I have a X dollars project under my belt. It supposed to start on Monday. But client refused to go forward and I waited for them for a week. How do software consulting firms deal with this situation?

This is a contract project and the client cannot pay me due to resources. For suppose 80 hours.

  • Can you provide more background in your question? For instance, it might matter why the client cancelled. Or if there was a contract, etc. These things matter... – jmort253 Mar 7 '12 at 21:04
  • Please see my edit. – RG-3 Mar 7 '12 at 21:08

From what you've described, it sounds like the best thing to do is move on. The project involved you doing X hours of work for Y units of compensation. Since the project was cancelled before you started, that means you've done X=0 hours of work.

Therefore, it seems justifiable that you would receive Y=0 units of compensation.

If you're a consultant, your ability to make money and generate revenue for yourself most likely depends on not just your technical skill level, but also your level of trust, ability to network and form personal relationships, and your ability to understand that the loss of one opportunity could segue into another opportunity.

You could push the issue and try to get some portion of your 80 hours, but at what loss? Is this person going to want to do business with someone who is inflexible when they need flexibility? Are they going to refer you to a partner or other business in need of services? Will you be spending time and energy on something that isn't lucrative when you could be spending that energy networking and searching for other opportunities?

Keep in mind that the main reason businesses hire contractors is for the same reason contractors love being contractors: Flexibility.

  • Thanks for your answers. It was well framed. However, if I have one other developer assigned to the task for that project and 1 week went by without any work, I lost my money of his 1 week worth of work. Right? How would you cope up with that situation? – RG-3 Mar 7 '12 at 22:25
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    @Orange, for such a small amount of work your more than likely just going to have to eat the cost. You can try going the route of legal action but that would more than likely cost you more in the long run than simply sucking up your loss. – Jesse Mar 7 '12 at 23:19
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    Hence, why it's important to include lots of detail in that big question box we give you. You didn't mention that your developer already started working; otherwise, I would have addressed that in my answer. – jmort253 Mar 7 '12 at 23:48
  • Yeh, I got it guys. Lesson learned. Moving on!!! – RG-3 Mar 8 '12 at 16:28

You did not say whether you are part of a "larger" company that can absorb such a loss or if you are independent and you brought on help for a week. If the latter, 40 hours of compensation for the guy you hired and your fee are pretty significant to absorb. If you have a contract in place, fully executed, then you may want to consider action on this. Consult an attorney and see what your options are. You have to weigh the risk between winning and getting your loss back plus legal fees to losing that plus legal fees and the probability of falling somewhere in between.

The attorney might just say walk away but I think you are well justified in researching this avenue.

Either way, this is a HUGE lessons learned for you. Before we do business, we conduct a credit check on our potential clients to ensure they have the resources to pay and a history of satisfying its debts. If you are able to do that, do it. If not, you may consider pulling in a retainer before work starts, that being a part of the contract. It may make you a bit less competitive or attractive to some customers, but if the customers don't pay, the business was not worth anything anyway.

Good luck.

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    +1 for "this is a huge lesson learned" and also pointing out the practice of using a retainer. It might make them less attractive to certain clients, but one vendor I worked for always had a percent due on signing, and we did that for 12 years without issue. – jcmeloni Mar 8 '12 at 13:07

These are the kind of lessons to learn early, and it sounds like you've learned it for a relatively small amount of money (cheap price for a great lesson). I know people who have had this happen on 6-7 figure projects. It can really suck.

  1. Make sure your next contract has a cancellation clause in it.
  2. On your next project, make sure you understand the risks (i.e. not getting paid) before expending resources (hiring another developer for a week).
  3. Think about other risks, other bad things that can happen (e.g. the customer being unresponsive, wanting delivery before payment, asking for support for free, the project taking longer than expected, the contractor raising their rates, etc) and act accordingly to protect yourself.
  • Can you elaborate on Cancellation clause? How should I put it in my contract? – RG-3 Mar 8 '12 at 23:52

Because of this type of situation we have two steps that must be completed in order for a project to be considered officially ordered:

  1. The client must sign the contract
  2. The client must make a down payment.

Only once both those steps have been completed do we move forwards.

It's easy for a client to sign a contract, but making a payment is less so. We could theoretically go after clients who sign a contract, committing to the relationship and payments, but never move forwards. But that's a hassle so we assume a contract isn't the real deal until payment comes through.

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