Get IT in Writing: The IT Pro's Guide to Essential Contracts

GET IT IN WRITING:
THE IT PROFESSIONAL’S
GUIDE TO ESSENTIAL
CONTRACTS
Get It in Writing: The IT Professional’s Guide to Essential Contracts

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TABLE OF CONTENTS
WHAT ARE CONTRACTS & WHY DO THEY MATTER?. . . . . . . . . . . . . . . . . . . . . 3
CONTRACTS THAT DEFINE CLIENT RELATIONSHIPS. . . . . . . . . . . . . . . . . . . . . 5
CONTRACTS THAT DEFINE EMPLOYMENT RELATIONSHIPS.. . . . . . . . . 14
OTHER CONTRACTS: THE TERMS AND CONDITIONS EDITION.. . . . 23
WHAT IS A “BREACH OF CONTRACT?”.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
MAKING SURE YOUR CONTRACTS HOLD UP IN COURT.. . . . . . . . . . . . . 29
CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
INTRODUCTION
CHAPTER 1
CHAPTER 2
CHAPTER 3
CHAPTER 4
CHAPTER 5
© 2015 insureon, a BIN Insurance Holding Agency

3© 2015 insureon, a BIN Insurance Holding Agency
INTRODUCTION:
WHAT ARE CONTRACTS & WHY DO THEY MATTER?
It used to be risky enough just to run a business. But doing business in the digital age, the stakes higher
than ever.
As the owner of a small tech business, you know the score: you could be sued over failing to prevent a
hack or data breach. Your clients may not understand the wizardry behind your work, which may lead
them to blame you for a whole host of losses that you had nothing to do with. Even if you’re not at fault,
clearing your name in court can cost thousands (not to mention ding your reputation).
That’s where contracts can help. And a contract doesn’t have to be riddled with legal language to be
effective. In fact, to be legally valid, a contract simply has to meet these two conditions:
• All parties must be in agreement. An offer is made by one person and accepted by another.
• Something of value must be exchanged. For example, your tech business trades services or
products for your client’s money.
When used properly, contracts…
• Outline the terms of a professional agreement.
• Clarify what all parties are expected to do.
• Provide the legal footing you need in the event of a lawsuit.
Pay special attention to that last point, because more than 15 million lawsuits are filed every year in the
United States, according to the National Federation of Independent Business. The icing on the cake?
Many are meritless. That means the chances of your business being sued are high, and you need to be
prepared to protect yourself.
So let’s get started. This guide outlines the contracts IT professionals most often need and explains
which types of contracts you need for your work.
GET IT IN WRITING:
THE IT PROFESSIONAL’S GUIDE
TO ESSENTIAL CONTRACTS

CONTRACTS THAT DEFINE
CLIENT RELATIONSHIPS

Perhaps the most fundamental of all your contracts,
your client contracts outline the work you do and
the manner in which it will be done. Client contracts
are useful for two reasons:
• They can prevent miscommunications with your
clients, which can help you dodge a lawsuit in the
first place.
• They can limit your liability, which makes it harder
for a client to successfully sue your business.
CLIENT RELATIONSHIPS
Contracts that Define Client Relationships
WHAT YOUR CLIENT CONTRACTS SHOULD INCLUDE
In a nutshell, client contracts should detail…
• What work your IT business will do. Perhaps the most important part of the contract. It defines
the scope of your work: what you will and won’t do. It can help you avoid lawsuits if a client accuses
you of not delivering on your side of the bargain.
• Project timelines. Project milestones and the final deadline.
• Materials needed to complete the project (if any). This should also specify who is responsible
for supplying those materials.
• Cost of the project. Be sure to include when payment is due and how you expect to be paid (cash,
check, online transfer, etc.).
• Signatures of both parties. A contract isn’t legally binding until both parties sign it.
Depending on the type of work you do, you might also need an indemnification clause to help limit your
liability for certain situations. Also called a “hold-harmless” clause, this part of your contract divides risk
between the parties. However, these clauses are finicky and are best left to your legal advisor because
the language has to be exact.
Client contracts
can prevent
miscommunications
and limit your liabilities.
Get legal advice when drafting indemnification clauses.

