The underlying issue
“It is often the case with designers that, even if they have a contract in place, they do not necessarily know how to use a contract effectively,” says John Leonida, partner at Clyde & Co. “This is especially true of young designers who often rush straight into design work before a contract is even in place:”
This is a drum that is being banged with alarming regularity at the moment, and with good reason. There is no shortage ofstories about superyacht designers who have had their fingers burnt by a particularly unscrupulous client or potential client. All too often, designers are willing to place their trust in a client without supporting documentation that guarantees that this trust is not being misplaced.
“There are two core reasons for this. On the one hand, designers are so eager to get the work that they rush into a job without a guarantee of payment. On the other hand, it is a classic symptom of the design condition,” adds Leonida. “Quite simply, designers do not want to talk about money for fear of detracting from their art. They forget that they are actually in a business. Designers are in the business of selling their intellectual property in the same way that people who are in real estate sell physical property.”
“Designers don’t like to talk about money,” agrees Andrew Winch, founder of the eponymous Winch Design studio. “They love to design and what they enjoy is people admiring their work and creativity. However, once a financial agenda is added into the process, it becomes an embarrassment. I have seen this time and time again. Indeed, in very much the same way, we often see artists struggle to monetise their talent. When you consider the artisanal stereotypes, you have the penniless artists and the Damian Hirsts of the world.”
Before Hirst there was Picasso, Warhol and a great many other artists who successfully managed to make money from their art. What they all had in common, according to both Winch and Leonida, is that they developed a brand that customers wanted to be associated with and were prepared to pay for.
“Unfortunately, however, it is not only the young designers that struggle with this,” adds Winch. “You have everyone – from the designers who are fresh out of university or college to those who are towards the latter stages of their careers who have struggled to commercialise their design talents.”
Leonida gives an example of a well-known designer who met a potential client and had shown the would-be owner a series of hard-copy drawings which he subsequently left with him. The designer never heard from the client again but, following a period of radio silence, then saw images of a superyacht under construction that held more than a passing resemblance to those particular designs. The client had taken the designs and given them to another designer for them to add their flourishes and complete the project. Without a contract in place or adequate proof of intellectual property theft, the designer could do little but watch the project be completed and hit the water.
Building and using a contract
“There are rock and roll superyacht designers out there who will glide through the contractual process without so much as a hiccup. Indeed, there are some extremely well-known designers that I have acted for in the not too distant past where the standard-form contract that they use protects neither them nor my client,” says Leonida.
“When I came across one particularly well-known designer for the first time, I was acting for an owner who was building a sail boat at Pendennis. The designer in question sent me his design contract, which was effectively a letter. My client and I had no idea how many drawings we were going to get, when we were going to get those drawings, what regulations they were going to comply with or how and when my client was supposed to pay. In essence, the contract stated ‘I am going to design something that looks roughly like X’, and that was pretty much it.”
Leonida admits that had they been of such a mind, it would have been easy for the owner and his team to take advantage of the contract if it had been signed. Instead, Leonida sat down with the designer (who was not a client of Clyde & Co) and crafted a standard-form contract that he still uses today.
“The audit of your contractual life has to happen, otherwise you will find yourself in a situation – one that I experience at least a couple of times a year – where you start screaming bloody murder because you have had a design stolen or not been paid for,” adds Leonida. “While I empathise, if the only proof that exists is a small email chain then there is very little that can be done.”
The first thing to do, according to Leonida, is to take a step back and deconstruct overheads and, as far as is possible, the design process. While this may vary from designer to designer as environments, methods and processes differ, it is nevertheless imperative to determine what goes into a design and then cost it.
“For every design process, there is an associated cost that must be charged,” explains Leonida. “Now many designers will say, ‘It’s creative, so how do I charge for it?’. The creativity is only a small part of the total process. Firstly, you start with all your overheads. This is the amount of money you need to live just to keep the studio or office lights on; anything above that and you start moving into profit.”
“After overheads you start looking at risk money,” says Winch. “Once you are able to break even, you need to start building a bank of risk capital, especially within the superyacht market which so often swings from fortune to famine. After risk money you can start moving into the realms of ego money, where you know what you are worth and you are well aware that people will pay it.”
When the design process has been deconstructed and costed, the processes, deliverables and costs then need to be transposed into a contractual format. “From the get-go, you need to know who the parties are that are involved,” says Leonida. “Who’s entering into the contract with whom? If you are contracting with a foreign entity, make sure the contract is covered under British law. If you are contracting with a company in the British Virgin Islands that is worth £1, ensure that there is a personal guarantor attached to the contract. You need to clearly outline the job at hand – a clear brief is paramount – and any of the deliverables.”
