Suggested Guidelines for a Design Letter of Understanding and Agreement
 

The RGD Rules of Professional Conduct require members to disclose in a written agreement their fees, the services to be performed and the method of calculating the compensation. A letter of understanding and agreement that details all aspects of a given project can help to avoid common disputes or misunderstandings over payment of fees, usage and copyright ownership. A letter of understanding and agreement is considered to be a best practice tool for the protection of both the designer and the client. Every letter of agreement will be unique to the specific project it outlines. The agreement can also serve as a project planning and management document.

 

How to use this guideline
The information contained in this document is not meant to constitute legal advice. You should consider having any letter of understanding and agreement reviewed by legal counsel.

This guideline does not cover all possible elements that could go into a design agreement. Specific facts relevant to your situation will determine which of the elements you may want to use for your design agreements, For example, if you are a specialist in web design you may need to do additional research or obtain legal advice on further agreement elements specific to that design specialty.

 

Disclaimer 

Users of this guideline agree that in no event shall the Association of Registered Graphic Designers (RGD) be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

 

Background

Your letter of understanding and agreement should begin with:

  • the full legal name and address of the client,
  • your description of the client’s company and/or key product or services,
  • the name of the design project or assignment,
  • the creative mandate,
  • a list of the various phases or elements to be designed, and
  • the design objectives, scope of work, deliverables and timing.

 

Client Contact
You should confirm the name, role and authority of the main client contact who has approval authority, and his/her substitute if the main contact is not available.

 

Project Team/Contact
You should confirm the name, role and authority of the main contact person on your team whom the client can contact, and the backup person(s).

 

Design Process
You may wish to detail the design process that you will be using. The design process may vary depending on the area of design specialization required for any given project. The Association of Registered Graphic Designers does not guarantee that the design process and deliverables described here will be performed by every graphic designer, and some designers may perform processes and provide deliverables that are different from those set out here. While the information below sets out a basic design process, your business activities should be determined on a case-by-case basis.

 

A basic design process may include the following:

 

Discovery/Research
This service may include the review of detailed client requirements, plans and budgets. The service may also include fact-finding meetings with clients, initial market analysis regarding the competitors, the company, the category, consumers and clients/customers. Depending on the size of the project, the service can entail the use of consumer research. The result may be a written report with your understanding of the target group, strategic analysis/direction of findings.

 

Design Development
Based on an approved strategic direction and positioning, this service entails the initiation of a process to cover initial designs for the project elements, and may include several visual presentations to communicate a variety of options for concepts, and lead to final design approval based on the selected design direction, as well as setting the parameters for real property deliverables and services.

 

Implementation
Upon final concept approval, this part of the design process consists of either developing a final artwork electronic file that is delivered to a third party or the client for production, or, developing final artwork and tender and selection of a production service provider.

 

Realization
This part of the design process includes delivery of the artwork files to a third party service provider, and project management and quality control services as required.

 

Client Responsibility and Approvals
You should outline the process, formats and timing for the client’s approval of each of your design process steps. Also, detail the client’s responsibility to deliver required items - this is important particularly where there is a timeline for which you are responsible.

 

Timeline
A timeline for each step of the design process through to delivery of final product, and client deliverables and approvals should be included in your letter of understanding, along with how you will deal with client-incurred delays to meeting the schedule. You should add that schedules and timelines may be subject to change upon reasonable written notice.

 

Invoicing and Payment of Fees
You should confirm the agreed-upon fee from the estimate or proposal used to obtain this project and detail how it is calculated (whether fixed or hourly rates based on a fee grid). If the client’s credit is suspect or if client is new, consider whether you require a personal guarantee to pay from the principal of the client.

 

You should also provide information as to what part of the design process is subject to Ontario Retail Sales Tax (otherwise known as PST). For more information on PST, consult with the Ministry of Finance.

 

Also, outline the invoicing schedule as it relates to the project timeline (one invoice upon completion, or the amount or percentage of the retainer or deposit payable at the outset and remainder upon completion).