A strong indemnification clause can help you…
• Establish conditions for when you can’t be held liable for losses related to your work (e.g., the
customer doesn’t correctly use the software you installed, which allows their network to be breached).
• Place risk on those best able to control risk factors.
• Minimize the impact on your claims history, which can keep your insurance costs low.
Now that you know the basics, let’s look at some specific types of client contracts and what
they include.
EXAMPLES OF CLIENT CONTRACTS
The kind of client contracts you end up using will depend on the kind of work you do. But as a rule,
every contract should list…
• Your business’s contact information (e.g., name, phone number, address, email).
• Your client’s contact information.
• Effective dates for the contract.
• Acceptance of terms (i.e., the signatures of both parties).
To save space, we won’t list these points on every contract overview.
Please note: contracts should be tailored to your company’s specific operations and risks. These
outlines are intended to give you a general overview of the key points each contract usually has. They
are not meant as exhaustive guides or as legal advice.
CONSULTING AGREEMENT / CONSULTING CONTRACT
IT consultants: this contract will be your mainstay. This document usually has the following elements:
1. Terms of Agreement. Effective dates and conditions when the agreement can be renewed or
adjusted. For short-term projects with defined scopes, include start and end dates.
2. Duties. Services you will provide to the client. For example, if you’re a software consultant, specify
that you will provide software planning, design, and development services.
3. Time Requirements. When you will be available to the client.
4. Compensation and Terms. Hourly or project rate plus travel time.

5. Expenses. Who is responsible for what (e.g., you
may specify that your client is responsible for paying
for licensing fees and hardware).
6. Confidentiality. This lets you sidestep having a
separate non-disclosure agreement. Basically, it
states you can’t discuss the work you do for your
clients unless they make that information public.
7. Rights and Licenses. If you develop software
specifically for your clients, you may need to iron
out who has the copyrights to the work, you or the
client. Your client may want you to sign a work for hire
agreement, which would give them the ownership of
the work you produce. Jump to page 19 for details.
8. Relationship. An important inclusion for
independent contractors. It can provide proof to the
IRS that you are not your client’s employee.
9. Waiver, Modification, or Cancellation. Include
this to clear up miscommunication problems. If the
provisions of the agreement change, those changes
must be in writing and signed by both parties.
10. Assignment. This specifies that the parties entering
into the agreements are the ones responsible for
seeing it through. No bait-and-switching.
11. Liability. This is your indemnification clause. It
states that you can’t be held liable for certain losses
associated with your services. However, it may not
be enough to keep your business out of court, and
each judge will decide whether the clause has legal
standing. That’s why, as a failsafe, you should always
carry adequate Professional Liability Insurance, which
pays for legal expenses when you’re sued over the
financial losses your work allegedly caused.
12. Governing Law. This specifies which state’s laws
you and your client are following (which is important if
you ever get dragged to court).
If you want to get your boilerplate contract underway,
check out Tech Republic’s IT consulting contract template.
A consulting agreement establishes
the duties of an IT consultant, clarifies
licenses and rights to new material,
and outlines payment terms.

WEB DESIGN CONTRACT
Website developers and designers: this contract is
for you. Typically, it includes the following sections:
1. Fees and Payment Terms. Your hourly rate
and how you’d like to be compensated. You
might also include late fees and payment default
procedures.
2. Expenses. Which party is responsible for
domain and licensing expenses (including sales
tax). Usually, you want the client to pay.
3. Services. What you will and won’t do for the
client. This should specify third-party operations
you may handle on behalf of your client (e.g.,
web hosting and domains).
4. Completion. The steps each party will take to ensure project completion. For example, you may
submit the final website to the client and get their approval in writing. Only then will you publish the
website and submit it to search engines and directories.
5. Deadlines. When the total project and project milestones will be completed.
6. Copyright. Assurance that the logos, audio, video, trademarks, and photos the client submits
for you to use are owned by the client. The client agrees to indemnify and hold your web design
company harmless against all claims of copyright or trademark infringement, privacy violations, or
defamation arising out of use of the work.
7. Ownership of Copyright. This specifies that your client retains all copyrights to material they
submit for you to use.
8. Cancellation of Work. Conditions for when work can be cancelled, who retains the ownership
of copyrights for any original artwork produced for the project, and billing for work completed up
to cancellation.
9. Other Electronic Commerce Business Relationships. Statement that you aren’t responsible
for issues related to services offered by outside parties (e.g., interruption in payment processing
services, Internet service, or web-hosting service).
10. Testing and Acceptance Procedures. Your process for testing web elements and getting
client approval.
In addition to establishing the scope of
a project, a web design contract irons
out potential copyright issues.

