Proposals

A proposal is a detailed project document that defines the scope of work, the process, the schedule, and the total price (usually in the form of a fixed fee). It is a discussion document where the designer puts forward a recommended course of action for the client to consider. Many proposals go through several rounds of changes and negotiations before they are finalized. Some negotiations with the client may relate to project specifications while other discussions might focus on the legal terms and conditions. The final goal is to have one comprehensive document that, when signed by both parties, serves as your contract for the project.

Initial steps for you

Start with some general preparation that is relevant to all of the work done by your firm:

• Think about your creative process. Write down the ideal sequence of activities-phases, steps and milestones-that allow you to produce your best work. If you are active in more than one practice area, you may have several variations. Your own creative process should be the framework that you use for planning and managing projects.

• Calculate a standard hourly rate. This is an important internal tool that you need in order to sketch out initial budgets. Rates vary from firm to firm based on the amount of overhead being carried, the number of hours available to devote to client projects and the target profit margin included in the calculation. (A sample format can be found in the Graphic Artists Guild Handbook: Pricing and Ethical Guidelines.)

• Research standard terms and conditions that are appropriate to the type of work that you are selling. (More information about this below.)

Now you can zero in on the particular project that you are bidding on:

• Gather as much information as possible on the potential project. If the client has provided you with an RFP document (a request for proposal), review all of the details carefully. Beyond this, you may want to complete your own form of project questionnaire to make sure that no important details are overlooked. This may involve additional discussions with your client contact and possibly others at the client company in order to learn more.

• Now you're ready to prepare a preliminary project plan and budget. Even though you may be allergic to spreadsheets, it's important to get in the habit of using an internal planning worksheet to calculate a "suggested retail" price for the project. This ballpark number has to be based on the scope of work required, your own step-by-step design and implementation process, the size of the team that will be required, an estimated number hours for each team member (valued at your standard hourly rate), and estimated outside purchases (including a standard markup). Now you have to make a judgment call: adjust the totals as needed in order to reflect market conditions and the ultimate value of the work to the client.

• You'll also need to draft a preliminary work schedule that shows the number of work days or work weeks required (don't forget to factor in your prior commitments to other clients). A good approach is to do this as a Gantt chart that shows blocks of time and indicates project activities that can happen concurrently. Whenever possible, it's best to avoid locking in specific start dates, approval dates or completion deadlines, because all of them are sure to change. It's better to plan the schedule in terms of the elapsed time necessary.

This internal preparation and planning has been just for you. The next step is to begin drafting a document that the client will see.

Information that is sent to the client

Written proposals include specific details that vary quite a bit based on the individual project and the creative firm. However, there is a fairly standard structure for the proposal document itself. Typical components include:

• An overview of the client situation (their industry and competitive challenges)

• A description of the scope of work and specific objectives for this project (the immediate need that must be addressed and the specific targets that must be achieved)

• The process that you are recommending (for each individual phase, spell out what is included and what is not-describe the sequence of steps, the deliverables and milestones, the number of creative directions that you will be showing, the number of revisions or refinements that are included, the format for delivery, the necessary timeframe and a subtotal of fees and expenses; along the way, be sure to clarify the client's responsibilities and explain how the client will be integrated into the process)

• A recap of the total timeframe, total fees and total expenses (plus any applicable taxes)

• A billing plan (a simple list of invoice amounts and when they will occur during the project-the payment terms will be explained in the terms and conditions)

• Appropriate terms and conditions (see below for more information)

• Two lines for authorized signatures at the end of the document (submitted by and accepted by)

• A statement of how long the unsigned offer will remain valid (put this underneath the signature lines-if the client sits on the proposal for a month or two, you may need to update the document to reflect changes in your pricing or availability)

You may want to include some extra items, particularly if the client's approval process involves routing the proposal to an executive who has not met you:

• Capsule bios of senior team members

• Background information on your design firm's capabilities and your credentials

When finalizing a proposal package, always include a cover letter. It will be written last. Keep it short, professional and enthusiastic. Don't repeat any of the details that are in the proposal itself. The letter is simply an invitation for a follow-up conversation and it should indicate your willingness to update or revise the scope of work if necessary.