 

Other elements to consider in your letter of understanding:

  • Fees – Define what is included, such as copyright fees, production fees, costs and expenses (consider whether to add surcharge on billed expenses).
  • Sales tax – Confirm whether or at what point in the design process (i.e. when consultations end and production of Tangible Personal Property starts) sales taxes are included or excluded in the fee. For more information, consult the Ontario Ministry of Finance and/or obtain RGD referrals to accounting and retail sales tax consultants.
  • Work rejected – Provide that fee is payable even if work rejected, but that the rejected work remains your property.
  • Change fees – Define exactly how in what amount fees for any material change, additions, revisions or rush work to the project are to be tracked and billed.
  • Deposit – Define whether deposits are refundable or non-refundable and under what circumstances.
  • Cancellation fee – Detail your policy on project cancellations (50% of the estimated fee, or billing for time and expenses incurred up to the cancellation date).
  • Additional fees – Define purpose of work and establish that other uses are restricted unless additional fee is paid.
  • Copyright assignment – Consider making copyright assignment (client’s usage of the design) conditional on full payment.
  • Copyright ownership – Unless specified otherwise, you own the copyright to your design. If you wish to transfer copyright ownership to the client you should charge an extra fee. The RGD Rules of Professional Conduct specify that a member shall not transfer property rights to original work unless such rights are specifically purchased apart from reproduction rights.
  • Late payment – Detail interest and payment of default expenses.
 
Copyright
Copyright remains your property (world rights) and is assigned to your client in Canada after payment of fees in full. With respect to copyright assignment and usage, detail whether it will be a one-time usage, unlimited usage or whether buyout is applicable and optional, and if so, how it is exercised.
 
As mentioned above, if you wish to transfer copyright ownership to the client you should charge an extra fee. The RGD Rules of Professional Conduct specify that a member shall not transfer property rights to original work unless such rights are specifically purchased apart from reproduction or usage rights. 
 
Other elements to consider in your letter of understanding:
  • Registration costs – If you transfer your copyright ownership to the client, define whether or not any registration costs are your client’s responsibility.
  • Unused material – Specify whether any material or work not used remains your property.
  • Additional usage – As stated above, if your work is to be used beyond the original purpose, specify if an additional fee payment is required.
  • Ownership of files – Unless specified otherwise, you retain ownership of your files.
 
Right to Subcontract Work
Define whether or not the client’s consent is required to subcontract work.

Right to Credit
The RGD Rules of Professional Conduct specify that members shall encourage their clients to publish design credits on work whenever feasible. Also, let the client know that unless specified to the contrary, you retain the right to use the work for your portfolio/promotion.
 
Client Right to Modify
You should specify that the client may not modify the work without your consent and any requested modification is subject to additional payment for the additional work.
 
Limitation of Liability
You should specify that your liability is limited to fees paid and only for gross negligence, and that there is no liability for consequential damages and there are no implied warranties.
 
Right to Terminate
The RGD Rules of Professional Conduct specify that members shall not withdraw services except for reasonable cause and upon reasonable written notice. You should consider including in this agreement that the client’s failure to pay, bankruptcy or insolvency would be reasonable cause for withdrawal of services. You can specify that either party has the right to terminate and the length of the notice period.
 
Cure period
You can specify a cure period that is an agreed-upon length of time during which the party in question has an opportunity to correct the problem that has led to a notice of termination from the second party.
 
Bankruptcy/Insolvency events
This would specify that the agreement is terminated upon bankruptcy or insolvency.
 
Warranty of Originality
A client may require you to provide a warranty regarding the originality of the materials prepared for it. You should provide such warranty to the “best of knowledge”. This would provide assurance, but not a guarantee that the work created is original. 
 
If such warranty is given, consider whether the sole right of client for breach is the right to defence costs. This would limit the amount of damages for any problem arising out of the project and allow the client the right to sue for defence costs only.
 
General Matters
  • Applicable law – This would specify which provincial, national or international laws are to be referenced.
  • Consider whether alternative dispute resolution applicable – This would specify that any disputes are subject to arbitration and neither party may sue.
  • Agreement binding upon successors and assigns – This would specify that successors and/or persons specified would be bound by the agreement.
 
Signatures
In your letter of understanding, include your or your signing officer’s title. Also, make sure that that the person signing the agreement on behalf of the client has authority to do so, and that his or her title is specified.
 
You should not commence any work until the client has signed your letter of understanding.