Contractor Doctor: My client wants me to commit to future contract rates – can they?

Dear Contractor Doctor,

I am an IT contractor and have just completed and delivered a new website for a client. The client has not paid me yet and has only just sent me the contract.

The contract includes a clause that requires me to work on all future versions of the website at the same rates as those paid for the first version I have just completed, and on the same terms. I might be working for another client when the next version is required, or I might even decide to get a permanent job – surely I can’t be forced to take the work on?

My client wants me to sign a contract committing me to future rates: can they do this?

Thanks

Pia

Contractor Doctor says:

Roger Sinclair from contractor legal specialist Egos warns contractors not to sign clauses committing to future rates and work. “Don’t sign it - just strike out the clause,” urges Sinclair. “From a commercial perspective, clauses such as these are completely unreasonable. A contractor is under no obligation to agree to such a clause, and should retain the right to negotiate the terms of any future work – and, if necessary, to decline it.”

Sinclair explains that, in Pia’s case, just because she has completed and delivered the website to the client does not necessarily mean the client has the right to use the files, because they have not paid for them.

He continues: “I would urge the contractor to respond to the client by diplomatically reminding the client that they cannot yet use the files, and proposing that the terms on which the client can use the website will be the client’s agreement to the removal of the unfair clause and, of course, payment in full. If the contractor shows strong resolve in this regard, I would be very surprised if the client did not agree.”

Contracts must be clear and leave no room for uncertainty

If negotiation based on withholding the website files is not an option at this stage, Sinclair says that any clause covering future contracts and fees is clear and without any grey areas, if it is to be enforceable.

“To be legally binding, the clause regarding future versions of the website must be sufficiently clear and not uncertain,” explains Sinclair. “If it is nebulous or includes uncertainty, such as requiring the contractor to provide an undefined amount of work on all future versions at the same rates with no time limit, this introduces uncertainty and the clause is likely to be unenforceable.”

However, Sinclair adds, if the clause is clear and certain, then it will be capable of being found to be legally binding if the contractor signs the contract with the clause included.

When might the contractor be in breach of contract?

Sinclair feels that it’s unlikely the client could compel the contractor to work on an updated site if they didn’t want to, weren’t able to because of other commitments or a change of career, or because the contractor was subsequently able to command higher rates.

“However, if the contractor signed a contract with a legally binding clause committing them to create a future version at the previous rate, then if they refuse the client could find the contractor in breach of contract,” explains Sinclair. “The client would have to prove its loss, and then has the right to claim that loss from the contractor.”

Measure of loss in this case could mean the difference between what it would cost the client to pay another contractor to complete the next version of the website, less what the original contractor would have been paid according to the contract. But Sinclair doubts that many clients would actually go to such lengths in a genuine, commercial context.

Termination or renegotiation

Assuming the contractor has signed a contract committing them to complete a future project at the same rates as the original project, then it may be possible to avoid it by exercise of a termination clause, if the contract has one, by giving notice to the client.

“But if there is no termination clause and the contract satisfies principles of clarity and certainty, then it is likely to be legally binding,” says Sinclair. “In that case, the contractor could always try and renegotiate the contract. However, if the client says ‘no’, then the contractor must deliver or be in breach of contract.”

Sinclair says: “Signing up to an uncertain future at what are likely to be below future market rates could leave a contractor legally and financially exposed, so I would caution against it."

Signing up to an uncertain future at what are likely to be below future market rates could leave a contractor legally and financially exposed, so I would caution against it

Roger Sinclair, Egos

Even at the late stage Pia is at, where she has completed the project without a contract, she still has some options. Asking for professional assistance at this point might prevent her, or other contractors in this situation, from making an unwise and un-commercial long-term commitment.”

Good luck with your contracting!

Contractor Doctor

Published: Tuesday, November 9, 2010

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