Review Rules for a Founder Working with Contractors

Contractor agreements arrive with more clauses than most founders have patience to read, and the temptation is to skim until the signature line. That skim is where the money leaks out. A founder signing a statement of work is not buying labor by the hour; that founder is buying a defined outcome, and the gap between those two frames is where most disputes begin. The rules that follow are the ones worth enforcing before the first invoice lands, not after.

Scope written as a deliverable, not a vibe

A contract that says the contractor will "help with the website redesign" is not a contract. It is an opening bid for a fight. The scope section should name the artifacts produced: three wireframe sets, a staging environment deployed and accessible at a stated URL, a content migration covering a listed set of pages. Each item needs a completion condition that a reasonable third party could verify without asking the founder's opinion.

The test is simple. Hand the scope to someone who has never met either party and ask whether they could tell, on a given Friday, whether the work is done. If the answer is no, the scope is still a feeling. Rewrite it until the answer turns yes.

Founders resist this because it feels bureaucratic, and because the relationship is young and friendly and no one wants to act like a lawyer in week one. That friendliness is exactly the reason to write the scope down. The contract exists to protect the relationship from the moment the relationship stops being easy.

Milestones tied to dates and to payment

Payment terms and milestone definitions belong in the same paragraph, because they are the same mechanism. A milestone that pays out on "phase one complete" invites a debate about what complete means. A milestone that pays out when a named deliverable is accepted by a named person, on a stated date, does not.

Two payment structures dominate early-stage contractor work: hourly and fixed-fee per milestone. Hourly is honest about uncertainty and expensive when scope drifts. Fixed-fee is cheap to budget and dangerous when the contractor underestimates, because the corner-cutting that follows a bad fixed bid lands on the founder's product. A reasonable middle exists in capped hourly blocks tied to a milestone: the contractor bills hours up to a ceiling, and the ceiling resets only when the milestone is accepted. That structure forces an early conversation about drift instead of a late one about overruns.

The intellectual property assignment clause

This is the clause most often missing and the one most expensive to fix later. By default, in many jurisdictions, a contractor retains copyright in the work until it is explicitly assigned. A founder who pays for a codebase and never gets a signed assignment owns a license at best, and possibly nothing at all. The agreement needs a present-tense assignment of all work product, including source code, designs, documentation, and any inventions conceived during the engagement, with a fallback license if any assignment fails for technical reasons.

The clause should also require the contractor to sign whatever separate documents are needed to record the assignment, at no additional charge. A contractor who agrees to assign but then charges a fee to sign the paperwork has effectively held the founder up. Put the obligation to cooperate in the contract itself.

Confidentiality that survives the engagement

Confidentiality clauses are standard, and their standard form is usually fine. What matters is the survival period. A confidentiality obligation that ends when the contract ends protects nothing, because the most sensitive disclosures tend to matter for years. The clause should survive termination, should cover the contractor's employees and subcontractors, and should require return or destruction of materials on request.

One practical addition: name the categories of information that count as confidential rather than relying on a generic definition. Customer lists, pricing, source code, and unreleased product plans are the ones that get litigated. Listing them removes the argument that a particular disclosure was not covered.

Subcontracting and who actually does the work

A founder hires a named contractor and often gets that contractor's junior colleague or an offshore team. Sometimes that is fine. The agreement should make it visible. Require written notice before any subcontracting, name the individuals authorized to work on the engagement, and require the contractor to flow down the confidentiality and IP obligations to anyone who touches the work.

This clause also matters for security. If the contractor's subcontractor has access to production systems, the founder needs to know who that person is and what access they hold. A statement of work that lists individuals and their access level is worth more than a generic promise of professional care.

Termination rights on both sides

Founders focus on their own right to terminate and neglect the contractor's. Both matter. The founder needs a termination for convenience clause, ideally with a short notice period and payment only for accepted work plus documented expenses. The contractor needs a termination for cause clause that triggers on nonpayment. Symmetry here is not generosity; it is what makes the contract signable by a serious professional.

The termination section should also state what happens to work in progress. Who owns the half-finished branch? Who keeps the design files? Who pays for the cloud bill that the contractor's environment is running up? These questions get answered in a hurry during a breakup, and the hurry is exactly when the uncertainty costs the most.

Dispute resolution and governing law

Litigation is the outcome nobody wants and the one the contract should assume. A founder and a contractor in different states, or different countries, face a real question about which courts hear a dispute. Name the governing law and the forum explicitly. For smaller engagements, a mediation-then-arbitration clause keeps costs proportional; for larger ones, the founder's home jurisdiction is usually the right default because it is the founder who will bear the cost of travel.

Arbitration clauses deserve a specific read. Some are drafted so broadly that they sweep in disputes the founder would rather litigate, and some arbitral forums charge fees that dwarf the amount in controversy. A clause that sends a $15,000 dispute to a $40,000 arbitration is worse than no clause at all.

Insurance, taxes, and the contractor status question

For any contractor working on systems that touch customer data, require evidence of professional liability insurance and name the founder's company as an additional insured. The certificate is a single page and it changes the negotiation when something goes wrong.

The tax and classification question is separate and worth a line in the agreement. The contractor should represent that they are an independent business, responsible for their own taxes and withholding, and the contract should state that nothing in it creates an employment relationship. That representation does not settle the legal question, but it puts the parties' intent on the record and gives the founder something to point to if a classification issue surfaces later.

What to review before signing, in order

The order matters because attention is finite. Start with scope and milestones, because those define what is being bought and when payment is due. Then read the IP assignment and confidentiality clauses, because those define what the founder keeps. Then read termination and dispute resolution, because those define the cost of a breakup. Insurance, taxes, and subcontracting come last, and they are the fastest to skim.

One habit separates founders who avoid contractor disputes from those who spend a year in one: they read the entire agreement once, out loud, before signing. Reading aloud catches the sentence that says the contractor owns the work product until final payment, or the clause that requires sixty days' notice to terminate. Those sentences are easy to miss on a screen and impossible to miss when spoken. The founder who reads the contract aloud is the founder who never has to learn its terms from a lawyer's letter.