You’re having a great conversation with a potential client: the deadline is doable, the work is actually interesting and the pay will be in real dollars, not “exposure.”
And then she starts speaking another language.
“Now before we begin, you’ll need to sign our standard NDA and MPSA and we should probably have some sort of SOW in place, you know to better define the deliverables. Once that’s done Procurement can issue the PO; our terms are net 45, is that going to be a problem?”
What in the world did she just say? It sounded like she was using English words, but gods help you if you understood half of them.
The job is really good. The pay is really good. She seems really nice. It’ll probably be OK if you just say, “No, that’s fine; I do POs all the time.”
Business can be intimidating, but it should never be so intimidating that you agree to something you don’t understand.
I’ve put together a little primer of terms folks use in business speak below. It’s not exhaustive, by any means, just an overview of some of the more common ones.
If you find you’re in a situation where you don’t understand what a word means, and you trust the person you’re working with, ask. Sometimes people just forget they’re using a foreign language.
If you don’t feel comfortable asking the person you’re working with, a simple, “Thanks; I’ll need to review this a bit more and get back to you,” is perfectly acceptable. Then: ask someone you do trust, in life or on line. If at all possible, avoid using the faceless internet (Google, Wikipedia, etc.) to answer your question.
Let’s march through that sentence of ours, shall we?
Standard — in this context standard has the same meaning you’ve always known it to have, but it should make your ears prick up a bit. “Standard” also means “we wrote this in a desperate attempt for it to apply to everything we do.” It’s also sometimes used when you try to push back on something, e.g. “I don’t know why you’d object, it’s our standard.” Read anything “standard” carefully and if something doesn’t seem to apply to you, ask that it be removed or changed.
NDA — Nondisclosure Agreement. It is an agreement between two parties to not tell other people their secrets. An NDA should list the specific topics or information it covers in the document and say how long you need to keep that information secret. Many standard NDAs do not and are blanket agreements (that is, they cover every possible thing forever). If you are asked to sign a blanket agreement, push back and ask that whatever it is you’re being asked to keep secret be described in some way in the agreement & that the time period be reasonably limited. NDAs can be unilateral (one way) or bilateral (two way): either only one person has to keep their trap shut, or both do. If you’re going to be giving them info you wouldn’t want passed around, ask for a bilateral or mutual agreement.
MPSA — Master Professional Services Agreement. This is actually two definitions. First:
Master — in the world of contracts “Master” means “controlling.” You can have a contract that covers a single event or you can have a “master” agreement that can be used over and over again for many projects. The benefit of a master agreement is that you don’t have to execute a contract every time you do work with that client; the detriment is that once you’ve agreed to those terms, that’s pretty much it.
Professional Services Agreement — generally speaking contracts are for one of two things: materials or services. If you’re selling an object — materials. If you’re creating an object to the specifications and whims of the client — services. Your contract can cover both things, but many companies like to keep the two separate. A PSA, master or otherwise, is a contract. It defines the legal relationship between the two parties & explains who gets what and how if things go kur-plooie.
SOW — “Statement of Work.” An SOW says exactly how the parties are going to work together, how long the work will take, where it will be done, what will be made as a result, and how much it will cost. It tells you the Who, What, When, Where, Why & How of the job. The SOW is governed by the legal relationship established in the contract. If you want to know what happens in the event of kur-plooie: contract. If you want to know what happens: SOW. I think of an SOW as the meat & potatoes of an engagement and the contract as the plate that it sits on. You could eat your meat & potatoes off the table, but the plate keeps things from rolling around on you.
Deliverable — I hate this word, but the world has not bent to my whim & it perseveres. A “deliverable” is, quite basically, the object that will be delivered to the buyer upon completion of a statement of work. It is what the client will walk away with, in their hands, and what they will pay you for. Despite the horrible word, having a deliverable is terribly important. I always tell my clients, “If you don’t know what the deliverable is, how do you know what you’re paying for?” Deliverables are generally described in an SOW.
Procurement — many medium to large sized companies have a department that handles all of their contracts. This department is often called “procurement.” It is important to know because if you negotiate, negotiate & negotiate with your client only to find out you have to negotiate all over again with procurement, it kind of sucks. Ask about all of the steps involved in your client’s process; if there are folks involved other than the person you’re talking to, ask what role they play & how you’ll need to work with them.
PO — purchase order. It is a piece of paper from the client to you detailing what they are buying, how much of it they are buying, how much they will spend with you to buy it and where they will send the money. If they’re buying materials, it says exactly what they agreed to buy. But you might also see it with a services contract, because it’s generally how most companies can pay you. SO: read the contract. Up near the front, it should say something about “in the event of a conflict between the contract, SOW and PO, X will control.” With services, you do not want the PO to control; you want your fancy SOW that you spent so much time negotiating to control.
net 45 — actually net 10, 15 or 30 are more common. It means how many days from the date of the invoice the client has to pay you. So with net 45, if the invoice is January 1st, their check isn’t late until February 15th. Net 30 is far more standard. Some companies will ask for “net 10 2%” which means if they pay you in 10 days, they get a 2% discount. Now, they’ll take that 2% out of the check before they send it to you, so make sure (1) you can afford the discount and (2) that you know what day they are counting from: date of the invoice or the date the invoice is received?
What weird business terms have you run into? Drop me a line & I’ll try to tackle them next time around.
Categories: Making Sense of Contracts