Project Contract Checklist: The Most Important Content and Information

Project Contract For Freelancers - Security For Both Sides

Every collaboration entails rights and obligations. A project contract is the right instrument to regulate the most important points for both sides, especially for extensive projects. You will also know exactly what to do if something unexpected happens.

If you work as a freelancer for a company you may have a service or work contract. The first type of contract is all about providing a service. This is the case, for example, if you coach your customer in a new project management method. A work contract, on the other hand, is about a very specific goal. This refers to a concrete end product such as a complete app that you are to develop in your role as a programmer. You can read more about the different types of contract and what you are really obliged to do in the event of disagreements in the project in the article Project Errors and Mishaps: What Freelancers Really Have to Do.

Project Contract - The Content

But what should be included in the project contract? Of course, every collaboration has its own peculiarities and no two projects are the same. Nevertheless, you should take certain points into account when concluding a project contract.

• Project Scope
  What exactly is the project about? What service should be provided? Do you owe a work or a service? What do clients or other third parties have to provide for the project (data, interfaces, etc.)? Is the project limited in time?
• Project Budget
  How many hours do you expect to work for the company as a freelancer? What budget will the client provide?
• Payment
  What is your fee/wage?
  Are you paid on an hourly or daily rate? What instalments are due at what stage of the project (for work contracts)?
  Can you invoice expenses, if applicable?
• Deadlines
  When does the project start and end?
  What milestones have been set?
  What happens if a deadline is exceeded?
• Conditions for cancelling the contract
  The contract should clearly stipulate the ordinary notice periods and the particularly serious reasons that can lead to extraordinary termination. Without these provisions, the statutory cancellation framework applies. In some countries, this also provides for cancellation of the project in the worst-case scenario for work contracts.
• Work Equipment
  Is certain work equipment required to fulfil the order? Are those provided by the company?
• Rights of Use and Copyright
  New products and creations are created as part of a project. Who holds the rights to these results? Is there an exclusive or simple right of use to them?
• Confidentiality/Data Protection
  If you gain insight into internal company information and personal data, non-disclosure agreements (NDAs) are standard practice. This also includes signing data protection agreements for projects. In both cases, contractual penalties are a common sanctioning instrument. Either way, you are obliged not to pass on any information you receive and to comply with data protection laws.
• Liability Risks
  Which contracting party bears which risk and is held liable in what way?

By clarifying these points in advance, you ensure that both parties are in a legally secure position. You also reduce the chance that disagreements will have to be resolved in court.

Project Contract and Liability

First of all, limitations and exclusions of liability are a common part of project contracts and are no reason to panic. Just because clients place such a clause in the contract does not mean that it is permissible. Your customer's claims for compensation are not automatically justified either. For a better understanding, here are a few definitions:

• Liability Restriction
  A liability restriction limits the scope of liability. The limits are precisely defined here. In principle, this can be an advantage if it reduces the very extensive and usually not very limited statutory liability in the individual contract.
  However, you should pay attention to the details here. Put simply, liability cannot be excluded across the board, but only limited. This applies in particular to liability restrictions in the general terms and conditions.
  The liability restrictions in the General Terms and Conditions are sometimes subject to strict standards. If a liability restriction clause in the project contract violates applicable law, it is therefore invalid and the statutory liability regulations automatically apply.
• Legal Disclaimer
  A legal disclaimer can be used to completely reject responsibility for certain areas. However, it is very difficult and often impossible to formulate this in a legally secure manner.
• Gross Negligence
  Anyone who breaches the duty of care required in bussines transactions to a particularly serious degree is acting with gross negligence. This is the case, for example, if you are in charge of a company's IT, do not install antivirus software for reasons of convenience and the company then falls victim to a cyberattack. This damage could have been prevented by simply installing the appropriate software. Therefore, the same standards apply here as in the case of intent: both parties are liable for gross negligence, liability restrictions in the general terms and conditions are not permitted here.
• Simple Negligence
  You act with simple negligence if you could have foreseen or avoided damage according to objective standards. Of course, it is also possible here to hold the other party liable. However, this may not be limited in the General Terms and Conditions in the case of cardinal contractual obligations and for foreseeable damage typical of the contract. Restrictions that result in the unreasonable disadvantage of a contracting party are also not permitted.

We recommend that you avoid excessive benefit commitments at all costs and pay close attention to the legal requirements. Here are some practical tips:

• Make sure that you always use the average loss typical for the industry as a comparative value for the maximum liability amount.
• Insist on transparency: Legal terms such as "cardinal obligation" (the cardinal contractual obligations whose fulfilment is essential for the proper performance of the contract) must be clearly explained. In our example, an explanation of cardinal obligations could look like this: "Cardinal contractual obligations are those whose fulfilment characterises the performance of the contract and on which the customer may rely."
• A catalogue of exceptions ideally defines which points are excluded from liability or liability restrictions. The latter applies, among other things, to wilful or grossly negligent breaches of duty and breaches of cardinal contractual obligations.

Coverage/Sum Insured In Project Contracts

Many companies require "their" freelancers to have Professional Indemnity Insurance so that they are not left behind in the event of professional errors and mistakes. To ensure this, certain amounts of coverage, also known as sums insured, are stipulated in the project contract. The sum insured describes the maximum amount that an insurance company will reimburse in the event of a damage event. If a damage exceeds the specified sum insured, the policyholder must pay the difference themselves. For your project contract this means:

• Limit breaches of cardinal obligations to the amount of typically predictable damages.
• Agree a sum insured with your client that is based on the amount of typically predictable losses. Please note that the most common type of loss in digital projects is financial loss. You should definitely bear this in mind when determining the appropriate sum insured! Typical sums insured for financial losses are 1 million euros per damage event and 2 million euros for all damage events within one year (the second sum is the so-called maximisation).
• Clarify with your customers that personal injury is of secondary importance and that you therefore do not wish to assume a high contractual personal liability (unless, of course, the project involves a particular risk of personal injury).
• Avoid unnecessarily high sums insured. Sometimes clients demand very high sums insured of 3 million euros and more, even from freelancers. Explain that it is not easy for freelancers to obtain insurance sums for financial losses in excess of 3 million euros from insurers at reasonable premiums. If your clients nevertheless demand unnecessarily high liability sums, you should factor this into your remuneration.
• Argue that a contract that requires you to provide "insurable" amounts of coverage (at a reasonable premium) is also advantageous for the customer. After all, there is an insurer in the background who can also pay for larger claims at short notice. After all, what is the point of high "theoretical" liability claims in the contract if they cannot be enforced in a real liability case due to a lack of financial resources on the part of the perpetrator?
• Consult with your insurer to see whether they can offer the required sums insured or adjust them at short notice, for example as part of temporary project cover.
• If necessary, consult a lawyer specialising in contract law to negotiate contentious issues.

Project Contract: A Lot of Effort, Few Results?

In fact, the written form is not mandatory for project contracts - they can also be concluded verbally or informally by email. The standard statutory provisions apply to all points that you and your customer do not regulate individually. These are also a good guide to ensure that you are not disadvantaged by certain clauses.

Even for smaller projects, you should at least record the key points in writing to ensure that you are in a secure legal position. However, you should insist on a comprehensive project contract for larger collaborations and risks at the latest. This may be the case, for example, if you are programming an online shop for a company. In this case, a professional oversight can cause considerable damage.