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When freelance boards say “Escrow” they mean “ehscrew” June 8, 2007

Posted by Pontiff in ehscrew, escrow, freelance, freelance bidding.


The two ways escrow can work :

  1. Prefunded series of milestone payments. Each payment is fully funded in escrow before the project starts so in effect the entire amount is in escrow and payments are released as the project moves through the milestones .
  2. One single payout at the end where full payment is escrowed and due on completion but there is no release of milestone payments.

That would pretty much cover the rational uses of Escrow. It would make no sense to require that milestone payment be put into escrow AFTER the milestone is met. That is when a payment is made.

The only variations on these themes are whether there are many milestones or half up front and half at the end ect. We opt for a reasonable division of milestones that take into account a variety of factors.

The first of the four payments is (or whatever number) due upon the project start. Whether it is first put into and escrow account and then released or just directly paid is not much different other than the delay factor which can be about a week.

There ‘s allot of work that goes into just setting these projects up on the server and in the system There is also a good deal of time spend communicating, creating contracts and various other things like explaining how the escrow services work or don’t work as offered by the freelance bidding boards.

On our end the project ‘started’ when we stated answering questions and requires a certain amount of time.. There is always risk and we weigh our likelihood of return as we get into these. We just don’t answer those clients who seem likely to be just looking for information, have no funds, or have no idea what they want.

So the milestones we setup set up are not for escrow accounts. We don’t require escrow on purpose for it makes no sense from any reasonable perspective. Why would we tie up your money for two months? It doesn’t help me if I’m going to do the work anyway. It only helps if I’m not planning on delivering and can use your tied up money as a bargaining chip. This is more or less why the whole escrow thing is just BS as it is the first tip off that you’re going to get shafted.

In the same vein we do not work on projects where the entire amount is escrowed and payment is proffered only at the end of the project. That last scenario is something that is wholly created by some of the early freelance boards to induce people to setup small projects and is not workable for anything that takes more than a days work to accomplish.

Often the projects are offered by people who for various reasons don’t understand the level of work that is involved. Further its easy to lose sight of the fact that the work is performed by humans who have families and obligations. When you don’t see people or interact directly its easier to ignore they are people really and treat them like an extension of the web browser or part of the computer or virtual world and therefor less human.

This isn’t the form for a long and detailed explanation but suffice to say that a good percentage of the projects are setup by people who have zero understanding the amount of time and money that is expended developing these applications. Another large percentage are setup by people who tend to have short attention spans. Often both. Bottom line is that many decide that they didn’t want to do a web application at all and have decided to go to Tibet and study with the Monks (this happened to an associate btw).

If the client decides halfway through a large project that the market is wrong for his new product or service then he isn’t going to want to pay for the work done up until that point. He very will might but there is nothing about the escrow services of the large freelance boards that will guarantee this. Nothing!

The ideal would be if the application is half finished the client pays half the escrowed amount and get the other half back. Its a nice theory. However if the client decides for any reason to work the system all he has to do is stonewall and wait. Usually offering 10% on the dollar will get the developer to settle for the alternative is up to a six month wait during which some sort of extremely time draining ‘mediation’ process will occur that in effect continues the workload as if the project was never canceled. During these mediation the programmer is usually asked technical questions by the freelance boards ‘team of experts’ (mostly just assistant level employees who can work a computer and follow the procedures outlined.)

Another real scenario is something that happened to another associate last week. It was unique in that he distrusted his client from the start. (A bad move on my friend’s part was continuing.) It was apparent from the beginning that the guy was trying to steal work. Even before the project officially started the client wanted all sorts of detailed designs for a software project as way of deciding who would ‘win the bid’.` When this didn’t work (and Jim, our associate, relized he was the only bidder who could deliver) the bid was awarded and Jim proceeded to work through the requirements. An initial payment was made and a second of three was owed when the client decided he needed the work moved to his server for ‘testing’. When this tact didn’t fly (after he decided it worked as it should and needed no further ‘testing’) he needed it moved for ‘demonstration’. The programmer setup an escrow with a simple one line requirement in the the contract of escrow. When the software was moved the payment would be made. Escrow was made– i.e. funds deposited. Software was moved. Client decided he didn’t want to pay because .. no reason. Cause he could. He offered 40%.

But what about escrow? The particular board does not actually make a determination of whether the escrow terms were met. They merely hold the money for SIX MONTHS and if no one agrees then they give it to charity. Huh? According to Websters this is NOT escrow.

Now consider this for a second. The programmer has a family and obligations. The client is clearly a liar and thief. He can wait for 5 months and 29 days to decide. The freelance board agreed that it was an unfortunate situation but they cannot in their own worlds guard against unscrupulous clients.

Here is ‘escrow’ defined:

a contract, deed, bond, or other written agreement deposited with a third person, by whom it is to be delivered to the grantee or promise on the fulfillment of some condition.

What they offer is a place to deposit money and let it sit till both sides fight it out regardless of whether the condition is met or not. As a matter of fact they do not acknowledge that there is a condition at all for they don’t read it.

Jim was not aware of this as he should have been. His legal department had been scaled down drastically due to the fact he works alone and sometimes with us. These freelance boards have so many conflicting policies that keeping them straight would require a ‘team of lawyers and accountants’. THERE IS NO WAY AND NO REASON TO TRY BECASUE THEY MAKE IT UP AS THEY GO. In the third installment I’ll show you a prime example if how a few of these freelance boards have no standards other than what suits their purpose that day.

Till then suffice to say the freelance boards have a vested interest in pushing their escrow services. Why? The usual reason — money. They make money when you use it and do not make money when you do not. One can stop right there when trying to analyse why the escrow services are pushed as some kind of “solution” to the unscrupulous behavior or clients or vendors.

MORAL OF THIS STORY: The best system is as close to a pay as you go as practically possible — as it is the only one that makes sense for anyone.

Next is part II: How escrow is use by unscrupulous programmers to blackmail clients into making settlements on work that is never attempted.



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