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The Most Important Term in a Service Contract

The Most Important Term in a Service Contract
Pat Dickson - Thu Mar 22, 2012 @ 12:30AM
Comments: 0
The most important term in a service contract is the amount of your down payment.

Why? Because money is bargaining power. Let's take a hypothetical example. You are a window washer and I have a 100 story building with 1000 windows. It will take you a month to do the job and we have agreed the work is worth $10,000, or $10 per window. You know you will have to spend at least $2000 up front to cover the costs of the squeegees and Windex you need to begin performing the work. I give you a 100 page contract to review and sign and you don't know what any of it means because you didn't go to law school. All you know is you will have to front $2000 before any work starts and that the meat of the deal is you get $10,000 for washing all the windows in my building. You can't hire a lawyer because you barely have $2000 to cover your up front costs.

In my opinion, the best thing you can do is demand I pay you $5000 before work starts, and the check clears, and then when work is finished you get the other half. This serves a practical function because at least your material costs are covered, up front, as well as some money to pay your day to day expenses over the next month. Your $5000 is also leverage against being ripped off or sued. Think about it. If you don't get $5000 up front and I decide to fire you halfway through your work, I can kick you off site and refuse to pay you a dime. The only way for you to come after me to get paid for half the work is to sue me, and going to court can cost a lot. You might lose and not get a dollar, and be in the negative after you pay your attorney. However, if I fire you halfway through the job when you already have $5000 in your pocket, you can take the position you've been paid for the work you've done and the relationship is over. If I disagree with you and want all or part of the money back because I believe your work is poor, the burden is on me to take you to court. 

Ultimately, if you have $5000 in your pocket halfway through the job and I don't like the work you've done, I am much more likely to negotiate a resolution with you, perhaps let you know what I dislike about your performance and give you a chance to make me happy so you can finish the job and be paid the other half. Kicking you off the job isn't something I want to do because I don't want you to run off with my money. I could lose all $5000 and still have to pay another window washer $10,000, putting me $15,000 in the hole for the entire project.

What I've written herein is geared more toward a small service providing contractor or subcontractor, and you may believe what I've said is flawed or somewhat simplistic. You know that on many jobs the Owner or Contractor will balk at any suggestion of providing a down payment, or they may say they'll only reimburse you net 45 to 90 days for materials procured or services rendered, that they have no other choice. However, you might be surprised at how much of a down payment you can squeeze out of them if you put your foot down. It never hurts to ask, and to not just take a few "nos" as an answer. In my experience, asking, and then asking again, is sometimes all it takes. 

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