Next, consider the best way of getting the proposal package to the client. Whenever possible, present it in person. This allows you to explain the contents, to address any concerns that the client might have, and to begin building your relationship.

Terms and conditions

There are some basic terms & conditions that apply to all creative disciplines. For the most part, these have to do with ownership and license issues, payment issues, and general legal issues. Each of these is briefly defined and discussed below. Beyond these basics, contract language varies by design discipline. For example, Web developers have particular concerns that are different from those of advertising agencies. There are so many possible variations that this article cannot be comprehensive. An "additional issues" section is included with a few items specific to print design, interactive design and 3-D/environmental design, but beyond this you'll want to be aware of your own potential risks and do as much additional research as you can. Go to www.aiga.org and download the publications in the Design Business and Ethics series (the AIGA Standard Form of Agreement for Design Services includes sample contract language, which will be updated this year). Go to the bookstore and buy a copy of the Graphic Artists Guild Handbook: Pricing and Ethical Guidelines. For creative disciplines other than those mentioned above, look at publications from relevant professional associations (for example: the American Society of Media Photographers or the Industrial Designers Society of America). Once you've gathered as much reference information as possible, review it all with your own attorney.

OK, so what are the basic concerns that all designers have in common?

Ownership/license issues

• Is the project a work-for-hire, an assignment of all rights, or is it a license?

• If it is a license, what is the scope of the license?

• Be sure to make any transfer of rights contingent upon full payment

• What about inclusion of third-party materials?

• What about using the work in your own portfolio?

Work made for hire. This phrase comes from U.S. copyright law. It refers to original work made by an employee, in which copyright ownership automatically belongs to the employer. It can also refer to original work made by an independent contractor or a design firm, in which copyright ownership might automatically belong to the client, but only under certain limited criteria: if the work was specially ordered or commissioned, and the work is a contribution to one of nine specified types of collective works (for example: encyclopedias, atlases, and possibly, websites), and if a written agreement is signed saying that it is a work made for hire. If your work doesn't meet all of these criteria, copyright will belong to you unless you assign it to your client. More information about copyright is available in the AIGA publication Guide to Copyright and directly from the U.S. Copyright Office at www.copyright.gov.

Assignment of rights. An assignment is a full transfer of intellectual property rights to your client. It might include copyright, patent, trademark, trade dress, or other types of intellectual property. For example, when a new corporate identity is developed and sold to a client, the sale typically includes an assignment of all rights. The client will go on to complete U.S. and international registration of copyright, trademark, patent and other rights in their own name.

License. A license is a limited grant by a designer to a client of rights to use the intellectual property comprising the designer's work in a specified limited way.

Scope of license. The extent of the license that you grant will vary based on the nature of the work involved. The rights may be limited to use on certain products, in particular media, in a certain territory, and/or for a specified time period. Another basic issue is whether or not you will allow the client to turn around and license your work directly to a third party. (Specific licensing issues for print design and interactive design are discussed below.)

Full payment. If you have agreed that you will be transferring some or all rights to your client, you should definitely make any transfer of rights contingent upon receipt of full payment from the client for your services.

Inclusion of third-party materials. Many creative projects include elements that come from outside sources such as photographers or illustrators. Your design contract should specify that usage rights for those elements must be licensed by the client directly from the source. The Design Business and Ethics series from the AIGA includes two publications relevant to this topic: Use of Photography, and Use of Illustration.

Portfolio use. You should state that, once the project has been completed and introduced to the public, you will have the right to add the client's name to your client list and the right to enter the work into design competitions. You'll also want to be able to show and explain portions of the completed project to other companies when you are pitching new business. Sometimes clients who are in highly competitive industries have concerns about this. They may ask for the right to review and approve such promotional activity on a case-by-case basis. On a related note: you may want to ask for a credit line to be included in the work itself.

