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CONTRACTS

3 Rules for Hiring an Independent Contractor

Avoid getting burned by an independent contractor by building these contingencies into your contract.
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There was a time when I was very skeptical about using independent contractors to perform work for my company. My unease stemmed from several questions that didn't have simple answers: Would I be able to effectively explain my desires for any given project? Would the quality of work be up to par? Would the contractor present a security risk for our business?

Then I bit the bullet and hired an independent software developer to create a highly specialized piece of code. The program exceeded my wildest expectations and worked brilliantly. I even planned on expanding versions of the program, and had detailed discussions with the independent contractor about joining us on a full-time basis. And then it happened. One day we woke up, and the program had ceased to function. Our business came to a screeching halt.

I called the independent contractor and explained to him the situation. Hours seemed like days and days like weeks as we eagerly awaited his analysis. Finally, about three days after the program ceased working, he had the answer. The program had to be completely retasked to accommodate for an altered external factor. In short, we had to rewrite the whole thing. If that was not enough, our independent contractor was going through a personal situation that would make it difficult for him to devote more than a few hours per day to our project.

In sum, he estimated six weeks until we would be back up and running again. It was a veritable death sentence for a business that had become so heavily reliant on this software.

But what defines you in life is not the obstacles that are placed in your path but how you react to those impediments. Over the next 48 hours, we devised a contingency plan and put it in place while we awaited the new software. Ultimately, the contingency plan saved our company and allowed us to continue to grow at the breakneck pace we have experienced over the past three years.

Now I'm wiser, and I learned valuable lessons concerning how to employ independent contractors, valuable lessons that I now share with you:

1. Milestone Compensation

One of the first lessons anyone must be aware of is, Never hire any independent contractor without a milestone written contract in place. A milestone contract allows for payments as work is completed and verified. The milestones should be fairly negotiated between the parties but, once entered, rigidly adhered to.

2. Accountability

Never hire an independent contractor who does not have some form of accountability to you. When you are relying upon their work for your business, insist upon using only independent contractors that will agree, in writing, to some form of being accountable for the deliverable they are hired to create even after it has been delivered. Be leery of anyone who will not provide you with phone numbers or other forms of direct contact, as it may be an indication they want the ability to disappear on a moment's notice. One way to ensure accountability is a claw-back provision on fees if the goods or services they have provided cease to work after a limited time. Another option is a maintenance contract in which they are required to repair the same if failure of the product ever occurs.

3. Redundancy

You can never have too much redundancy. Every critical system in a business should be backed up by another system. Every one. The backup may not work as smoothly and easily as the main system, but in times of crisis, working at all is sufficient. In this regard, even if you hire an independent contractor to perform a specific task and they do so brilliantly, one should always be mindful that they are independent for a reason and they may not always be there to fix what they have created. Plan for that, also.

Last updated: Sep 13, 2012

MATTHEW SWYERS | Columnist | Founder, The Trademark Company

Matthew Swyers is the founder of The Trademark Company, a Web-based law firm specializing in protecting the trademark rights of small to medium-size businesses. The company is ranked No. 138 on the 2011 Inc. 500.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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