Contractors' Questions: How to draw up a late start date clause?
Contractor’s Question: Are there any standard terms I can use in a contract for my ‘Plan B’ business to protect against lost time, if a project starts later than the agreed commencement date?
I agreed on a project with a regular client and I got a start date which I scheduled in, but the project did not commence for two weeks and as a result of this delay, I lost out on other work I turned down for those dates. It was just a case of poor time-keeping by the regular client.
So would it be reasonable to include a clause in my project contract which imposes a penalty fee (say 15% of the total project cost), if it does not start on the agreed date. If so, how should this clause be worded?
Expert’s Answer: This is a problem not only for contractors but also for many small businesses: you set aside time to deal with a project, turn down other work and then the project doesn’t come off, leaving you out-of-pocket.
In order to protect yourself, you need a contract that sets out a definite start date, what happens if that start date is not met by the client and also how long you should wait before being able to end the contract.
Unfortunately, penalty clauses based on a percentage of the contract’s value are likely to be unenforceable as the courts don’t like them.
The best way is to use a ‘liquidated damages’ clause. This is a clause that says you will be paid so much a day or week if the project starts later than the start date. You will need to think carefully about what your actual losses would be if the contract starts late.
For most contractors, the starting point of such a calculation would be based on what they could get from working elsewhere less expenses (such as travelling), and also take into account the likelihood of other work being available. Legally, it must be a genuine pre-estimate (as of the date you sign the contract) of the likely impact of the delay on you. If it is more than that, the courts will consider it a ‘penalty clause’ and will not enforce it. It is best to set out in the contract how it has been calculated.
You should also include a clause that allows you to terminate the contract after a specified period past the agreed start date if work does not commence.
The expert was Sue Mann, on behalf of Cousins Business Law, Solicitors.