Payment issues

The second group of common issues to be negotiated includes:

Fees. If you are charging for your services on a fixed-fee basis, the total amount will be specified in the body of the proposal. However, if you are billing on a time-and-materials basis, your standard hourly rates will be listed here. You should also state that your standard rates would not change without 30 days advance notice to the client.

Expenses. Every project will involve at least a few expenses. They may be small like reimbursements for photocopies or taxi rides, or they may be large like the purchase of printing. You should spell out for the client exactly how project expenses will be handled. Some clients may want to receive photocopies of receipts for reimbursable expenses while others may simply request the right to audit your project records if they ever feel it's necessary to do so. It's not unusual for a client to require pre-approval if a purchase exceeds a certain amount. In most design firms, project travel expenses are passed through at cost but all other expenses are subject to a mark-up (20 percent is common). If a client wants to avoid a mark-up on a large expense, you might consider allowing them to purchase it directly. However, your fee for services must cover the time that you put into vendor sourcing and quality control.

Deposits. Whenever possible, you should ask for a deposit at the beginning of a project. There are different approaches to this. Some designers apply the deposit to the first progress billing (making it essentially a pre-payment of phase 1). Others state that the deposit will be held until the end of project and applied to the final billing. If that's the case, point out that no interest will be paid while it is being held. If the project is cancelled, the deposit will be refunded less any amounts due to the designer.

Invoices. Your schedule for project billings should be stated in the body of the proposal. Progress billings can be based on phases or milestones, or they can be weekly or monthly. Here you might specify that you will print hard copies in duplicate and send them via regular mail to the accounts payable address given to you by the client.

Payment terms. When you send an invoice to a client, full payment is due within a certain number of days, counting from the day that the invoice was issued. For example "Net 30" means that the client must get full payment to you within 30 days. Some corporate clients stretch this a bit by saying that the days should be counted from the date they receive the invoice. It's common for design firms to establish client payment terms of "Net 15" because client cash must be received in time for the design firm to pay for related project supplies purchased from vendors on terms of "Net 30." Related to this, you may want to put a limit on the amount of credit that you are willing to extend to a new client. This would be a judgment call based on the client's credit history and your own financial needs. You may also want to state that a project may be put on credit hold if required payments are not made.

Late payment penalties. Most design firms charge clients interest on overdue payments. The standard rate is 1.5 percent per month (which is the equivalent of 18 percent per year). Separate invoices are not generated for the interest amounts. Instead, they appear as line items on monthly statements sent to clients to remind them of unpaid invoices.

Change orders. A change order is a document drafted by the designer to acknowledge a client request that is outside of the original scope for the project. The designer describes the amount of additional time and money required and sends the change order to the client for review and an authorized signature. It is essentially a mini-proposal. You'll want to reference the original proposal and state that the same terms and conditions will apply. Compensation can be calculated as a fixed fee or on a time-and-materials basis, in which case you would list your standard hourly rates here. As the work involved is completed, each change order should be invoiced separately.

Client delays. It's paradoxical that the typical client will negotiate for a very tight schedule yet, in the middle of the project, that same client may cause serious delays by failing to provide necessary information, materials or approvals. Most design firms specify that if a client causes a lengthy delay it will result in a day-for-day extension of the project's final deadline. During that client delay, you may also have to reassign some of your resources to other projects, if you have any. You might have cleared the decks for the fast-track project by delaying or turning down other assignments. The danger for you as a businessperson is that an unexpected delay could mean that you're temporarily unable to produce billable hours. To offset this risk, some creative firms attempt to charge a delay penalty or a restart fee. However, most clients are not receptive to the idea.