11. Sole Agreement and Amendment. Essentially, to
change the terms of this contract, it has to
be in writing and signed by both parties.
12. No Guarantees. Limit of your responsibility for how
much (or how little) traffic the new
website generates.
13. Governing Laws. Statement that the client must
comply with federal and state ecommerce laws,
copyright laws, and use laws. Get in writing that you
can’t be held responsible for their noncompliance.
14. Confidentiality. This replaces a separate non-
disclosure agreement. For more about NDAs, jump
to page 17.
15. Security. Statement that your client will hold you
harmless for security flaws in the software.
16. Accessibility, Usability, Cross-Platform
Issues. This explains you will do your best to make
sites useable across as many platforms as you and
the client agree to.
For a web design contract template, check out the one
offered by Media Surgery.
SERVICE LEVEL AGREEMENT
A service-level agreement (SLA) specifies what services
the IT provider will furnish for the customer. SaaS
professionals, take note. This agreement usually has the
following elements:
1. Agreement Overview. Statement that your company
is providing IT services required to support and sustain
a product or service for your client.
2. Goals and Objectives. States the purpose of
the agreement: to outline each party’s roles or
responsibilities, offer a measurable description of
service to the customer, and establish service support
and delivery parameters.
3. Stakeholders. List of primary stakeholders in the
SLA – you, the IT service provider, and your client.
4. Effective Dates and Amendments. When the
agreement goes into effect and when it can be updated.
5. Service Agreement. Details on the scope of your
work and service parameters. It should list the services
you provide (e.g., assistance using Remote Desktop
and a Virtual Private Network).
You’ll need a service level
agreement if your tech business
offers a service that requires
maintenance or troubleshooting.

6. Customer Requirements. What your client is
expected to pay for (e.g., support costs) and how
customers can resolve a service issue.
7. Service Provider Requirements. Timetables for
when you will respond to service issues. Details on
how your customers will be notified when you need
to schedule maintenance.
8. Service Management. Details on service
availability, monitoring of in-scope services, and
related components. For example, it will list the
times when your support is available. It will also
detail timeframes for responding to issues based on
priority level.
Entrepreneur.com offers an SLA template that your IT
services business may find useful.
SOFTWARE DEVELOPMENT
AGREEMENT
If you’re a software or mobile app developer, this contract
can ensure you get paid for the services you provide and
help prevent disputes. Key elements include:
1. Work Phases. A breakdown of the project into
stages or milestones. Typically, the developer must
deliver parts of the product by certain dates in order
to get paid a specified amount. The client usually
signs off on each phase of the project to prevent later
claims of underperformance.
2. Software Specifications. Essentially, the blueprint
of your project. It outlines what the software will
do and what your client can expect from the final
product. This is the heart of the contract, so take
your time to include details, which can clear up
misunderstandings, limit client dissatisfaction, and
deter litigation. Be sure to write this in language your
client can understand.
3. Payment Arrangements. Rates and preferred
payment methods. You may also want to include how
you will be paid if the project is cancelled early.
Because clients may not
understand your work, software
developers should make sure this
agreement states in plain English
what the software will do.

4. Transfer of Copyright Ownership. Confusion
over whether you or your client own the intellectual
property rights to the software is the quickest way to
get into a legal tangle, so sort it out in writing. There
are plenty of ownership options. If your client wants
to own the copyright, you, the developer, have to
transfer that ownership to them.
5. Ownership of Background Technology. New
software is likely built with the help of other programs,
data, and tools that may end up in the new product.
That means you have to be careful when signing over
ownership rights. You likely want to have a provision
that maintains your ownership of background
technology that went into the finished product.
However, be sure to give the client a nonexclusive
license to use that background technology.
6. Warranty Provisions. The place to guarantee your
work. Give a timeline for when you will make repairs or
replace the product free of charge if it doesn’t operate
as specified. Consider including a non-infringement
warranty, too, which states that the software will not
infringe on anyone's copyrights or other intellectual
property rights.
7. Dispute Resolution. Details on how to resolve
any conflicts. It may include an arbitration clause or
mediation clause. Arbitration allows an unaffiliated
person to make a decision about the issue. If your
contract includes a binding arbitration provision, you
can’t go to court to enforce the contract (but neither
can your client). Mediation is cheaper than arbitration
and is never binding. The mediator helps you and
the client sort through the dispute and provides an
objective point of view when needed.
For a template of a software development agreement,
check out the sample provided by PandaDoc.com.
On a budget? Have a lawyer
create boilerplate contracts that
you can tweak.
HOW TO CREATE CLIENT
CONTRACTS ON A BUDGET
As a small-business owner or tech entrepreneur, you
probably don’t have the bankroll to keep an attorney on
hand to create legal documents as you need them. Get
around this by…
• Having a lawyer create boilerplate contracts
for each of your major services. Yes, this takes
a little capital, but once these basic contracts are
approved and legally sound, you can adapt them for
projects as needed.
• Pillaging the Internet’s endless (and useful)
resources. Of course, you’ll still need to use your
common sense here and only enlist the advice of
trusted sites. We recommend ContractEdge.com
and Nolo.com, two websites that offer downloadable
contracts and DIY tips.
Now that we’ve covered client contracts, let’s take a
look at some employment contracts that help prevent
problems when hiring workers.

