Practical Guide for Drafting an Efficient Collaboration Contract
Updated: May 16, 2024
Independent entrepreneurs and business managers understand the crucial role a collaboration contract plays in establishing strong relationships with external partners. This article is dedicated to providing a step-by-step explanation of all key aspects to consider when entering into a collaboration contract It also outlines steps to minimize the risk of fiscal reclassification as independent activity.
From defining objectives and roles for each involved party to establishing financial terms and confidentiality rules, every detail in a collaboration agreement has consequences on how the project will be implemented. Whether you intend to collaborate with freelancers, business partners, or suppliers, this guide will provide insight into how the collaboration agreement functions.
What Is The Purpose Of A Collaboration Contract?
Collaboration is an essential component of many businesses and projects. While the benefits of collaboration can be numerous, it is crucial to establish a predictable and transparent framework to avoid misunderstandings and long-term conflicts. This is the role of a collaboration contract.
A collaboration contract is the understanding between two or more parties to establish objectives, responsibilities, deadlines, and other crucial details related to the implementation of a project, business development, or any other form of collaboration. It provides the contractual framework that protects the interests of the involved parties and ensures they have a shared vision of the established goals.
Some examples of situations where a collaboration agreement can be used include:
Collaboration contract between companies: firms can enter into collaboration agreements to work together on common projects or to develop products or services in partnership, especially when their activities are complementary.
Collaboration contract between independent professionals: individuals engaged in independent activities, such as freelancers, consultants, or liberal professions, can use a collaboration agreement to establish working conditions and responsibilities for each team member. You can use this template contract to found a strat-up or business.
Collaboration contract for artistic or cultural projects: in the artistic or cultural field, artists, writers, content creators, and others may enter into collaboration agreements to work on joint projects or to leverage each other's resources and skills for the project's benefit.
Collaboration contract in academic projects: educational institutions and researchers can use collaboration agreements to define the terms and conditions of joint research projects, academic exchanges, or the organization of scientific events.
Small and medium-sized business partnerships: small and medium-sized enterprises can enter into collaboration contracts to strengthen their forces and achieve common business objectives, such as developing new products, expanding into new markets, or sharing resources and costs.
Collaboration contract in development projects: in construction or development fields, parties can enter into collaboration contracts to coordinate efforts within a project, including defining responsibilities, deadlines, and cost distribution.
A well-written collaboration agreement allows the parties to develop specific projects or establish the foundation for an ongoing relationship. In the latter case, the parties may consider using a consulting contract for the provision of continuous professional services.
Who Can Be Your Partner In a Collaboration Contract?
Parties to a collaboration contract can be individuals who derive income from independent activities, such as income from copyrights, liberal professions (lawyer, doctor, nurse, financial consultant, etc.), or various business structures like sole proprietorships (PFA), family enterprises (PFI), individual enterprises (II), individual limited liability companies (IF), or limited liability companies (SRL).
Establishing Objectives and Roles
In creating an efficient collaboration contract, start by defining what you want to achieve. Include provisions in the collaboration agreement model that describe the collaboration's outcome or the final stage of the project the parties want to develop.
Even if the project is in its early stages, and the developmental stages are not clear, specifying the final result is useful to avoid later discussions. For example:
A technology company wants to collaborate with an independent programmer to create a mobile application for its products. Not all features of the final product are known: the design, color, the number of pages the application will have. However, the company knows how it wants to use the application and what functionalities it should contain. These details should be included in the collaboration agreement to prevent certain features from being omitted from the final product. If it is essential for the company, it can also specify additional requirements, such as the programming language the programmer should use.
Continue by defining the responsibilities and roles of each involved party. The general rule applies here as well: collaboration goals should be Specific, Measurable, Achievable, Relevant, and Time-bound (SMART).
Roles for each involved party should be clearly defined, including detailed descriptions of responsibilities and specific tasks. This helps avoid ambiguity and overlaps in responsibilities. While it may not be possible (or necessary) to include every activity a party will perform in the contract, it is advisable to at least clearly establish general categories of activities.
If we apply this information to the previous example, we would say:
The programmer is responsible for developing the mobile application.
Specific tasks include preparing the test version and subsequent iterations, ensuring functionality across all operating systems, ensuring the application's cybersecurity, and connecting the application to the iOS and Android platforms from which end-users can download it.
Establishing Timelines and Deadlines
The delivery or implementation schedule should not be missing from any well-written collaboration contract template. Deadlines are essential elements of a well-written collaboration contract, ensuring that the project or business progresses in an organized and efficient manner.
Timelines should be realistic and feasible, considering the complexity and resources required to achieve collaboration goals, so that neither party is put in a position of impossibility to perform. The collaboration contract may include intermediate deadlines and final delivery deadlines.
Allocation of Responsibilities and Resources
An important part of an efficient collaboration agreement template is the allocation of responsibilities and resources. This involves clearly defining work tasks and the resources needed to achieve partnership objectives.
Resources required for collaboration implementation may include financial resources, human resources, equipment, technology, or other types. It is important to specify in the contract template which party is responsible for advancing these resources.