Termination. Describe the process for canceling a project, from notification through calculation of your final invoice. That final billing might cover time and materials for actual services performed through the date of cancellation, or it might be a lump-sum cancellation fee, or perhaps a combination of the two. Cancellation also raises questions about ownership of the unfinished work. Typically the designer will retain all preliminary art, including any studies and comps already rejected by the client, while the client might receive the most recent approved version of the work in process.

Taxes. It's a good idea to state that the client is responsible for any applicable sales or use taxes, even if they are calculated after the fact (as in a subsequent audit of the designer's tax returns).

General legal issues

This third group of common issues to be negotiated includes:

Confidentiality. In order for these terms and conditions to be complete and comprehensive, confidentiality should be included here even if you've already signed a separate confidentiality and non-disclosure agreement (perhaps during your very first meeting with the client). Depending on the type of work that you do, you may want confidentiality and non-disclosure to be mutual so that your own proprietary information is protected as well.

Warranties. A warranty is a promise in a contract. It is a written guarantee that the subject of the contract is as represented. As a designer, you might warrant that your work is free from defective workmanship or that it is original and does not infringe the intellectual property of others. If some portion of the work turns out to be defective (for example, a problem with some bit of custom computer code in an interactive project) then it is your responsibility to repair or replace it. Legal issues related to originality can be a bit more challenging. You can only infringe a copyright if you knowingly copy someone else's work. However, trademark, trade dress and patent rights can be infringed even if you create your work independently. Thus, it's best to limit your warranty of non-infringement to "the best of your knowledge." If you are going to provide a guarantee of non-infringement without such limitation, then at some time before the end of the project a formal search should be conducted to determine whether or not your work inadvertently resembles a third party's trademark or patent ("prior art"). It's best to place responsibility for this type of prior art search on the client. If you agree to arrange for the search, then your schedule and budget for the project must include the hiring of an attorney or legal service to actually carry it out. On a related note: the client should make similar warranties to you for any project components that they supply.

Infringement. Infringement is the unauthorized use of someone else's intellectual property. It is the opposite of seeking and receiving permission, using correct notice of ownership, and contracting for payment of a royalty or fee. Even though the infringement may be accidental (you may independently create a logo for your client that looks like someone else's trademark), there may be infringement liability, and the infringer may be responsible to pay substantial damages.

Compliance with applicable law. Your work must comply with all applicable laws, including those related to product safety. (For more information, see the "product liability" and "additional items" sections below.)

Indemnities. In the event that you breach any warranty that you have given, you agree to provide security against any hurt, loss, or damage that might occur. You would have to make the client "whole" by giving them something equal to what they have lost or protecting them from any judgments or damages that might have to be paid to third parties, along with attorney's fees. For example, you might be asked to provide indemnity against third-party infringement claims. At the same time, however, you need to have the client indemnify you against any breach of warranties that they have made. Indemnification is a very important issue for designers because the scope of potential liability can be considerable.

Liability. Liability means legal responsibility for the consequences of your acts or omissions. Your accountability to the client may be enforced by civil remedies or criminal penalties. For example: a Web developer who has agreed in writing to complete an e-commerce site by a specific date will have liability to the client if the project is not completed on time.

Product liability. This refers to the legal responsibility of product designers, manufacturers, distributors and sellers to deliver products to the public that are free of any defects that could harm people. If a product is defective, the purchaser will probably sue the seller, who may then bring the distributor or manufacturer or product designer into the lawsuit. Any one of the parties may be liable for damages or may have to contribute toward a judgment.

Insurance requirements. Large clients often specify minimum insurance levels for the designer's business. Standard business requirements include general liability, worker's comp and automobile coverage. In addition, you may need to carry professional liability insurance to cover such things as intellectual property infringement or errors and omissions. You must provide proof in the form of a certificate of insurance that is sent from your insurance agent directly to the client.

Remedy. A remedy is the legal recourse available to an injured party. It may be stipulated in a contract or a court may order it. A remedy might require that a certain act be performed or prohibited, or it might involve the payment of money.

