Personal Finance: How to handle a client who breaches your consultancy contract

Lauren Owiti is an event, photography, and a video production consultant. She recently got a job to shoot a budget video for a non-governmental organisation. "I charged the client Sh100,000 for the shoot. The client bargained downwards 80,000, saying they didn't expect much and were squeezed for money," says Lauren.

On the shooting day, Lauren's client came with a new list of locations and shots. "I now needed to hire additional cameras, crew, and use a drone," says Lauren. But when Lauren explained the additional costs, the client flew off the handle. "She said we had an agreement and demanded that I honour it." In the end, Lauren agreed to shoot the video at a loss. "I didn't want to lose the client. I wanted to grow my production brand," she says.

Quite often, consultants and service entrepreneurs find themselves in this position: a client makes up extra work demands without matching them with higher pay. So what do you do if you find yourself in this boat?

Preparing for renegotiation

The first step is to institute a renegotiation on terms and remuneration. Although you can start off through email, a physical meeting is always better. Don't let the conversation go beyond two emails. "A physical meet up will allow the client to understand your concerns. It will be respectful too," says Elizabeth Nyayieka, a business coach and financial markets consultant. Where the client is in outright breach of your terms, Ms. Nyayieka says that the conversation might be quite hard to navigate. "The best way to prepare is to have a list of cost issues you need to address. Then keep your emotions in check," she says. One of the fears consultants have is that this may cost them a good relationship. But Ken Munyua, a consultant psychologist and human resource recruiter at People Centric says that this is not always the case. The relationship goes both ways. If the client agrees to increase the pay, you must make sure that this is captured in writing.

The addendum

Additional work should be captured in the addendum. This addendum can either be with costs or not. An addendum is an additional attachment that modifies or updates the terms and conditions of the original contract. "Before you negotiate, you must first analyse the new scope and the cost that comes with it," says Munyua. "It is easier to renegotiate and get more money when you are specific about the cost implication of the additional," he says.

Sub-contracting

One of the biggest mistakes you can make is to take up a job you know nothing about. "You must know what you can do and what you can't do. Don't take up jobs you may need to sub-contract if you know nothing about them," says Munyua. This may also cost you money and reputation if you over-promise and under-deliver.

Can't pay won't pay

Take legal action if a client breaches the terms of your services to such an extent that your consultancy business faces huge losses or risk of collapse. Esther Masanyangila, the managing partner of Masanyangila & Associates Advocates which deals with corporate commercial litigation and conveyance says that you can start with an arbitrator. "You should include an arbitration clause in the contractual agreement. If the client breaches the terms, you can get a resolution from a qualified arbitrator instead of going to court. Arbitration is faster and more convenient than courts," says Ms. Masanyangila. If the contract you signed with the client did not have an arbitration clause, you may write a demand letter asking for your payment. If the client doesn't honour the demand letter, you can then start legal proceedings against them in court. If you had done some work and the client has violated your agreement to such an extent that you cannot complete the work, Masanyangila says that you can demand and get paid for the portion of work you've done. "If this escalates to court, you will get damages based on the kind and amount of work you had done," she says.

The other side of the coin

Patricia Okello, the founder of Conferencing In A Box Limited and Willart Production Limited, says that sometimes failing to legally enforce a contract can win you more jobs. "I once pitched for a job with a local NGO and won a contract to design and produce a booklet. At the time, I had been in business long enough to understand the importance of signing off on all approvals from the client. The most important part of the contract was designing the cover," she says. Patricia and her client had a lot of back and forth on the design work with her client, but finally, she got the approval and was ready to go to press. The job went out without a hitch and she delivered in good time.

On the eve of the day that the booklet was to launch, Patricia got a call from the client. "He was angry. The cover of the booklet had a glaring spelling mistake. At that point, the temptation to tell the client that they had in fact signed off was high," she says. But she quickly realised that this would not be a good idea and told the client that she would pick the published booklets and resolve the issue the following day in time for the launch. "The following day, I ran a fresh cover without the spelling mistake and delivered in time. Yes, I ran this job at a huge loss, but the decision to re-print the publication is what encouraged the client to give me more jobs. I have kept this client to date," she says.