Prepare Your Contracts for Dysfunctional Projects

PSMJ Resources, Inc.
Posted on: 06/14/18
Written by: PSMJ Resources, Inc.

photo-1433840496881-cbd845929862-3-919162-edited.jpgWe’ve all dealt with slightly dysfunctional projects. These are the projects, it turns out, that aren’t properly funded. They’re the projects that start and stop and start and stop, requiring you to randomly hold still and then re-ramp up. And they’re the projects for organizations that periodically toss new and replaced client team members into the mix. 

Protect your team and your architecture, engineering, or construction firm’s profits –and your sanity–by adding these preemptive clauses to your contracts. Each is described and then explained.

Evidence of Funds: “As a condition of the Architect's obligation to commence or continue with its services, the client shall furnish upon request during the course of the project evidence satisfactory to the Architect of available funds to satisfy the client's obligations hereunder.”

Explanation: Make sure your client has the money to pay you if you are not going to receive payment upfront or if payment will not be held in escrow.

Job Cancellation Fee: “Because of potentially significant revenues from other projects forgone by XYZ Associates to take this project, if the project is cancelled by the client, a cancellation fee will be immediately due and payable according to the following schedule: 0 to 30 days, $___; 31 to 60 days, $___, etc.”

Explanation: In the event a project is cancelled, get the client's commitment to pay for opportunities you lost by committing to work on the project. This cancellation fee will decrease the longer the project has run, as you should have earned a greater portion of expected revenues.

Project Restart Fee: “Because of substantial cost incurred by XYZ Associates to stop and restart a project once it is underway, should this project's progress be halted at any time for 30 or more days by the client, for any reason, a project restart fee of $___ or 10% of the total fee earned to date, whichever is greater, will be due and payable immediately.”

Explanation: The longer you work on a project, the longer it takes to get back up to speed after a stop. The longer the stoppage, the more potential for changes. Seek some compensation for events beyond your control.

Limitation on Design Alternatives: “XYZ Associates will ... [use one of the following: (1) ... limit the number of design alternatives provided under this contract to three; (2) ... limit to hours the time expended in design; or (3)...stop developing project design] by ___,2016, upon which time the design will be considered complete.”

Explanation: Make sure you're not designing all the way through the project, or if you are, get paid for the effort.

Premium for Client Team Member Reorientation: “There will be a client team member reorientation fee of $10,000 paid for each project team member from the client who is added or replaced prior to 25% completion of the project, $20,000 for each team member added or replaced prior to 50% completion, etc.”

Explanation: New project team members in the client's office cost you time and money. Prepare for such a likelihood (and discourage when avoidable) by passing the cost to the client. The obvious down side to this clause is that the client may want you also to sign off rights to change team members.

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