally bound to maintain confidentiality of the Confidential Information. Developer shall be responsible for safekeeping of all materials and media containing Confidential Information and shall account for such materials and media at Client's request. Upon completion or termination of all or any relevant Services, Developer shall deliver to Client or destroy (as requested by Client) all materials and media containing Confidential Information (including all copies and extracts thereof). Developer shall certify its compliance with such obligation at Client's request. These confidentiality obligations shall remain in effect until five (5) years after any relevant Services are completed or terminated and Developer has delivered to Client or destroyed materials and media containing Confidential Information associated with Services.

4. Rights in Work Product. All Work Product shall be deemed to be works made for hire and shall belong exclusively to Client and its designees. Developer grants to Client an irrevocable, nonexclusive, worldwide, royalty-free right and license to use, execute, reproduce, display, perform, and distribute (internally and externally) copies of, and prepare derivative works based upon, such Work Product.

5. General Provisions. Developer shall not be liable to Client for any failure or delay caused by events beyond Developer's control, including, without limitation, Client's failure to furnish necessary information, sabotage, failure or delays in transportation or communication, failures or substitutions of equipment, accidents, materials, or equipment or technical failures.

Client shall defend, indemnify, and hold harmless Developer from and against all claims, liability, losses, damages, and expenses (including attorneys' fees and court costs) arising from or in connection with the use or application of Developer's work by Client or any direct or indirect purchaser or licensee of Client.

It is assumed, and Developer strongly recommends, that any and all materials, media, or Confidential Information provided by Client to Developer in order to perform Services will be in duplicate form and not the originals. Developer shall not be liable to Client for any loss or damage to any and all such materials, media, or Confidential Information, whether in duplicate or original, that are provided to Developer from Client in order to perform Services.

This Agreement supersedes all other communications, understand-ings, and agreements relating to the subject matter hereof, and may be amended only in writing. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts as they pertain to contracts executed under seat delivered and performed in that State.

IN WITNESS WHEREOF, this Agreement has been executed under seal and delivered by authorized representatives of both parties as of the date first indicated above.

Acme Web Design

.....................(client)

By:.......... By:.........

Title: ........ Title:........

In the preceding contract, which points do you feel are identified well as they apply to the Web and Web site development?

__________________________________________________________

What areas do you feel are vague, given your knowledge of the Web industry?

__________________________________________________________

Exercise Answers

This section gives you some suggested answers to the questions in Lab 10.2 with discussion related to those answers. Please post any alternative answers to these questions at the companion Web site for this book, located at http://www.phptr.com/phptrinteractive.

Answers

a)	A company that specializes in adult entertainment wishes to contract with your firm to build a Web site that would incorporate X-rated material. Regardless of how you feel about free speech on the Internet, if the owner of your firm is considering the project, what questions should you as project manager pose to legal counsel regarding your firm's liability? __________________________________________________________ __________________________________________________________ __________________________________________________________
Answer:	First, after begging my superior to put me on a different project and then tendering my resume elsewhere, I would be highly concerned about liability with this site. It would be necessary to research the following with Internet lawyers: What is the current legislation regarding the distribution of adult media? How does this legislation apply to the Web? Which disclaimers need to be present on the Web site? If it is permitted to build and maintain a Web site containing adult materials, is it possible to develop an ironclad contract that fully protects the Web firm against lawsuits?
b)	Several entrepreneurs plan a Web site that would offer advising as well as brokerage services. What questions would you ask legal counsel? __________________________________________________________ __________________________________________________________ __________________________________________________________
Answer:	There are many Web sites owned and maintained by financial planners, accountants, and stock brokers. Some of these offer stock picks, others just outline services offered. Sites like e-trade allow e-commerce-enabled stock trading, allowinginvestors to day trade. At this writing, day trading is just beginning to impact the stock market. It will be fascinating to see what happens in the financial industry, given the easy access investors now have to managing their own investment assets. However, as more people take advantage of Web financial services, more misunderstandings and opportunities for transaction failure can occur. Several questions, including the following, come to mind: If there is a technical failure that results in a poor trade for a site user, what is the liability for the Web firm should the user seek restitution? Is there any way to insulate the Web firm against losses caused by technical glitches? If there is a technical problem that resides with the hosting company, as opposed to the programming performed by the Web firm, how will fault be determined? Can an independent consulting firm assess fault? (Often, it cannot be apparent to all, except to those directly involved with the technology, where the failure occurred.) Is it standard procedure to ask the client to assume all responsibility for defense expenses, even if there is a technical problem? How can the Web firm be insulated against faulty investment advice given on the site?
c)	Your firm considers bidding on a site in which visitors are allowed to gamble. What kinds of questions might you have regarding liability? __________________________________________________________ __________________________________________________________ __________________________________________________________
Answer:	What is the current legislation regarding gambling on the Internet? If the client questions the results of a bet, how can the possibility of a technical glitch be evaluated independently? Who takes on the cost? How can the Web firm be completely insulated from user and client claims?

Answers

__________________________________________________________

Answer:

The following is the work order I have used in the past. This document is developed internally, stating pricing and guarantees. It is used in combination with a programming services contract.

