Without cancellation terms being described in the contract or SOW you are not on very firm ground. It will be very hard for you to get the customer, whose project has just been cancelled, to pay out even more money.

In my experience I write into each Services Agreement or into each SOW and ask for 10 days notice for any scheduling change; which includes cancellation, schedule delays, etc. On large projects with lots of staff and large sunk costs you may need/want to negotiate a larger notice period for cancellation.

Your customer no doubt will tell you that this project is only on hold and to be patient the work will come - and sometimes it does - but don’t depend on it.

Good luck with that

Mark B.

Usual and customary is the terms of the contract IMO. So the only question
is what kind of bridge you might be burning by enforcing the terms of the
contract to which they agreed.

Richard W.

What kind of contract is it (fixed, T&M, NTE, etc.)?  It’s not automatic they would be required to pay for everything or anything beyond hours worked.  I imagine if it’s not spelled out the best you’re going to do is negotiate something.  If it’s a client you expect to do future business with I’d try to secure more work and see if this offers any leverage.  If not I’d put it in my list of lessons learned and add a clause for early termination of work.

Don S.

Hi,

In these cases, I typically try to find some upside/incentive for the customer-although you may be contractually entitled for the full value, you may find it more beneficial in establishing a relationship with the mgmt team, and driving future business, by not imposing a penalty. Think about offering the unused portion as a credit for future work, perhaps with a 6 or 12 month expiration term.

This will incent the customer to re-engage with you, even if in a different project than what had just been canceled. Depending on your overall relationship with the customer, you could structure the credit either as use-it-or-lose-it without penalty, or impose a penalty (either a percentage or the full amount), if you’re not re-engaged after this period.

Imposing penalties straight away can be penny wise pound foolish in services relationships.

Jonathan H.

Try and find some value to add and offer that to extend your services an additional week or two.

Is there wrap up documentation that you can write? Code that needs to archived?
Information to transition?
Customers are happier paying for termination when you can deliver some value.
Even if there is/was a penalty clause - it hurts your ability to win future business or get a referral so it is hard to really collect.

(Just my $0.02)

Gary G

Ideally there should be two week’s notice clause (Mutual).

So, first please add that clause to your contract. (for all future contracts)

Now to your current situation:

1. Send them a very polite note indicating that you got commercially hurt while protecting their interests and request to consider two weeks payment (which they may not agree to).

2. Understand that in this request, you are not demanding what is right fully yours as there is no such clause in the contract and you have no legal foundation.

3. If you use right language, someone may feel for you and some work may come to you in the near/long term future.

4. So, you will not burn bridges but you will create new opportunity for future business

Consulting is about relationships and trust and one should never burn bridges for short term gain.

All the best!

Hemant G.

I agree. If mgmt. cancelled for whatever reason, try to meet them and understand their issues and plans and how you can become part of their team. I would not recommend imposing a penalty.

Roy S.

By and large, I agree with most of what’s been posted, but,

If there isn’t a termination clause, you have as much of a right to believe that you should be paid for the entire time as your customer believes that he has no liability to pay you anything.  In a worst-case scenario, your customer won’t pay you, and you won’t have any solid legal ground to enforce it.  If it actually goes to collections/court, you are far from certain to recover anything.

Clearly, you now realize that you need to address early termination in all your contracts/SOWs, however you should tailor the termination terms to match the particulars of each engagement, and the terms should reflect your real risk if the contract terminates early, i.e. how much business would you be forced to turn down by having a commitment terminated early, etc.  I have used qualifying clauses like -unless consultants can be engaged on other projects before the end of the termination period!

Regardless of the legaleze you put into your contracts, if you try to collect on the termination, you risk your relationship with your customer.  If you feel like there is the opportunity for more business from your customer, or there is the opportunity for a good referral or reference from your customer, the better part of valor-and the better business decision is to keep things very amicable.  Try to work something out that works favorably for both of you.  The last thing you want is for your customer to propagate bad things about you -the industry is a lot smaller than you might think!

Hope this helps!

--Eli

Not that you’d ever want to use it, but alot of our contracts have a clause in there about early termination as well as a clause for a project being put on hold for more than 90 days, AND a total length of SOW.  Basically if the customer puts us on hold for 90 days, or drags the project out more than a year and a half (for example) we have the right to collect everything.  We do almost exclusively fixed-time/fixed-price, so this is an attempt at limiting our risk. 
These clauses get negotiated very often, but we always manage to keep some of the language in there.

As everyone else said, exercising this clause means you’re pretty much done with that customer, but sometimes you don’t care. 
Bob

I’ve seen several posts about damaging a relationship (including mine) and wanted to make something clear from my point of view.

If I had something in the contract stating a fee for early termination and the contract was terminated (delayed, etc) and wasn’t done because of poor workmanship, I would seek to collect the fee.  I wouldn’t want to set the precedent of not doing so.  I would make them aware (matter of factly) and allow them to approach me about doing something with the fees.  I would try to put them in the position of coming to me and looking for ways to reduce/remove those fees.

In this case it appeared not to be part of the contract and so I’d likely look for understanding for termination, decide if future contracts should have such a clause and then move on.

Don

There has been so much dialogue on this topic I couldn’t help but chime in.

I agree with a lot of my colleagues as it relates to relationships. Even though we have cancellation clauses and penalties for early
termination, we rarely execute on them. We generally make it clear that we could charge the client, but most often simply accept
the early termination and hope our concession gives us an advantage for future business.

Having said that, I have pushed for things like two weeks notice, especially when the resource has a special skill. Most often,
our clients understand this and accept the transition costs. For our most favored clients, we don’t even do this.

Of course, I agree with all the comments that this was a very important lesson learned and all contracts should have an
early cancellation clause.

Joe G.

I have experienced this quite frequently with customers who have signed a services contract and then cancel it prior to completion.  We have terminology in the contract prohibiting cancellation unless certain steps are followed. 
What we have found is it is better to negotiate an out, penalty of some amount, if the customer is adamant about not paying.  What ends up happening is they do not pay and you send to collections.  Once it goes to collections you lose a certain amount of the outstanding balance.  Therefore we always try to agree on a penalty and as long as it is more than we would get from a collection agency we feel like we win.

Unfortunately, this happens too often.  Unless the contract is large enough that it pays to go to court it will end up costing more than the value of the contract.  If this is the case negotiate the cancellation.

Mark S.