CONTRACTS THAT
DEFINE EMPLOYMENT
RELATIONSHIPS

One clear indication that your IT business is flourishing? You
have so much work that you have to hire some help to keep
up with demand. That’s the good news.
The bad news is that when you hire, you can be held liable
for a host of problems. For example, if a subcontractor makes
a mistake, your company could end up paying for the lawsuit
against him. If you accidentally misclassify an employee as
an independent contractor, the IRS could fine you.
One way to prevent fines and lawsuits is to use contracts.
In this chapter, we’ll look at the key ingredients of several
contracts you may use to limit your liability exposures and
ensure your employees or contractors understand the terms
of your relationship.
Contracts that Define Employment Relationships
EMPLOYMENT RELATIONSHIPS
EXAMPLES OF EMPLOYMENT CONTRACTS
As with client contracts, employment contracts always need to include…
• Contact information of both parties.
• Effective dates.
• Signatures from both parties.
We won’t keep repeating these items. Instead, we’ll focus on what various employment contracts cover
and how to use them.
In the true spirit of an eBook about contracts, here’s your disclaimer: even though we hit the high
points of each type of contract, these lists are not templates. When in doubt, enlist the help of a legal
professional to create your business contracts.
Employment contracts
help you clearly define the
terms and expectations
for people you hire.

INDEPENDENT CONTRACTOR AGREEMENT /
FREELANCE CONTRACT
Here are some of the points a freelance contract includes:
• Services. Outline of the project at hand, due dates, and deliverables. Be sure to specify the contract
term (e.g., whether the project is a one-time gig or ongoing work). Depending on the type of project, you
may need to address which party has intellectual property rights.
• Fees and Payment. Pay rates, pay cycles, and billing procedures.
• Relationship of the Parties. Explicitly state that the party contracting with your company is an
independent contractor. Even if the person you’re dealing with is a seasoned freelancer, it helps
everyone to explicitly state that they are classified as a 1099 worker and aren’t entitled to employment
benefits.
• Non-Disclosure. Explanation that your contractor must not share company secrets that they learned
while working with your business. You may wish to use a separate NDA altogether.
• Indemnity. This clause needs to be written by a lawyer because the language has to be precise to
stand up in court. It should state that the contractor will hold your business harmless for any injuries that
arise from their negligence.
For more details, check out the independent contractor agreement template at RocketLawyer.com.
When you want to hire temporary help or an
expert for a single project, you likely want to hire a
freelancer (i.e., an independent contractor). These
workers belong to the 1099 tax classification, which
means they are in business for themselves. That
also means you don’t have to cover them with
Workers’ Compensation Insurance, pay part of their
employment taxes, or offer other benefits.
However, your business can get in serious trouble
if it misclassifies employees as independent
contractors to save a few bucks. A freelance
contract / independent contractor agreement can
help keep you honest (and support your defense if
the IRS audits you).
A freelance contract can support
your defense if the IRS audits you
over employee classifications.