Acceptance. All work that you deliver to the client should be considered accepted unless the client notifies you to the contrary within a specified period of time (usually 10 days).

Cure. In this context, cure means to repair, correct or re-design any work that does not conform to the project specifications in order to make it acceptable to the client.

Mediation. Mediation is a non-binding intervention between parties in an informal setting in order to promote resolution of a dispute. It involves the active participation of a third party (a mediator) who facilitates discussion in order to clarify issues, find points of agreement and encourage cooperation. A commitment to mediation is often included in contracts. There are professional mediators and lawyers who offer mediation services.

Arbitration. The next step beyond mediation is arbitration, in which an impartial third party (an arbitrator) hears both sides of the dispute in an out-of-court setting. The arbitrator is an attorney who acts much like a judge, listening to both sides of the story but not actively participating in discussion. You and your opponent will have the opportunity to present evidence and witnesses. After hearing the facts, the arbitrator will make a decision. In your contract, you will specify whether the decision of the arbitrator is binding or non-binding. Binding arbitration imposes a legal obligation on the parties to abide by the decision and accept it as final. Arbitration proceedings are held in an attempt to avoid a court trial. However, contract-required arbitration may later be converted into a legal judgment on petition to the court. The fees involved might be large, but usually they are less than those involved in pursuing a lawsuit.

Litigation. Litigation means that you are pursuing a lawsuit through the court system in order to resolve a dispute.

Damages. Damages are financial compensation for loss or injury suffered by a plaintiff (the person suing). The amount of money awarded in a lawsuit can vary greatly. There are several different categories of damages, including: actual damages, such as loss of money due on a contract; general damages, which are more subjective and might relate to loss of reputation or anticipated business; and punitive damages, which may be awarded if the defendant acted in a fraudulent way.

Limitation on damages. It's smart for a designer to ask a client to agree that they may not recover any damages from you in excess of the total amount of money agreed to in the proposal. While it's possible for you to limit the amount that each of you might owe to the other in this way, you should keep in mind that you cannot contract away the rights of any third party to make a claim.

Jurisdiction. In this context, jurisdiction refers to the state whose laws will govern the signed agreement. Your client will usually request the state where their main office is located.

Legal expenses. When a dispute has been adjudicated by litigation or arbitration, the losing side may be liable to pay the winning side's costs and attorneys' fees. Under copyright law, a winning plaintiff is entitled to recover his or her attorneys' fees if the copyright was registered before the infringement occurred. For other types of liability, the obligation to pay the prevailing party's attorneys' fees must be established in your contract.

Relationship of the parties. Your contract should reiterate the fact that you are not an employee of your client and you are not forming a joint venture or partnership with them. As an outside supplier of services, you are functioning as an independent contractor. You may want to add that the relationship between you and the client is not an exclusive one. You sell services to a range of clients and some of them may be competitors. If a company wants to be your only client in a particular category, your pricing will have to reflect that. An exclusive relationship would require you to turn down projects from similar firms. Higher rates are necessary in order to offset that lost business.

Force majeure. This is a French term that means "superior force." It refers to any event or effect that cannot be reasonably anticipated or controlled. If such an event occurs (for example: a war, a labor strike, extreme weather or an earthquake) it may delay or terminate the project without putting the designer or client at fault.

Additional issues

Now let's look at additional issues that relate to specific practice areas:

Print 

• Scope of license: When your original imagery is used on printed materials, you need to specify the medium and category of use, the geographic area of use, and the duration of use. You may also want to state the size of the initial press run. If the client later decides that they need additional rights, they will have to renegotiate with you and pay additional fees.

• Portfolio: You will want to specify the number of printed samples to be provided to you.

Interactive 

• Scope of license: Here we need to address the issue of background technology. If any code that is proprietary to the designer is necessary to run, display or use the final deliverables, then the designer needs to retain ownership of it while granting a non-exclusive license for the client to copy and use it. This way you can use that same technology on any other clients' projects.