The lack of a standard contract is not ubiquitous to all designers or design businesses. However, what seems to be much more prevalent is a reluctance to enforce contracts when they are in place for fear of souring the designer-owner relationship and being labelled as ‘difficult to work with’. During a session at The Superyacht Design Forum in June, one delegate commented that writing a watertight contract that outlines a detailed scope of services, with costs, revisions and time, is not that difficult. The challenge is that it is only a piece of paper unless you can enforce it.
“Contract management is an important part of any contractual relationship,” says Leonida. “If you make changes, have change orders. If the owner doesn’t pay on time, make sure you have the paper trail and inform them that you are not waiving the fact that they haven’t paid on time. Provide them [with] a licence for the use of your design, but ensure that that licence is revocable if they don’t pay. The power that designers have to say `You no longer have the licence to use this design’ is huge.
“A designer can bring a build to a grinding halt. Imagine writing to a builder and saying, ‘All the designs that you are using at the moment, you have no right to use them anymore and if you continue to use them, we will sue you and then sue for damages.’ The shipyard will definitely sit up and take notice. If you are professional in the way you run your business and you are professional in the way you deliver your service, then clients will respect you.”
This scenario becomes even more important when there is more than one individual working with a client. “If you are a one-man band, like many top designers are, you can decide whether or not to do a drawing and whether or not to charge for that particular drawing,” explains Winch. “It is your own decision, you know the risks and you know the potential gain at the end. However, as soon as you hire someone, there is a responsibility for that person’s well-being and the risk increases. I have been in the unenviable position where we have hired people and the business has taken a downturn, resulting in us letting people go. That is one of the hardest things to do.”
Winch recalls that the first superyacht contract he constructed was a three-page document that he’d developed over a number of days with his wife Jane. The contract was for a 36ft Nautor’s Swan project, the naval architecture was done by German Frers, with Winch being commissioned for the design of the deck and interior spaces.
“Before I sent our contract to the management at Nautor’s Swan, I first sent it to my father. It turns out it was riddled with spelling and grammatical errors and it was what he described as ‘a little bit waffly’,” continues Winch. “My point is this: when you start out in the superyacht market, there is very little by way of available advice. At the start of your business there should be something that you can use that gives you a sense of security, not just for yourself but [also] for your family and your employees. But there are no standards in the superyacht world.”
“Show me a standard client and I’ll show you a standard contract,” jokes Leonida. “On the issue of standard contracts, there are solutions. Over the years, I have drafted a number of pro-bono contracts for young designers because they cannot afford a lawyer like myself to draft a contract on their behalf and I daren’t send them to someone inexperienced because they will end up doing the job two or three times. However, there are also some very good standard-form contracts for design out there. For instance, the American Institute of Graphic Arts (AIGA) provides a great template for a standard form of agreement for design services. Naturally, it will need some tweaking, but it is a great start.”
Not only does the AIGA document offer a standard contract for amendment and use, it also provides practical advice that explains how the document should be used, including issues relating to the proposal, fees, taxes, expenses and additional costs, invoices, payment terms, late-payment penalties, change orders, licensing, governing law, acceptance and much more. It also helpfully spells out definitions for terms such as `agreement’ and `deliverables’. A tool such as this may prove invaluable, especially to a young designer who may not have the financial resources necessary to employ professional legal advice.
Both Leonida and Winch made it clear during our discussion that the superyacht design community – both young and old – is far too willing to work for free and without secure contracts in place. For the rock-star superyacht designers with a loyal client base, this may well be fine. It maybe that they have never had their fingers burnt or they may have the financial security to accept a couple of burns without risking a legal battle. However, for the majority of the design community, especially newcomers who can’t cherry-pick the best clients, it is imperative that an enforceable contract is in place and that a method for costing and charging for work is implemented before any work begins in earnest.
HOW TO DRAFT A CONTRACT
According to the American Institute of Graphic Arts, in general the process of draft, negotiating and finalising an agreement with a client will follow this sequence of events:
- Advance preparation and information-gathering about the client and the potential project
- Internal planning of budget and schedule
- Drafting a custom proposal document that the client will see
- Attaching modules for all design projects: payment terms, client changes, etc
- Attaching supplements as needed.
- Reviewing the final checklist of options in the terms and conditions
- Presenting the agreement to the client and answering any questions
- Negotiating any modifications requested by the client
- Finalising the agreement with authorised signatures
By Rory Jackson
This article was originally published in The Superyacht Report, Edition 181 in December 2018.