A contract is a legally binding agreement that creates mutual rights and obligations on the contracting parties.
A contract not only obliges the contractor to provide specific works or services but also gives the contractor a right to finish those works or services.
There are two mechanisms by which contracts can undermine this right to finish:
- a change procedure allowing the client to omit works or services
- a cancellation procedure allowing the client to terminate the contract without cause (called ‘termination at will’).
A Bad Combination
A contractor will price and resource a project based on providing the whole of the works and services.
If the client doesn’t know if it wants the whole scope, then it should contract for the minimum it needs and use the change procedure to add more works or services.
However, sometimes the client asks for the maximum and then omits what it no longer wants (or never really wanted). This approach might not be malicious but – when combined with some of the express terms noted below – it strikes me as a way of ‘gaming’ the contract.
A client who plays these sorts of games should be aware that English law requires the client to compensate the contractor for terminating without cause or for omitted works. The client should pay the profit the contractor would have made on the omitted or cancelled works or services.
That’s the standard position.
It is possible to change this approach by using express terms. The worst contracts combine
- wide rights to omit or cancel works,
- with a clause confirming that the client will only pay the costs of works or services provided and will not pay any associated lost profits or indirect losses.
What should you do?
Be very careful when reviewing a contract to ensure that you are clear whether you really do have a right to finish providing all of the listed works or services.
If not, check whether you are entitled to compensation for omitted or cancelled works or services. If you will not be paid lost profits then – if you are not willing to walk away – at least price for the risk of the project being cut short and you not being adequately compensated.
Check out the other traps you should be looking for in this post.