Your tech services business has been incorporated. Your prospect is interested in talking to you and they ask you to send an NMDA. Time kills deals and not having your paperwork in place makes you look amateurish. You also can’t skip legal cover, as tempting as it may be. It can open your company up to some very expensive mistakes.
But the good thing is, you can actually speed things up quite a bit by making sure your most frequently used contracts are available and ready to be used. These plug ‘n’ play contracts won’t be heavily customized, but they’re great for moving things along quickly and safely. But that doesn’t mean they can’t be customized at all. In fact, we recommend standard versions of each of the contracts below with the caveat that you should be open to reasonable redlines.
Tech services companies frequently deal with some of the most valuable aspects of any organization: their technology, their intellectual property, their patents - in fact, potentially anything served by IT. Given how sensitive and far-reaching this can be, most potential customers will want to be sure of the confidentiality of the information they exchange with you. On the flip side, investors and contractors may need access to such sensitive information about your own company. And should the worst happen, an NDA also opens the option of legal recourse.
While frequently customers and other stakeholders may want you to sign their NDA, given how often this document is used and how it is necessary even to start a conversation, you should have your own NDA at the ready to make sure you reduce friction in getting the conversation started.
A good NDA will:
Protect the rights of both parties (also MNDA for Mutual NDA)
Be reasonable in expectations. Protecting confidential and proprietary information but not posing onerous requirements on the other party
Be especially aware of restrictions on the sharing of ideas in an NDA. You want your customer to be able to discuss the idea without worrying about you stealing it, but you need the terms to be constrained so it doesn’t interfere with your business including working with other clients.
You can always modify and customize terms further as required for any particular conversation.
A bad NDA looks unprofessional and slows down the process of getting to business. Many NDA templates available online have extremely strong restrictions making them effectively unusable.
One service agreement to rule them all, the Master Services Agreement (MSA) is a comprehensive contract that outlines the general terms of a relationship between your company and your client. It covers multiple projects over a longer period of time and is helpful to ensure legal cover so you can quickly expand your existing relationship with a client without adding legal overhead.
An MSA typically covers:
Scope of Services
Duration and Termination
Payment Terms
Intellectual Property Rights
Indemnification and Liability
Insurance Requirements
Subcontracting rules
Customer-specific Compliance Agreements (HIPAA BAA, GDPR and data locality, security clearances, etc)
Dispute Resolution
If a party has to pull out the contract, then the relationship has already gone wrong. But you need a good MSA in place to ensure both parties understand their rights and responsibilities. Every term in the contract constitutes a promise you are making to your customer and a good business keeps its promises to the customer.
The SOW is the guiding document for specific projects you sign on with a client. You have one MSA but multiple SOWs with the client. The SOW sets clear expectations for:
Deliverables
Timelines, milestones
Norms for communication
Processes for accommodating changes in scope.
Defining the scope helps avoid unpleasant surprises for either your customer or your company a few months down the road. It can also act as a springboard for further conversations as new needs that cannot be served under the current SOW may come to light during the course of the project. This can open up the path to winning multiple projects with the same client.
License agreements are legal contracts that grant permission to use, distribute, copy, modify, or sell a particular asset, such as software, intellectual property, or technology. Even though you are a tech services company you likely still have IP that you want to ensure is licensed correctly.
While most of the customer work you implement would be under a work-for-hire agreement you want to differentiate your IP from customer work. For templated files, you may need to give the customer expansive rights to use, reverse engineer, and modify without the permission to sell. You will also need to comply with 3rd party licensing rules. Many open-source agreements, especially, require conforming to licensing rules.
Finally, be aware of any technology you have that is governed by Export Control laws. Many technologies, especially dealing with cryptography are covered by export control regulations and you must ensure that you are compliant with the appropriate legal and licensing requirements.
As a tech service provider, you must do everything in your power to control ramp-up time. That means being able to find & mobilize resources fast, because ramp-up time affects the COGS of a service business. Step 1 is to make you have standard employee and contractor agreements ready to go as soon as you need them.
These agreements help set clear mutually binding expectations between the company and its employees or contractors, along with deliverables and other requirements. As an added bonus, a standard agreement for a contractor with whom you have a long-term relationship can further boost the speed at which you can deploy resources because both parties have a clear understanding of the typical terms of their relationship.
The agreement needs to address:
Work for hire and IP assignment
Job expectations and code of conduct
Compensation and/or benefits
Termination process
We recommend starting out with mostly contractors while you build up your customer base and put the HR infrastructure in place to hire full-time employees. But you will need to have the basic documents in place to protect yourself and your customers.
Having standard contracts ready to use can be a game-changer for the speed and efficiency with which your tech services company executes key business processes such as sales, recruitment, and service delivery. While some of these may be created at the time of your company’s incorporation, it’s always a good idea to review what you have and update or add what you need.
But ultimately, remember that these contracts are not designed to hold things up but to move them along. They are not an end in themselves. Be sure to keep them reasonably flexible. It’s worth the investment to have a professional lawyer draft your standard contracts to ensure you have a solid legal foundation for growth. On that note, stay tuned for our upcoming guest by Aaron Woo (Partner, Vanguard Legal) about the key things a future acquirer might look for in the legal paperwork of a tech services company.