SUBCONTRACTOR
AGREEMENT
Let’s say you’re a website developer, and you’ve been
hired to create a brand-new, optimized website for a client.
You decide to hire an SEO professional to work for you as
a subcontractor, which your client contract allows.
However, you need a subcontractor agreement to protect
you.That’s because the subcontractor has access to sensitive
client information – and you could be held responsible
if that information finds its way into the public sphere
thanks to your subcontractor’s loose lips. For example,
while writing about the project on their blog, the SEO
professional could accidentally unveil new products and
marketing initiatives that aren’t public knowledge yet.
3. Billing and Payment. Typically, it’s a good idea
to pay subcontractors for certain milestones of
the project. This lets you review their work as they
go. However, you’ll need to decide whether the
subcontractor will be paid at a fixed or hourly rate.
Clearly define all terms of payment (e.g., the rate,
frequency, invoicing procedure, etc.).
4. Employment Relationship. State that the
subcontractor is an independent contractor and
that you are not responsible for withholding taxes or
offering benefits and Workers’ Comp coverage.
5. Non-Disclosure. As we mentioned before, your
subcontractor likely has access to your client’s
sensitive information. They may even pick up a few
of your trade secrets along the way. This is the place
where you define what information can and can’t be
shared. You may also need to outline consequences
for violating the clause. (See page 17 for details.)
6. Non-Compete. Statement that your subcontractor
can’t steal work from you. However, non-compete
clauses can be tricky, as local laws may limit their
validity. You’ll need a lawyer’s touch on this one.
(Jump to page 18 for more.)
7. Work for Hire. Statement that the subcontractor has
no ownership rights to the project. You own the work
your subcontractor produces once it’s submitted to
the client. (Details on page 19.)
8. Insurance. For IT work, it’s important that your
subcontractors carry their own General Liability
Insurance and Errors and Omissions Insurance. In
fact, your main contract with your client may require
you to only hire subcontractors who are adequately
insured. Additionally, you should require that your
subcontractor has Workers’ Compensation Insurance.
Otherwise, you could be held responsible for their
occupational injuries.
Employment contracts help you
clearly define the terms and
expectations for people you hire.
Let’s look at how a subcontractor agreement can help you
avoid being held responsible for mistakes you didn’t make.
This agreement includes:
1. Scope of Work. Expectations for the
subcontractor’s work. Be sure to describe the project
and their duties in detail. If the subcontractor can hire
their own help, state that they are not your employees
or subcontractors to avoid being held accountable for
their employment-related issues.
2. Duration of Work. Whether the project is on a fixed
timetable or on an “as needed” basis.

9. Assignment. Statement that only the subcontractor can fulfill the terms of this assignment so they
don’t subcontract out part of their work.
10. Indemnity. Again, you’ll want a lawyer to write this to make sure it can hold up in court. This
protects you when the client tries to sue you over work your subcontractor produced. Some states
do not permit indemnity claims arising from your own negligence. As a failsafe, make sure you carry
adequate EO Insurance to address your potential liabilities.
11. Warranties. Any promises the subcontractor makes about their work.
Check out FireEye’s sample subcontractor agreement for a good example of what these documents look
like in print.
EMPLOYEE CONTRACT
So you want to hire an employee – someone who can learn and grow with your business. Excellent! An
employee contract (aka “employment agreement”) can help prevent problems before they arise.
Let’s look at some key points in this type of agreement:
1. Relationship and Duties. Statement of your employee’s tax classification (W2, usually) and
their job duties. In a separate clause under this section, you should also account for when the
employment relationship can be terminated (e.g., if an employee sexually harasses another
employee).
2. Non-Compete. This can limit an employee’s ability to compete with you in the future (e.g., if they
start their own company). We’ll discuss non-compete agreements in more detail later.
3. Non-Disclosure. This ensures your employee can’t divulge company secrets, even after the
employment relationship is terminated.
4. Work for Hire. Statement that you, the employer, are the owner of the work the employee creates.
5. Other Important Clauses. You may also want to include clauses that define how long the
employment arrangement will last, compensation and benefits, dispute settlement, and governing
law (which is especially important if your employee works remotely).
Keep in mind that every employee contract varies depending on the type of work your employees do.
For an employment agreement example, check out this sample contract by Stanford Graduate School
of Business.

When you work in the tech industry, trade secrets are your
bread and butter. For example, say you’re a mobile app
developer, and you’re working on an app that promises
to revolutionize mobile device security. You could make a
fortune, so long as word doesn’t get out about your new
product before it’s ready to hit the market.
To protect those secrets, you need to use non-disclosure
agreements (also called “NDAs” or “confidentiality
agreements”). This kind of contract essentially swears
parties to secrecy about confidential information (e.g., a
sales plan, a list of customers, or programming code).
Your NDA ensures that you have legal recourse if
someone shares your information with the wrong parties.
Here are the key elements of non-disclosure agreements:
1. Definition of Confidential Information. What
constitutes protected confidential information.
Consider subject matter that is at the heart of your
business, such as innovative processes, client lists,
or financial information.
2. Exclusions from Confidential Information.
Information that doesn’t need protection. These
exceptions are usually based on what the laws
have to say. For example, if the receiving party
(i.e., the person signing the contract) already knew
about something before you disclosed it, it can’t be
protected by the agreement.
3. Obligations of the Receiving Party. Statement
that the person signing the contract can only use the
confidential information in specific ways. Most state
laws prohibit the receiving party from breaching the
confidential relationship or inducing others to breach it.
4. Time Periods. Establishment of how long the
information must remain confidential. In the United
States, five years is common, but some companies
prefer two or three years.
5. Boilerplate Provisions. These are usually included
at the end of every agreement (e.g., governing laws,
dispute resolution, etc.).
For a sample confidentiality agreement, check out Nolo.
com’s customizable template.
NON-DISCLOSURE AGREEMENT (NDA)