Work Order Example
Starter Package	$300	____
Business Package	$600	____
Deluxe Package	$1000	____
Additional Page	$100	____
CGI/JavaScript programming	$100/hour	____
Guest Book	$200	____
Auto Responder	$200	____
Bulletin Board	$200	____
Chat Room	$200	____
Submit to 7 Major Search Engines Free with Web Site Build
Internet Consulting	$100/hour	____
Web Site Maintenance	$40/hour	____
Writing/Editing Services	$40/hour	____
Graphic Design	$40/hour	____
	ESTIMATE	____
	DELIVERY DATE	____
Acme Web Design guarantees its work. If a site fails due to a programming issue, we will guarantee a prompt "fix" within one to three business days. Acme Web Design cannot guarantee server performance, as this is a separate business relationship. Acme Web Design cannot guarantee how a site will be listed or ranked on the search engines, as this is a separate business relationship. Acme Web Design cannot guarantee dollar volume or number of hits. Client agrees to supply Acme Web Design with any written or digitized materials by______________________. If Acme Web Design does not receive these materials by the above date, the client understands that the completion of the Web site may need to be rescheduled according to the current production schedule and an updated work order signed. Standard billing procedure is remittance of half the project estimate when the work is ordered and the other half due before Web site upload. Acme Web Design reserves the right to interim bill. A separate work order will be completed for all upgrades and appropriate deposit remitted, should more features be added during the Web site build that are not covered by this work order. Additional work may require the Web site completion date to be revised. Acme Web Design has been contracted to build_____________________'s site between________________and_________________. The client will make a representative available during this time to approve work completed.
___________________		______________________
Acme Web Design Representative		Client Representative

How advantageous is a work order when the prospective client is discussing the reservation of development time with your firm?

__________________________________________________________

Answer:

I see a work order as being a transition document. With a client, it states that the relationship is now transitioning from a selling phase to a payment for services completed phase, which may include consulting. We use the work order to subtly ask the client for a deposit on the time we're scheduling for that company's development work.

Truly, the work order serves as a psychological dividing line between, "Yes, we can do your project. These are the services my company offers," and "Yes, we are doing your project. Let's discuss the business arrangements." Often, if I feel an initial meeting is taking too long, and I want to see if the prospective client is really serious, I take out a work order. I begin to estimate the work that has been discussed. This causes the prospective client to focus on what is needed, as opposed to brainstorming ideas. From there, it moves the conversation into, "We have development time open on this date; we could schedule you then." Finally, the work order drives the exchange to, "Roughly, I think it's going to cost x amount of dollars. In order to reserve the time, we'll need a deposit of such and such." This easily brings the meeting to some sort of completion. I've given my time. I've listened, but I'm not going to hamstring my company by spending the entire morning brainstorming over a Web site that we are not yet contracted to consult on and/or to build. I have also taken control of the situation, which may, in effect, add to the prospective client's faith in me and break down resistance to moving forward. It's called "closing the deal." I find the work order is a great tool to accomplish this.

A good work order makes the client feel more confident as well. In it, hopefully, the Web firm is formally stating its commitment to the client in time, estimated dollars, and guarantees. It should be clear and explain what is within and not within the power of the Web firm to effect. Things like search engine ranking and hosting, unless the firm is being paid specifically for search engine positioning and for hosting, are separate business relationships. The Web firm can support its client in these areas, but cannot take responsibility for something outside its direct control.

The work order provides structure, specifying a date at which all collateral materials should be received by the Web firm in order for work to move forward, and it gives the firm a scheduling option, if materials do not come in on time. Plus, it should specify payment terms. When will payment be expected? Will it be billed? Will it be directly upon receipt of services? Will payment be required over several installments? Again, clarity up front can diffuse many disagreements.

Answers

a)	In the preceding contract, which points do you feel are identified well as they apply to the Web and Web site development? __________________________________________________________ __________________________________________________________ __________________________________________________________
Answer:	The following points seem to be identified well as they apply to the Web site development process: The definition of terms up front is an excellent feature of this contract (Ie. Code, Confidential Information, Services, and Work Product). This contract allows for the work order to become part of the agreement, thus allowing for quick customization for each project. The contract specifies that all parties are independent of each other, and not connected to one another in anything other than in a contracting arrangement. The terms of compensation legally allows the developer to begin assessing late fees for any overdue payment. Should the payment be in default, the client must pay additionally the costs of collecting the payment and/or court fees. A confidentiality agreement allows for protection of the client's privacy. This is an assurance that information pertinent to the project will not be disclosed to outside parties without the client's prior permission. This contract specifies clearly that the client has complete right to all work performed by the firm and may redistribute this work as it sees fit. The development firm is not liable to the client for any circumstances, resulting in Web site failure, beyond its control. A very important clause is the requirement on the part of the client to defend and hold the contractor harmless in any lawsuits leveled by outside entities as a result of the Web site. Another clause indemnifies the contractor against loss of materials and suggests that the client make duplicates of any materials provided to the development firm.
b)	What areas do you feel are vague, given your knowledge of the Web industry? __________________________________________________________ __________________________________________________________ __________________________________________________________
Answer:	The agreement does not specify how the parties will part ways should the business arrangement become unsatisfactory. Questions like who owns which materials at each point in the process are unanswered. The contract does not specify how it will be determined that certain events are beyond that of the developer's control. Would an independent consulting firm be hired? Who takes on the cost?

Self-Review Questions

In order to test your progress, you should be able to answer the following questions.

Which project seems to hold the most liability for the Web firm?

_____ An on-line banking Web site
_____ A Web site which offers financial/stock advice
_____ An on-line book store

Which of the following items belongs in the initial work order?

_____ Colors to be incorporated into the site
_____ Schedule of payment
_____ Identification of Web site hosting company