If one of your clients broke his contract, what would be the consequence? What are the laws I should know about when making money off a contract break?
So many factors. Was it a crappy blowoff, or are the customer’s finances sinking? Is it worth ($$$) taking the legal route? I don’t have anything in place for service agreements gone bad except for residential. They blow me off, I keep the deposit, bounced check… 10% of the job, per week, til I get paid. Thats about it.
i would think, legally, they would be responsible for paying you the remainder of the service agreement, if we’re talking a commercial or storefront job. If it is residential, I’d just let it slide. Its better off leaving it alone than having a deadbeat client badmouthing you, which, in cases like this, is inevitable.
What is the language in your contracts regarding termination? Are there any consequences identified? If not, it might be very difficult.
If I failed to clearly identify in the contract the terms for terminating te contract, than I would talk with them and see if there is any better resolutions than termination. However it might be financial or something out of their control. If there is no solution IMO it is best to end on the best terms possible and reduce exposure to them blabbing about bad customer service.
It is really worth adding language to contracts that clearly outline what happens if x, y, z occurs.
Thanks for u comments but I’m not asking what the general consequences could be for breaking an agreement. I’m not saying I want to charge people either. I’m simply asking what u guys imparticular do with contract breaks and if there r laws that u take into consideration Sorry for not being more clear.
Thats a good question that I would like to know the anwer to as well. In my contract, it says if they are more than 5 days late, I charge them 2% of the total every additional week that its late. But really, I never enforced it and in truth, dont know how. AND I have had 2 customers that are habitually late by a month or even 3 and make no apologies for it.
Punishment seems like such a harsh term… :rolleyes:
You can attempt to place any type of penalty you want into a contract. Whether the other party is in agreement is another matter. Ask yourself what is reasonable for both sides. What are you trying to accomplish by inserting a penalty into your service agreement/contract? Security for your company in case the other party wants to halt your service? Late fees for late payers? For what type of customer is the punishment intended?
A contract provides consideration for both parties involved.
As far as the laws are concerned it’s differant in every state so check yours. For me, commercial work is stated in the contract that there is a 10% charge on the total of the contract and a flat day rate of $500 per day for the length of the contract. IE if I have 1 work week to complete the contract then they are charged $2500 on top of the 10%. But that contractor must give at least 1 business week notice to avoid the day rate fees. 99% of my commercial work is booked out months in advance so this is never really a problem. I work very hard with them to keep the contract even if I have to push it off to a later date. I try to keep everyone happy so I can retain their business. I have not really run into A-holes so I don’t really know what I would do in that regard. I guess it depends how nasty they are as to how I would go about it.
Res work I have no contracts. It’s all handshakes. But the customer does get a 10%, $200 day rate (which ever is lower) bill for last minute cancels. They have 2 business days pryor to service to cancel. They are told this at the time of booking. I never had to take anyone to court. I did have to place a lein on my first job 3 years ago. I got my money though.
Here is my two cents worth…
If your contracts are within the limits of small claims court jurisdictions in your area, they can easily be handled in court by yourself. Once you win however, you will have the task of collecting. There are businesses out there that will recover your claim for you and they will charge anywhere from 33% to 50%.
If your contracts are larger than the small claims limits, you have the issue of litigation. There is nothing easy, quick or sensible about obtaining victory in these cases. You can always file a lien on the property, but that is not the end of it. You must then perfect the lien, (filing suit) and prosecute it in court. It’s both time consuming and expensive.
Two years ago, a Developer stiffed me for $516,000 on a Home Depot job. I spent my last $50,000 on attorney fees and that just got me to the courthouse steps. Once I ran out of money for legal fees, I appealed to the court to represent myself, but in California, a corporation must be represented by an attorney. I lost!
My point is, always try to work with the client to a mutual resolution. The courts will only cost you time and money and the frustration level ultimately is not worth the few dollars on a contract.
I would just like to make sure the client feels that breaking the contract has heavy enough consequences. I know that obviously a great service is the number one motivator for staying with us, but contracts seal the deal.
I’ve also had success with penalizing for late payment.
Good points…
Side question: Did you get scheduled payments from home depot when certain sections of the home depot were completed? And I’m assuming that the project was not window cleaning.
Acclaim,
Home Depot does not own it’s own property. They lease all of the properties where their stores are. I was working for the land owner / developer. I did get my progressive payments right up until the last 25%.
I wish we could make that much money doing window cleaning! I did the grading and underground utilities on the job. Unfortunately, during the discovery phase of the suit we discovered that not paying the last 25% of the contract was this particular developers MO. He would not pay the last 25% of the job, starve the contractors out, and settle for 10%. Therefore he saved 15% on every job he did. I think thats why he owns about 2.5 million square feet in LA that he rents for $150 / square foot.
Wow. That sounds just terrible.
It was at the time. But, now I have the best job in the world!!! At the time it seemed like a tragedy to lay off 40 employees and shut my doors. But now I am doing something I love!
My idea is to keep a credit card in file in case they break. They know we depend on them as much as they do us to wash their windows. If I had a card on file, or set them up on automatic withdrawal. That might deter them from canceling because then they would need to hassle with the cancellation fees. Your thoughts.
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As long as they don’t owe for what’s already been done I let them sail off into the sunset. Why haggle if they want out?
But I’m not engaged in millions. I’ve got a 40k per year gig that could die out on me this month, I can’t worry about it. It takes about 30 man days to get that fee off of this job. It’s good if it stays afloat but if it gets cancelled I can’t make problems over it because it would burn that bridge. I think.
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My service agreement states that the customer can cancel anytime they want I just need it in writing at least five days prior to cancelation. Really my agreement and contract is built around protecting my customers. It really leaves me hanging in the breeze but my repeat clients really like it and from that approach I feel I get a higher moral level of clients. Currently I am getting worked over by a higher end burger chain to the tune of $800 the were a $4k/ yr job paid on time and I was making about $45/hr servicing them. All was good until the company that owned the franchises was bought out by the parent company. Parent company originally said they wanted to continue service but canceled two months later. It is really my fault for servicing them when they were already 30 days past due. I am pissed but that gets me nowhere just need to take the hit and continue on finding the good contracts because they are out there.
Wow, this is an old thread. But thanks for the posts. Good thoughts. I don’t agreed completely with everything said though.
I understand that the customer needs to be respected in a contract, but so do the service providers.
We deliver a service, they deliver us money. It’s a business transaction. Neither side is better than the other. It’s a give give. Mutual respect should always be given. If we give them no consequences for breaking their word in contract, then we never had a contract to begin with.
A contract helps both parties by creating a guarantee to delivery on agreed upon expectations. If we lower our prices to get them to guarantee to terms, why should they get to take our money by breaking contract?
I know that if my big contracts didn’t pay I’d have trouble paying my employees. How can I say to my guys, “Im not paying you because the customer can do whatever they want”? Of course that’s more if they don’t pay me for what’s been done already.
Many businesses the world over work only on contracts.
I agree with you, I do have two items that protect me, I require the client to sign off on invoices agreeing that the work was up to par and that they agree to the payment terms. The other is that I do a satisfaction survey periodically which is simply further evidence that we have been living up to the contracted terms. I should mention that I only service commercial accounts, that being said when a big company decides they are going to back out that leaves me with very little recourse and I will spend way more time and money trying to recoup my losses. Since I have been in business I have only been stiffed twice. Texans are pretty good with handshake type deals and even better when your contract protects them far more than me. The majority of my accounts are the weekly-monthly variety so once I establish that they pay and pay on time I rarely have issues.