NON-COMPETE AGREEMENT
This agreement can either be a standalone contract or a provision added to an employee contract. Non-
compete contracts exist between you and your employee, and they require that your employee not use
what they learned while working for you against you. Non-compete agreements usually stipulate that an
employee won’t work for competitors, steal your current clients, or compete with
you for some period of time once they leave your company.
Non-compete contracts can be difficult to enforce if they’re unreasonable. Here are some key
considerations to keep in mind:
1. Time Frame. Period of time the agreement can be enforced for after the employee leaves. A year is
usually considered reasonable.
2. Geographic Area. If your agreement covers too wide an area (e.g., the whole country), it can very
easily be challenged if the employee takes their case to court.
3. Types of Business Engagement. The viability of your contract depends on whether or not its
provisions still allow an employee to earn a living with limited adverse effects on your business. If you
prohibit a former employee from engaging in too many types of business, a court will likely deem the
agreement unenforceable.
Check out SME Toolkit’s sample non-compete agreement to see an example.
Worried your former employees
will take what they learned from
your business and use it against
you? A non-compete agreement
may be in order.

5. The work doesn’t necessarily have to be attributed to
the employee or contractor.
6. The employee agrees that the work submitted doesn’t
violate copyright laws.
These are generally short contracts. Though they sound a
little severe, they are pretty standard for most employment
relationships that require employees to produce original
work. You can see a work for hire agreement template
courtesy of JDSupra.com.
Now that you know a little more about employment
contracts, let’s move on to contracts you may need for
engaging with customers and the public.
WORK FOR HIRE AGREEMENT
Usually added as a provision to employment contracts,
the work for hire agreement states that any work the
employee or contractor produces while employed by your
business belongs to you. If you didn’t own the rights to the
work, your business couldn’t make money from it.
For example, if you own a software development
business, you would need your programmers to sign a
work for hire agreement so you could sell and distribute
the products they developed. In terms of copyright law,
the work for hire clause ensures that you, the employer,
are considered the author of the work.
Essentially, a work for hire agreement states…
1. The employee or contractor agrees to complete work
for you in the manner and timeframe agreed upon.
2. The work contributed will be considered a work
made for hire as defined by the copyright laws of the
United States.
3. The employer is the sole and exclusive owner and
copyright proprietor of all rights and proceeds of
the employee’s services, no matter the stage of
completion.
4. If work falls outside the scope of “work made for
hire,” the employee agrees to transfer and assign the
copyrights to the employer.
If your business requires that employees produce
original work for you to sell, you need them to sign
a work for hire agreement to get those rights.

OTHER CONTRACTS:
THE TERMS AND
CONDITIONS EDITION

Running a business in the digital age means you probably have a website, app, or some way to distribute
information online. And if you do anything other than offer information, you’ll likely need a terms of service
agreement for those who use your services.
TERMS OF SERVICE AGREEMENTS
These are rules that users agree to in order to use a service. For websites, this may merely be a
disclaimer. For mobile apps, you may have users agree to these terms before they can download the
program to their device.
Depending on what you do, your terms of service agreement may include the following components:
Other Contracts: Terms and Conditions Edition
OTHER CONTRACTS: TERMS
AND CONDITIONS EDITION
PRIVACY POLICY
Your business can be sued if it’s not specific about
the way it stores, uses, manages, or discloses
personal data. That’s why, if you gather information
from your customers or clients, you need to have a
privacy policy.
For example, if you run an Internet marketing
business or you are a database administrator, your
privacy policy needs to be bulletproof. Not only do
you handle clients’ sensitive information, but you
have access to their clients’ data, too. If you store
that information in a way that’s not specified in your
privacy agreement, your clients (and their clients)
can sue you.
Your business can be
sued if it doesn’t stick to
stated plans for storing,
using, or managing
personal data.

