We recently won a project for a website redevelopment, client signed the paperwork and we booked studio time in for the earliest opportunity as they wanted the site live as quickly as possible.

Then, a week later, another person at the business called us to say they couldn’t afford to proceed and told us to cancel the meetings we had planned.

The SOF says we can charge the initial fee on cancellation but in reality we hadn’t actually done much apart from some paperwork and general planning in (and of course ringfenced them studio time which we now have to fill).

So, do we say ‘go on then, cancel, we’ll forget about it’ or demand that they pay the invoice that we have already issued?

Basically, I am asking – should I stiff them for much more money than reflects what we have done (bearing in mind we still need to fill studio space but that won’t be a problem) or play Mr Nice Guy and cancel the invoice in full?

I’d talk to them about it, and explain that you won’t hold them to the terms of the contract. You could ask a smaller sum if you don’t want to be out of pocket at all, otherwise just write it all off. If they’ve cancelled because they don’t have the money, then they might well be back when they do.

Let it go.

Probably not worth the stress. Especially, as you say you can fill the studio.

and as other user comment…good point.

because they don’t have the money, then they might well be back when they do.

Can they afford to pay? If not write it off.

If they can submit an invoice for t&m to date not the full amount.

You never know they may come back if their situation changes.

I’d keep an eye on their site though and make sure they haven’t just taken your design and found someone cheaper to do the leg work…

Cover your costs and allow it to be offset against any future work.

THIS

As you dont seem like you will actually be out of pocket for the lost work its really just a test of your morality.Also very much worth checking to make sure they have not just ripped you off so perhaps add something to the “goodwill” invoice” warning them that you wil action if they do.

let it go but explain to them that your terms on any future business will have to reflect their conduct in this matter – ie you’ll want a certain amount up front.

make sure they haven’t just taken your design

No designs yet – we never do speculative design work in order to win a project. Fortunately the whole industry is moving in that direction now.

You never know they may come back if their situation changes.

This

I’d keep an eye on their site though and make sure they haven’t just taken your design and found someone cheaper to do the leg work…

and this.

Very astute wozzy

just a test of your morality

Well yes, I kinda think it is. But we still need to fill the studio time – it shouldn’t be a problem but it is quite short notice (we were due to start creative in a week) so we probably won’t be as profitable, we’ll probably just be doing some catching up and housekeeping.

This is just normal business. Cover your costs and move on.

The client has probably just received a cheaper quote and gone with that.

In this situation I usually go for direct costs incurred (if any). If they’re shits or have ££££’s to burn, I’d seek loss of profit as well. I’ve done that a couple of times in the past and made more money/less grief for doing nothing than if we’d done the job.

In this case, sounds like there are no direct costs. Might be worth making the point you’re making a one off exception to avoid precedent/manage future expectation.

Can you not just be honest with them.

The contract that was signed states that for canceling the contract you are due to pay X. Reality is that the job has not really started and we feel charging you X in your current circumstances would be unfair.

We have booked studio time for this job and what we propose is that for any studio time that can not be filled by other work you will pay for and a payment of Y for the minimal amount of work.

If you are agreeable to this then we will try as best we can to fill as much if not all the ring fenced studio time set aside for this job. to reduce the bill to yourselves.

This way you are covered should you not fill all the time and they will hopefully get a smaller bill for canceling allowing them to fix their roof. This reasoned approach may leas to future business.

Don’t forget to include any bidding costs you had for winning the work in the first place – it’s not just delivery that incurs costs, and if you’ve had a few folk working on winning this for a few weeks then that all comes off the company bottom line…

But we still need to fill the studio time – it shouldn’t be a problem but it is quite short notice (we were due to start creative in a week) so we probably won’t be as profitable, we’ll probably just be doing some catching up and housekeeping.

TRUE then this

Can you not just be honest with them.

The contract that was signed states that for canceling the contract you are due to pay X. Reality is that the job has not really started and we feel charging you X in your current circumstances would be unfair.

