Crafting an effective retainer contract
As a technology consultant, one of the most important business tools in your tool belt is the retainer. It is a simple arrangement to be paid in advance in order to secure your services when required. Retainers are probably not as popular as they should be due to lack of understanding of how they work and their relative advantages. This blog post attempts to remedy that situation.
First, let’s talk about context — what kind of work calls for a retainer?
Speaking from experience, retainer contracts are best suited for part-time consulting engagements, that is, less than 40 hours per week. I’m talking about gigs where you are functioning as a leader or advisor, rather than as a line manager or replacement for regular staff.
My most successful retainers have been in the role of part-time CTO, because 1) that’s what I’m really good at and 2) most clients can’t or don’t want/need to hire me on a full-time, exclusive basis. The work of a part-time CTO for a small company ranges from strategic decision-making to fixing bugs in production at 2am, and everything in-between.
Work contemplated by a retainer should be doable during one or two full days a week, plus related ad hoc tasks and asynchronous (email & chat) communication the rest of the week. The retainer establishes a fixed monthly fee for this schedule, with provisions for billing additional hours, if needed.
Importantly, the retainer’s structure makes absolutely clear that what is being sold is just your time and not any sort of work deliverables that can be quibbled over at a later date. It strikes a contrast with more traditional Master Services Agreements and their Statements of Work (SOW), which imply that they client is buying more than just time. Clients always want to try making the “Work” part of an SOW include scope definitions.
Just say “no” to fixed time and scope, really. It’s a recipe for delivering shitty work at best, failure at worst.
So how do you craft terms and conditions for an effective retainer contract that both you and your client are happy to sign? The first step is to make expectations clear. Personally, I like to start with a Schedule section that explains when I’ll be available for work.
Here’s an example:
I will dedicate one full day per week (approximately 8 hours) solely to work on your projects. The day of the week can be the same, or vary according to your needs. I also agree to be available via email during the rest of the work week (Mon-Fri) and to respond to questions as quickly as circumstances permit.
I was corresponding with a friend on the subject, and he asked me: “What’s to prevent a client from paying you the retainer fee and expecting you to work 24 hours a day?”
That’s where an extra work provision comes into play. It lays out constraints on work performed beyond what is specified as the official schedule.
Additional billable hours (extra work) can be arranged by request, subject to my availability and billed in arrears on a monthly basis. Absent an ongoing arrangement, I will ask you for written or verbal confirmation whenever additional billable work is contemplated.
As you can tell, I like writing contracts in first-person voice when possible. Here’s an example where I used more formal language. It’s also a little more generous than the last example.
Consultant further agrees, at his sole discretion, to perform additional consulting, research and/or a reasonable amount (up to approximately 2 hours) of development work per week, if such work is needed and called for by the circumstances of the project.
I like for the way that I define extra work to convey that what I’m interested in is establishing a friendly partnership relationship with my clients. I’m not going to be nickel and dime-ing them whenever there’s urgent work to do or problems to solve outside of the pre-scheduled time, but they’re not going to take advantage of me either.
Payment provisions for extra work are provided in the following section, Rate & Billing, a bulleted list that contains
- The amount of the flat monthly fee
- When payments will be due
- Limitations on termination, if any (term length)
- Hourly rate for extra work
To derive a flat monthly fee, I take my desired hourly rate, multiply it first by the number of hours per week that I want to work, then multiply it by 52 weeks, and divide it by 12 months in the year.
I like to be paid up-front instead of being fully in arrears all the time, so that’s what I specify about due dates.
Payment is due at the beginning of each 30-day work period (Net 0).
Don’t forget to address extra work. I don’t usually mind giving Net 30 terms on extra work, since it’s more likely to be unforeseen and subject to cash flow impediments.
Another bullet specifies the hourly rate and billing increment for extra work. Ideally the rate is the same as the effective rate of your monthly fee, but you can use this term to influence whether or not you’ll get extra work. Put a lower rate in if you do want extra work, put a higher (potentially much higher) rate in if you don’t want extra work.
I always negotiate some sort of initial term length, at least one month, sometimes as long as six months. The reason is that, realistically, I’m going to put a disproportionate amount of hours and effort into the first month or two of a contract as I get up to speed with the problem domain and get to know the client.
The start of a retainer always involves hours of effort that I expect to not be able to invoice.
I like my contracts to be perpetual by default, instead of requiring regular renewal and renegotiation. Depending on the relationship I have with the client and whether its my primary source of income, I’ll require advanced termination notice, which can be as simple as
One month written notice is required to terminate the agreement.
Mind you, written this way it is bi-directional, which I think is the fair way to do it. As long as the client is acting in good faith, you shouldn’t be able to just drop them if something more lucrative comes along.
I always include a section about expenses. It’s unusual, but if they crop up then I want to make sure I can get reimbursed on a timely basis.
A section on Intellectual Property is required. Depending on the nature of your expertise, you want to either reserve intellectual property rights or waive them away as a work-for-hire. I don’t try to preserve intellectual property rights in retainers, because I know from experience with MSA contracts that including those terms make contract negotiation a lot more complicated. Negotiating a retainer should be simple, simple, simple. Just a matter of agreeing on schedule and rate.
If you want to preserve your ability to work for more than one client concurrently then include some wording about Exclusivity like this:
This is not an exclusive retainer. Unless bound by contractual confidentiality requirements, I will disclose the nature of my other engagements at a high-level.
Depending on the nature of the work, your client may want to make this section a little bit more restrictive, like keeping you from working with competitors at the same time. Make sure your rate and term length increases accordingly if that’s the case.
That’s pretty much it. The other stuff is secondary, like boilerplate legalese for Warranties, general contract provisions, and information about how you expect to get paid. And finally, a signature page. The shorter the document, the better.
What I’ve described so far is actually only the second half of my Kickass Consulting retainer, or more accurately Retained Services Agreement (RSA for short.) The first half constitutes a proposal, where I describe my background as a consultant, track record, proposed services, and other things like that. Even containing that material and a cover page, you should be able to make the whole document about 6 pages in length.
Interested in giving a retainer a try?
You can take the above information and use it to modify your existing contracts, or you can download my battle-tested retainer contract template for only $99. It includes all of the stuff I talked about above, including sample content for the proposal part, and additional little terms that give you added protection against clients taking advantage of you. It’s also handsomely formatted, fully-annotated and comes in Microsoft Word and Apple Pages versions.
Download the Retained Services Agreement (RSA) at MSABundle.com