Because protocol for handling other people’s information
should be transparent, most businesses include
their privacy policy on their website. That way, clients
and customers don’t have to guess about how their
information will be used.
Typically, privacy policies describe…
• What personal information is collected.
• How the information will be used, stored, or managed
by the company.
• How the information will be transferred to third-party
companies.
• How cookies will be used.
• How users can modify or delete their personal
information.
• How users can opt out of future communications.
• What processing server will be used when collecting
sensitive financial information.
Looking for an example? Check out Google’s in-depth
privacy policy. Yours may not need to be as detailed
as that of a multi-billion-dollar company, so adapt
accordingly. And keep in mind that if you change your
policy, you need to notify your customers.
DISCLAIMERS
If your website links to other sites, offers ad space, or has
a blog that allows users to comment, you should probably
have a disclaimer in your terms of service agreement. This
should explain that your IT business doesn’t endorse and
isn’t responsible for the accuracy or reliability of third-party
content. As for ads, you must state when you are getting
paid to provide endorsements.
Also include a disclaimer about the information your site
offers. For example, you could state that the site and its
components are for informational purposes only, and that
your site isn’t liable for the accuracy or usefulness of any
information made available on it. That way, if someone
sues you because they followed your blog’s security tips
and they still suffered a data breach, your disclaimer may
help you in court.
Though a disclaimer may minimize the financial impact
if you are sued, it won’t deter lawsuits altogether. That’s
why you should always carry adequate liability insurance
just in case.
Other Contracts: Terms and Conditions Edition
TRANSACTION CONDITIONS
If you sell software as a service (SaaS), your terms of
service agreement should include notices regarding credit
card use, third-party payment processing, and refunds.
These notices are called “transaction conditions.”
INTELLECTUAL PROPERTY /
COPYRIGHT NOTICES
Include notices regarding copyright and trademark of the
site’s components.
Now that you know the touchstones of a Terms of Service
agreement, let’s move on to another important issue: what
a breach of contract is and how it can lead to lawsuits.
Disclaimers may reduce the
amount you can be sued for.

WHAT IS A “BREACH
OF CONTRACT?”

Don’t worry – we’re not going to overwhelm you with legal jargon in this chapter. Instead, we’ll cover the
basics of what a breach of contract is, situations that constitute a breach, and how you can protect your
small IT business if it’s accused of not holding up its end of the bargain.
MATERIAL BREACH: THE IRREPARABLY BROKEN
PROMISE THAT LEADS TO LAWSUITS
What Is a “Breach of Contract?”
WHAT IS A “BREACH OF
CONTRACT?”
A breach of contract means one of
the parties didn’t perform their part
of the agreement.
A breach of contract simply means that one of the
agreeing parties failed to honor the contract. Easy
enough, right?
In contract law, there are a couple types of these
breaches. However, we will focus on the kind of
breach that the courts care most about: a material
breach of contract.
A material breach essentially obliterates the contract.
It is an act that renders the agreement “irreparably
broken” because it makes the very heart of the deal
worthless. When material breaches occur, the other
party can waltz right to court to try to collect damages.
Here are some situations that might signal a material breach of contract:
• A party has been deprived of the thing of value they bargained for. Say, for example,
you’re a network security consultant, and you sign a contract with a client claiming that you will install
antivirus software. If you install iTunes instead, they could sue you for a material breach.
• Throwing money at the problem won’t necessarily right the loss. You’re a software
developer, and you’ve committed to create exclusive CRM software for your client. But for whatever
reason, you realize you can’t deliver your end of the deal before the project gets underway. Because
it will take more than reasonable effort or expense to fulfill the terms of the contract, your client might
have a case for a material breach.

• There’s hardly a chance that the breaching
party can fix things. Say you keep missing
milestones clearly outlined in your client contract.
The client may be able to make a case that you
demonstrated that the problems aren’t going to
be corrected.
• The non-breaching party is ready to perform
their side of the bargain. Here’s the bright side
of material breaches: the other party has to be ready
and willing to perform their side of the contract in
order for the breach to be legitimate in the eyes of the
law. So say your client claims that you didn’t create
the software they asked for. However, you followed
the specs outlined in the software development
agreement. It’s just that the client is holding out
payment because they wanted you to throw in a few
other touches. The client could lose their case because
they aren’t willing to uphold their side of the deal.
You can learn more about breaches of contract in Nolo.
com’s series, “Contract Disputes.
Keep in mind, though, just because you haven’t breached
a contract doesn’t mean your clients won’t accuse you of
doing so. Remember, there’s a significant knowledge gap
between tech professionals and those who don’t work
in IT. Even if you clearly state in writing what you’re going
to do, it may not be enough to curb client expectations.
When clients are dissatisfied, they’re more likely to sue.
DEALING WITH BREACH OF
CONTRACT LAWSUITS
As with any lawsuit, you don’t actually have to do anything
wrong to be sued for breach of contract. And while a
frivolous breach of contract suit against your business
will likely be dismissed by a judge, you’ll still have to go to
the trouble of presenting a defense for yourself or risk a
default judgment against you.
What does it cost to present a defense for a case that
gets dismissed? Between $2,000 and $5,000, according
to the U.S. Chamber Institute for Legal Reform. Luckily,
you don’t have to pay those costs out of pocket. With
a Professional Liability Insurance policy in force, your
benefits can cover…
• Legal defense fees.
• Settlements.
• Judgments if you’re found liable.
• Other court costs (witness fees, docket fees, etc.).
Most clients require you to have a Professional Liability
(also called Errors Omissions) policy anyway. The hope
is that you never have to use it, but you’ll be glad you have
it on hand if a demand letter comes your way.
Keep in mind that as soon as you catch word of a
potential EO claim, you should notify your insurance
provider. For more on that topic, read the blog post,
“What Happens if I’m Sued? A Guide to Handling Errors
Omissions Claims.”
Read on for more information about how to stay protected
in court.
What Is a “Breach of Contract?”
$2,000 to $5,000: the average
cost of legal defense fees to
respond to frivolous claims.
EO Insurance can pay for your legal defense
costs and settlements or judgments when
you’re sued over breaching a contract.

