Succeeding in Your Business: Even a well-drafted contract is nothing more than a one-way ticket to court

“I have a consulting business. Earlier this year, I contracted with a local business to provide management consulting services on a particular project. I normally charge by the hour, but the local business had an excellent reputation, and, frankly, I wanted to give them a good first experience, so I quoted them a flat fee for the project.

“No sooner was the ink dry on our contract than they started asking for things that weren’t included in the original fee quote. People within the organization had difficulty communicating with each other, and as a result, the company’s senior management kept changing their minds — as soon as I sent them something I promised I would deliver, they told me they really wanted something else.

“I spent over a hundred hours trying to keep this company happy — well beyond the number of hours I estimated when I quoted them a flat fee. They consistently told me they liked my work, but nothing I did was ever acceptable to them.

“Finally, I woke up and realized that there was no way I could keep this client happy without going bankrupt. I terminated the contract within 30 days’ notice — which the contract allowed me to do — and told senior management that even though I spent considerably more time on the project than I’d expected, I would stick to the contract and ask for only the flat fee I originally quoted.

“The client then told me to go to hell and said they wouldn’t pay anything.

“I retained an attorney, who, after some back-and-forth with the company’s lawyers, came back and recommend I settle for half of the original flat fee quote.

“I told my attorney I thought my contract (which he drafted) was pretty airtight, and that there was little doubt I was entitled to the full amount of the flat fee. The attorney responded that while the contract was airtight, it would probably cost more in legal fees than the original flat fee was worth. Also, due to COVID-19-related shutdowns, the local courts are backlogged and couldn’t deal with a case like this for over a year.

“I have a good contract for which I paid good money, but I can’t enforce it. My former client is clearly in the wrong and is getting away with murder because I can’t afford a long, expensive court battle to enforce my rights. How can such a thing happen in America?”

Sadly, this sort of thing happens a lot in America.

A number of things went wrong here. First, while I’m sure your contract was properly drafted, it does sound like it wasn’t clear about what was and was not included in your flat-fee quote. There should have been explicit language saying that any changes in the “scope of work” would enable you to stop working and negotiate additional fees.

Second, this is a classic case of why you should never — ever — quote a flat fee unless you know with 100 percent certainty how long it will take to complete a particular job. I frequently quote flat fees in my law practice but only for things like forming corporations and limited liability companies (LLC), nondisclosure agreements and other tasks where I can estimate my time to the minute.

Any project that involves negotiation with another attorney, multiple drafts of a document or other circumstances such that I cannot control the amount of time spent, simply cannot be done for a flat fee. Even if I estimate the amount of time I may need to spend carefully, inevitably, things happen outside my control that cause me to blow through the flat-fee amount and renegotiate with the client, which is difficult to do in the middle of a project that has achieved momentum and the client needs to get done.

Finally, I feel your pain when it comes to contracts that cannot be enforced. Our judicial system does a miserable job of dealing with contract disputes involving less than $100,000. You can sue in small claims court — which is cheap, informal and relatively quick — but in most states, you can’t sue for more than $10,000. Between $10,000 and $100,00, there’s a huge gap where it often costs more to bring a lawsuit than the judgment is worth. Bad people know that and will often sign contracts they have no intention of honoring, because they know they will be able to wiggle out of them later and force you to settle for pennies on the dollar.

No contract is self-enforcing. A contract — even one that’s expertly prepared — is nothing more than a ticket to a courtroom. If the contract is properly drafted, you will likely win if you go to court. But first, you have to get there and pay the fees.

Situations like yours are an indictment of the American system of justice. Sadly, I would advise you to get the best settlement you can and get the client to agree not to “disparage” you on the company’s social media. Then, write the elected officials in your state and ask that the ceiling for small claims court be raised to $100,000.

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series “Money Hunt.”

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