We have booked studio time for this job and what we propose is that for any studio time that can not be filled by other work you will pay for and a payment of Y for the minimal amount of work.

If you are agreeable to this then we will try as best we can to fill as much if not all the ring fenced studio time set aside for this job. to reduce the bill to yourselves.

You seem like a decent person but you also should not be out of pocket and I guess its then a test of if they are decent or not

The fundamental question is: do they have a right under the contract to terminate it in this way?

So, you can’t “stiff” them because you’re upset. You can seek to recover (1) your costs incurred and (2) your opportunity costs for under-utilised studio time.

However, since you’ve signed a contract, the answer lies in there. Presumably as supplier you wrote it (and have therefore planned this risk in) or, if you’ve had to sign their standard purchase terms, you covered this.

Put the emotion to one side and read the contract.

At a pragmatic level, unless this client is a key target for your business, just how never to go near them again (or at least remember to wear protection next time!).

The client has probably just received a cheaper quote and gone with that.

They had that opportunity when we sent them their proposal!

Hmmm what’s the point of a contract if it’s not adhered to?

But then again having worked for myself for 25 years sometimes you know it’s not going anywhere. People are fickle.

And thanks all, seems consensus is around about what I was thinking – we should let it go and just go for actual and other reasonable costs.

Cheers

why bother having the contract if you are not going to adhere to it? You should just take that clause out

why bother having the contract if you are not going to adhere to it?

Because we’d never have expected to have it cancelled so early on. In 11 years of business that hasn’t happened – I would have no compunction with enforcing the clause if they cancelled further into the project (for example, after we had done the initial project meetings and started creative) but on this one we haven’t even had the initial project meeting.

And thanks all, seems consensus is around about what I was thinking – we should let it go and just go for actual and other reasonable costs.

Totally.

Not only the possibility of later work from that client, but they’re likely to talk to other people too.

It depends imo on;

Whether you think there will be future business
Your companies financial situation

If it looks like it could be a long term relationship then let it go. Otherwise ask for the money or at least a portion, you could offer to set it against future work if any is forthcoming. The contract had a clear initial fee clause, they will have read that.

EDIT: as for reputational risk I think thats minimal – they cancelled a contract after signing, thats rarely a free option

I would be charging them the whole initial fee as per contract, but say to them that they can have the bit you haven’t spent as a credit on future work.

They’re in breach of contract so your contract should cover how to handle that and apportion any costs associated with the breach to either party – usually liquidated damages. It’s irrelevant what actual costs you may have incurred. So i’d stick to the contract. Don’t be swayed by the assumption they might not be able to pay – of course they’re going to say that.

It p’s me off when companies/people just think they can sign contracts and dip in an dout of them as and when it suits them. Don’t sign the F’ing contract if you can’t stick to it. You should at least formerly register any costs/damages owed to you under the terms of the contract, you can always come to an arrangement afterwards.

Someone else has probably already said it but I would do exactly what your contract says, nothing more nothing less. Check the cancellation timescales and method of cancellation i.e. – does it need to be in writing? In your post you noted they ‘called’ and that may not be a valid cancellation notice.

Strikes me that your business is quite immature if you are not sure how to deal with what is a quite normal situation.

If you think this company is a likely source of profitable business in the future, write the costs off and ensure you maintain a relationship

If you think you may get some business but are not really that fussed, charge them your costs and explain openly what these are

If you don’t want to work with them again, ‘stiff them’ for the full whack but don’t expect to hear from them again with any future work.

It’s a contract between two businesses, you should have no qualms about enforcing the contract if that’s what you want to do. The other party should accept this – they signed the contract, that’s what it’s for. You’re not “stiffing” anyone, this is what they’ve already agreed to. The contract presumably is a reasonable reflection of your losses in the event of cancellation; if it isn’t, then you might want to rewrite it.