MAKING SURE YOUR
CONTRACTS HOLD UP
IN COURT

As we mentioned at the beginning of this guide, it doesn’t
take much to make a contract valid. To be legally binding,
the document simply has to outline an agreement where
something of value is exchanged. Once both parties sign
on the dotted line, you have a bona fide contract.
Though not all contracts have to be in writing to be
effective, oral contracts are much harder to prove. That’s
why it’s a good idea to always put your business contracts
in writing.
Let’s take a quick look at what constitutes as an agreement
and an exchange of value.
Making Sure Your Contracts Hold Up in Court
MAKING SURE YOUR
CONTRACTS HOLD UP IN COURT
For a contract to be legally binding,
it needs to show (usually through
signatures) that agreeing parties
are exchanging something of value.
THE AGREEMENT: WHAT COUNTS AS AN OFFER
Let’s say you’re an IT consultant, and you meet with a potential client to talk about their IT needs. You
propose a multi-pronged solution to secure their network, including new software to detect viruses and
malware. You also give them a price for this service. This is the offer.
After taking a dramatically long sip of coffee, the client beams at you and says you start on Monday.
That’s an acceptance. Of course, this is the most basic example of an agreement, and there are many
routes the conversation can take. For instance, the client may counteroffer with a different rate, and you
may have to mull it over. Essentially, you both just need to get to a place where you accept the terms on
the table.
And as we mentioned, you’ll need to get all this in writing in case something goes awry and that client
takes you to court.

THE GREAT EXCHANGE:
THINGS OF VALUE
The thing of value at the heart of the exchange is often a
promise to do something in the future. For instance, in the
example above, you’re promising to implement IT solutions
to secure your client’s network. Your client promises to
pay you the rate you agreed on.
And so the wheels are set in motion.
Keep in mind, though, if one person does something as
a gift, it’s not a contract. Similarly, a one-sided promise is
also not a contract. Both parties have to be in agreement
and exchange things of value (e.g., services in exchange
for payment) in order for a contract to exist.
YOUR CONTRACT IN COURT:
WILL IT SURVIVE?
Every contract is different, so there’s no one-size-fits-all
solution to making sure a contract holds up in court.
However, the following three tips can help:
1. Get a lawyer on it. If your contract includes
indemnity clauses (and it should), you need a lawyer
to craft the language. Plus, it’s never a bad idea to
have a lawyer review your contracts to make sure
they are specific, compliant with state laws, and not
overreaching.
2. Get it in writing. It’s difficult (if not impossible) to
prove oral contracts in court.
3. Get it signed. A contract isn’t legally binding until
both parties show their agreement by signing their
names to it.
And that’s the long and short of it. Now go out there and
exchange some things of value.
The simplest form of
exchanging things of value
is paying someone to do
something for you.

CONCLUSION
In some ways, striking a business deal is like driving a car. You never know which time you get behind
the wheel could result in an accident. Contracts are like seatbelts. They may not prevent a dispute from
happening, but when one does crop up, they may protect you from the full impact of the financial blow.
In short, always use contracts. They can only stand to protect you. And for extra protection, be sure you
have Errors Omissions Insurance to shield you from the financial burden that accompanies breach
of contract claims. To get quotes tailored to your IT business’s risks, submit an online insurance
application with insureon today.
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Get It in Writing: The IT Professional's Guide to Essential Contracts
www.it.insureon.com/resources/publications/contracts

Get IT in Writing: The IT Pro's Guide to Essential Contracts

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