Returning to the previous example, the clause would read:
The beneficiary will provide the programmer with all necessary equipment and programs for developing the mobile application, such as a laptop, access to servers, and access to programming software X (etc.). Additionally, the beneficiary will allocate a team of 3 employees to be supervised by the programmer.
Determining Compensation and Payment Conditions
Compensation and payment conditions are essential aspects not only of a collaboration contract but of any contract between professionals. They establish how the involved parties will be remunerated for their contributions and provide a solid foundation for the financial aspects of collaboration. Essentially, all professionals are motivated to fulfill their responsibilities by the compensation they receive.
Compensation should be specified in the contract and include details about the amount, frequency, and method of payment. It can be a fixed amount, a percentage of generated revenue, or another form of compensation, depending on the nature of the collaboration, such as hourly rates (though less common). Consider the following:
when establishing compensation in a collaboration agreement, have an open discussion with collaboration partners. Consider the value and complexity of the work collaborators will perform and ensure that the price paid is proportionate to the workload. Otherwise, frustrations over time can negatively impact your relationship and the smooth progress of the collaboration agreement.
consider payment conditions for special situations, such as advance payments or bonuses for achieving specific goals. Ensure that these conditions are clearly specified in the contract, and all parties agree to them.
if you use a variable method to calculate collaboration agreement prices, include verification criteria in the model. You can request descriptions of performed activities or advance assessments of the time required for a specific activity or set time limits for various types of activities performed by professionals.
Do not forget to specify payment currency and who bears any potential fees for bank transfers or currency exchange. While such clauses may not have a significant impact on contracts with reduced values, they can become essential elements in high-value collaboration contracts.
Addressing Intellectual Property Rights
Intellectual property rights are an important aspect of many collaborations and should not be absent from an efficient collaboration contract template. These rights refer to the legal rights held over intellectual creations, such as inventions, trademarks, copyrights, or trade secrets.
When using a specific collaboration contract template, check if it clearly and comprehensively addresses intellectual property rights. Specifically, it should specify the rights held by each party over intellectual creations resulting from collaboration and how these rights can be used or transferred. Such clauses ensure the protection and correct use of intellectual property, avoiding long-term conflicts or disputes over intellectual property rights.
Remember that the provisions parties can include in a commercial contract are flexible and can be adapted to their specific needs. Therefore, when collaborating with a professional, it is generally not necessary to enter into separate contracts to establish licenses or usage rights over intellectual property rights. Often, they can be determined by the same contract’s content—this happens when using a suitable collaboration agreement model.
Dispute Resolution and Termination Clauses
An important part of a collaboration contract template is addressing how potential disputes between contracting parties will be resolved and the ways the contract can be terminated.
A collaboration contract should include a clause for preventing and resolving potential conflicts that may arise during collaboration, guiding parties to an amicable resolution. Unfortunately, in Romania, there are no effective mechanisms to obligate parties to follow an alternative dispute resolution procedure in the case of a collaboration agreement—such as going through a mediation process. While attempts were made in the past to implement such an obligation, practical efficiency was low, and it was eventually removed from the law.
However, parties to a collaboration agreement can turn to arbitration instead of the courts when seeking enhanced confidentiality protection. Read this article to decide which one is more suitable for you: state courts of law or arbitration?
Additionally, the contract should include termination clauses that establish the conditions and methods under which the contract can be terminated by one or more parties. This may include notice periods, termination reasons, and other relevant details related to contract termination.
Get well-informed about how to terminate contracts before deciding which ones to include in your collaboration agreement model.
Preventing Fiscal Reclassification
The difference between dependent and independent activity from a tax standpoint is determined by seven criteria:
freedom to choose the place and manner of carrying out the activity, as well as the work schedule.
freedom to carry out the activity for multiple clients (lack of exclusivity).
bearing the inherent risks of the activity.
origin of the resources necessary for performing the activity (i.e., who provides the resources?). In independent activity, the professional predominantly uses assets from their business.
performing the activity using the intellectual capacity and/or physical performance of the professional, depending on the activity's nature.
membership in a professional body/order with a role in representing, regulating, and supervising the respective profession according to specific legislative acts.
the individual has the freedom to carry out the activity directly, with hired personnel, or through collaboration with third parties, according to the law.
To avoid the risk of fiscal reclassification of a collaboration contract, at least four criteria out of seven must be met, and the way contract clauses are worded is crucial.
Reclassification comes with increased contributions and taxes, equivalent to those paid for an employee. Therefore, it is preferable to use a well-written collaboration agreement model—available for only 150 RON on Docs & Deeds—instead of one that exposes you to this risk.
What Contract Should I Use?
Now that we know what a collaboration contract template should contain, another aspect to consider is: the collaboration agreement is an unnamed contract. This means it does not have explicit regime under the civil code or labor code that governs its functioning mechanisms. The clauses of a collaboration contract are based on general contract functioning rules and the parties' understanding.
Entrepreneurs should know this in order to searching for answers to unnecessary questions such as: “What contract should I use? A collaboration agreement or another contract?" Except when the professional you want as a partner will be your employee (in which case you need an individual employment contract), you can use a collaboration agreement model, a service provision contract template, a consulting contract template, or another contract tailored to your requirements to establish the partnership.
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