That said, if you want to be nice then Rusty has it I reckon. Something like:

“Under the T&Cs of the contract, you are liable for (fee) in the event of cancellation. However, as a gesture of goodwill given the work undertaken so far, we are prepared to offer a reduction to (new fee) in order to offset our losses.” Or something.

The only real reason I can think to do that is if you’re hoping for repeat / future business from them. Which TBH I wouldn’t care about if it were me, I wouldn’t want to commit to work for people who cancel contracts. But, y’know.

Ooh, no.

I would be charging them the whole initial fee as per contract, but say to them that they can have the bit you haven’t spent as a credit on future work.

That’s brilliant, do that. Everyone’s a winner.

A true story ..

Mate of mine ran a medium sized software company working on a large government contract. Government cancelled contract (as they do) and mate’s company where entitled to all costs to date. His competitor working on the same contract was entitled to whole completed project fee. My mates business folded after 6 months as overnight they had insufficient business to cover costs, his competitor used the whole fee to keep his company going while they looked for new work.

I have let loads of people off this type of thing over the years as I just wanted to move on and I thought it was greedy to get something for nothing.

However if the tables were turned and that same person was the other side of the contract I doubt v much they would have let me off.

So now I stick to what the contract says – it’s there for a reason.

Strikes me that your business is quite immature if you are not sure how to deal with what is a quite normal situation.

I think you need to read that as ‘small’ not ‘immature’ 😉

Check the cancellation timescales and method of cancellation i.e. – does it need to be in writing? In your post you noted they ‘called’ and that may not be a valid cancellation notice.

The contract says 30 days written notice but our studio manager has emailed them to confirm the conversation she had with the client (accepting they want to cancel) so I would assume legally that would stand up as accepting their notice.

Setting up contracts like this, esp when it’s your own business can be, as you see above, make or break for small companies. I too have had a multi 7 fig contract cancelled which allowed me to claim 50% of total contract cost which we claimed – I had 190+ people with mortagages to pay and mouths to feed. What I always offer up is some form of future credit for engagements to recognise the situation they are in. Mostly, with very minor exceptions, it isn’t an issue.

Don’t forget to include any bidding costs you had for winning the work in the first place – it’s not just delivery that incurs costs, and if you’ve had a few folk working on winning this for a few weeks then that all comes off the company bottom line…

I disagree with this – I’d be treating that as an irrelevant sunk cost – you would still have incurred all of that if you hadn’t won the contract (e.g. they’d gone with a competitor). The business will factor in sales / marketing costs globally to their required margin for work they deliver – unless they expect to win 100% of their pitches..

Had the same earlier in the week, luckily we operate a 1/3+1/3+1/3 with the first 1/3 due on signing the contract – which they had already paid.

It’s a long-term client (almost a partner), but we’ve have done a fair bit of work already.

So I’ve agreed with them that we’ll credit them what is left after our costs (which I will send to them first for agreement).

In your position, if you’re not out of pocket then I’d be inclined to let them know the position and ask them to contact you once business improves plus maybe offer them a cheaper alternative?

maybe offer them a cheaper alternative

We had already gone as low as we could (alarm bells should have been ringing then) but it was a project for a sector we enjoy working in (leisure and travel) so we wanted to do a nice little job for them.

Were other jobs refused because that signed contract fully committed your resources?

In your position I would probably try to charge the fee as stated in the contract, but be aware that if they challenge this it might not stand up in court as a reasonable estimate of your actual loss. So be prepared to settle for less.

In my own experience just be nice, offer them a chance to come back to you if they can afford in the future and get on with earning other money because:

a: They might just do that
b: If they don’t they may recommend you as a nice honest agency to work with

70% of the time I find out that people have canceled because they found someone else to do it a lot cheaper (bosses daughter etc).

We had already gone as low as we could

No, I didn’t mean greater discount – I meant suggest a cheaper alternative to (nearly) meet their requirements.