Contract Terms – Price & Payment explained

Price and Payment is the first topic as these are key provisions in any contract for supply of goods or services.

Price
If you have a fixed price, are there any extras – e.g. packing and delivery of goods or travel costs in the case of services.  If so make this clear in the contract.  If the price is variable – e.g. by reference to time spent, then it is advisable to specify a daily or hourly rate.  And if the client wants a firm quote, be careful how this is agreed or you may find you have agreed to a fixed fee assuming the work would take three days but it takes you twice as long.  So, for example, when giving a firm quote, qualify the quote: e.g: “ The fee will be £150 (plus VAT) assuming three days of our time in setting up your new system.  If the time exceeds three days then we reserve the right to charge £50 for each extra day or part of a day spent at your premises.”

If you are buying rather than selling, you may want to have a contract that specifies that the price covers all delivery or travel costs.   Also you may want to have a fixed price regardless of the time spent by your supplier.   The best thing here is to have a clear specification if what you require plus some weasel words such as: “The fee is a fixed fee of £XXX plus VAT and covers all work et out in the attached specification including any ancillary work or minor changes requested by us for the installation of a fully tested and functioning system that meets our reasonable requirements”.

Payment
Not long ago ContractStore was approached by the father of a young entrepreneur who had recently set up a business designing websites.  The first job had gone well for the young man – until the end when he asked for payment and the customer refused to pay.  The price was agreed but the entrepreneur had not thought about payment terms and after several weeks of work he put in his bill only to find it was contested.  He had no written contract terms and had not thought about getting money as the project progressed.  So, we then supplied a set of terms and conditions designed to avoid the problem in future.

Any project for services such as website design or for supply of goods being made to order should be structured so as to spread the payments over the life of the project.  This gives you cash to meet expenses as the work progresses – e.g. technical support from a colleague or raw materials for furniture you are making – as well as committing the client by getting payments on account.

Even if there is some problem at the end of the day, you should by then have received most of the fees, or at least enough to cover your expenditure,  so you are not as exposed as our young entrepreneur.   And you can give the client confidence by agreeing to leave a small amount, say 5% of the fee, to be collected after a couple of months when any snagging items are sorted.  This may, with good marketing, lead you into securing an ongoing maintenance contract with the client.

Example:

1.    The price payable for the services set out in the attached specification is £         . Payment terms are:
•    £        (30%) advance payment due before commencement,
•    £        (30%) after 30 days,
•    £        (35%) on completion and
•    £        (5%) one month following completion.

2.    Any extra services will be charged at a daily rate of £      per day.

3.    Any changes requested by the Client which in our opinion will involve us in extra time or cost will be charged in addition to the agreed price.  An estimate of the extra cost and time implications will be provided upon request.

4.    All prices are quoted exclusive of VAT.

5.    We will submit a VAT invoice for each payment due to us.  Every invoice is due for payment 7 days from the invoice date.  The first payment must be received before the services are commenced.

Next time I will be looking at late payment – and what remedies a supplier may have, short of terminating the contract

Giles Dixon is a solicitor and managing director of ContractStore – www.contractstore.com  a company selling legal documents for business.

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