• Warranties and indemnities: if you're bidding on a website and the scope of services described in your proposal includes testing, hosting and/or maintenance, you are taking on additional legal responsibilities that need to be described in the contract. Try to limit any additional liability as much as possible.

• Compliance with applicable law: Section 508 of the Workforce Investment Act of 1998 is of particular importance to user interface designers, software and hardware developers. This law requires electronic and information technology purchased by the government to be accessible for people with disabilities. It sets accessibility and usability requirements for any websites, video equipment, kiosks, computers, copiers, fax machines and the like that may be procured by the government, thereby essentially affecting all such products in the U.S. market.

3-D/environmental 

• Portfolio: You need the right to photograph the completed project.

• Indemnification: you will be providing specifications for materials and construction details that will be interpreted by other professionals, such as architects, engineers and contractors. Typically, the client will contract and pay for such implementation services directly. Your agreement should include a disclaimer that you are not licensed in those fields and that responsibility for the quality, safety and timeliness of such work is the responsibility of the client and the architect, engineer or contractor involved. The client should indemnify you against any claims in this regard.

• Compliance with applicable law: Your project may be subject to the Americans with Disabilities Act (ADA), which is a civil rights act that affects private businesses as well as governmental organizations. ADA requirements are of particular importance to industrial designers, interior designers and architects. Environmental design projects may also require various types of government approval, such as building permits or zoning reviews.

Two negotiation strategies for designers

Terms and conditions can be negotiated separately for each and every project, or they can be negotiated just once for the entire relationship. If you start with a complete set and state that it will apply to all projects, then future proposals can just refer back to it. This can save on paperwork, time and legal expenses for both you and your client.

Working with an Attorney

It can be a challenge to find the right attorney and to use his or her time in an efficient way. Most attorneys specialize in a single category of law, such as real estate or labor law. As a creative professional, you need to find an attorney who specializes in issues related to intellectual property (copyrights, trademarks, patents, trade secrets, privacy, publicity, defamation, and moral rights). Attorneys are licensed state by state, so you need to find one in your own area. Start your search by visiting these online directories:

• Volunteer Lawyers for the Arts
  www.vlany.org
  A nonprofit listing of legal resources for artists in 25 U.S.states plus Canada & Australia

• Martindale-Hubbell
  www.lawyers.com
  A commercial directory of U.S. and Canadian attorneys that you can search by specialty & location

• FindLaw
  www.findlaw.com
  A searchable commercial database of attorneys, along with articles on various legal topics

It's a good idea to look for an attorney who has other designers as clients. Speak with established members of your own design community-one of them may be able to provide you with a local recommendation. Seek out an appropriate attorney when you are first establishing your business. Getting preventative advice on basic issues is much better than waiting until you're already in some sort of legal difficulty.

Initial discounts are sometimes available through groups such as Volunteer Lawyers for the Arts, but in general legal services are not inexpensive. Attorneys may charge a flat fee for assisting with certain basic transactions such as setting up an LLC, but for the most part services are billed on a time-and-materials basis. For this reason, you need to be efficient in the way that you interact. Make the best use of your attorney's time by being very well prepared. Bring copies of any correspondence that you have already received from or sent to the client. Gather sample documents from your industry and become familiar with the basic legal issues relevant to the creative services that you offer. You may be able to use one of these reference documents as a draft for further discussion with your attorney. Be completely honest and ask questions about anything that is not clear to you. Together you will then craft a final version to send to your client.

If your client is a small business, they may respond with some basic questions that you will have no trouble answering. With large clients though, you may find that your document is routed to an in-house legal department. If questions come to you from an in-house attorney, consider having that person negotiate the fine points directly with your own lawyer. If the in-house counsel is a specialist in some other area of law, your intellectual property attorney can explain the context for the contract language that you are requesting. Attorney to attorney negotiation creates additional expense, but if the resulting terms and conditions can be accepted as the basis of an ongoing relationship, then you won't have to go through the process a second time.