Imagine your business relationship is like a romantic relationship. It starts off well with promises (sometimes slightly exaggerated) on either side, lots of enthusiasm, a great deal of trust and hope, and slowly you develop some ground rules for working together harmoniously.
However rose-tinted your spectacles are, however much you believe this is forever, a small part of you knows that if the relationship irretrievably breaks down then you can escape. Unlike in the Victoria era we don’t have to pretend to stay together for the sake of the proprietary or to ensure we have access to joint property or other products of that relationship. In fact, recently the Court of Appeal has been hearing one wife’s pleas to be allowed to divorce her husband (aged 65 she doesn’t want to wait 5 years to be free). Knowing that we can escape the marriage or civil partnership contract allows us to rest easy.
The same applies to your business contracts. Each partner needs to know that it can cancel future obligations when it no longer wants to or can continue with the project.
What if Your Contract Says Nothing?
For B2C contracts, there is a 14-day (minimum) cooling off period. So if you enter into agreements with members of the public you must allow them to cancel in that period (except for urgent repairs), and provide forms for them to request you start work immediately or to cancel the agreement.
For B2B, there is a very limited implied right to cancel. You can only cancel if your contract allows it (express term) or if one party breaks a fundamental term of the contract (implied term).
Bare Minimum Your Contract Needs
It makes sense for your contract to include events which would allow one or both parties to cancel the contract. Typical events include:
- insolvency: if either party becomes insolvent the other can cancel with immediate effect
- substantial non-performance: if either party does not carry out their main obligations (client = pay invoices, consultant or contract = perform works or services) then they are given 14 days to get back in line and if not, the other can cancel. For both these events, the client will have to pay for works or services provided up to the date of cancellation.
- change of mind: if one party simply no longer wants to continue with the project then it can cancel. This is also known as ‘termination at will’ ie without a proper reason, and would normally entitle the other to their lost profits or some form of compensation (ideally set out in the contract as a cancellation fee). A contract gives each party the obligation as well as the right to carry out everything so if you want to bring this to an early end, you should pay for that privilege.
A client may believe she has a right to cancel your contract for other reasons – such as the project going over budget, losing faith in your competence, running out of money, getting a better offer from another company, or something else. If the contract doesn’t provide for those triggers, then your client is mistaken and refusing to continue is itself a breach (substantial non-performance).
Once it gets to this stage, you need to bear in mind that locking an unhappy client into a contract just because you can is not a good strategy – it can damage your reputation and result in costly disputes.
The flip side is that you do not want to encourage your client to treat your contract lightly and to enter into it frivolously knowing there is a free ‘get out of jail’ card.
For typical clauses you can adapt to meet your needs, see chapter 14 of ‘How to Write Simple and Effective Consultant Appointments in Just 500 Words’ (read more).