As the economy slows down the payments do too. In the last year, many of our agency clients have told us that their clients have been slower, and slower… and slower to pay their invoices. Similarly, client communication can slow down, and your agency can end up in a holding pattern on a project. Further, with client staffing turnover, your shared projects can easily end up on the backburner. It is exhausting to chase clients for communication and for money. The bottom-line: this is not a good use of your time and resources.
When is Stopping Work Appropriate?
It is likely you will find yourself (or you’ve already been) in these situations:
- Your client doesn’t pay invoices when they are due.
- Your client doesn’t respond to your request for information.
- Your client doesn’t deliver feedback or approval by the agreed upon deadlines.
- Your client “goes dark”.
Fortunately, there are steps your agency can take to protect itself in these situations. One of the most important steps is implementing a “pause clause” in your contracts.
Basics of the Pause Clause in Agency Contracts
Let’s be honest, most Service Agreements do not contain a provision allowing the agency to suspend work when a client is slow to pay or otherwise not fulfilling its responsibilities (unless Matchstick drafted your MSA + SOW, of course). What you want is a provision that expressly grants you the right to stop work if your client fails to make a payment when due or otherwise breaches a material term of the contract.
Matchstick’s recommend pause clause goes like this:
Stopping Work. If Agency has the right to give notice of a material breach or if Client otherwise fails to respond to a request for information, feedback, or approvals within five days of any request, Agency may stop its work until Client cures the breach. Stopping work does not limit Agency’s right to terminate. Client acknowledges that stopping work will cause the Project to be delayed. Restarting work is subject to mutual agreement of an amended SOW adjusting schedule and fees because of the work stoppage plus payment of a restart fee of 5% of the total fee under the applicable SOW (plus any amounts outstanding at the time work is stopped) .
Breaking Down the Agency Pause Clause
There are numerous facets to the Pause Clause and it’s important for you and your client to understand. Here’s a deeper dive into each crucial element.
Material Breach and Client Responsibilities
In the first sentence, your client might ask that this only be triggered on breach of a material term of the agreement rather than any breach. This is a fair request. However, we include failures to respond to requests for information, feedback, and approvals because your agency can’t do your work without those. If your client isn’t participating in the project and doing their part, they shouldn’t expect you to continue and do yours.
As far as the deadline, you can set it however you like – our standard is five days. Keep it short, anywhere between two and ten days.
If you stop your work, you can still decide if you want to terminate later. Hitting ‘pause’ on the project doesn’t take away that ability. If the client continues in an unresponsive manner (or is generally a pain to work with) you can end the relationship.
Note the difference between a “stopping work clause” and a regular termination clause. In a stop work clause, you can stop right when the breach occurs. In a termination clause, you typically have to give notice before acting.
After you’ve hit pause, the client knows the project moved down your priority list. If they want to start up again, you can charge a restart fee. You can set the fee at whatever price point or percentage you like. Depending on your history with the client you may have justification for a higher fee —especially if you think the client may go quiet again. But if that is the case, consider if you want to continue working with them.
Think about changing the terms of the SOW to compensate for what you’ve learned about the client. For example, if a client is consistently late on payment, use this clause to require an updated SOW where the client pays in advance. Also, adjust the schedule in your SOW to reflect how you’ve allocated your resources and personnel during the pause. If it will take a while to get your team back up to speed, factor that in.
Dealing with Pushback
Many of the agencies we work with say their clients have resisted the addition of this clause. If you face similar resistance, ask your client to explain why you should have to continue working when they are in breach. A client that expects an agency to continue working despite having broken the contract is not a client you want to work with.
The power in the pause clause comes from using it early in a relationship. Stopping work at the first sign of trouble is an excellent way to communicate the importance of timely payments and the client fulfilling its other obligations. Most problems we see stem from an agency “being nice” with its client and letting a small problem become a big problem.
Don’t panic if you don’t currently have this clause in your contract. While an express provision is best, in many instances an agency can still stop work if the client hasn’t made a payment when due. We can help with that.
Hitting pause on a project is a powerful and effective tool for holding a client accountable to its promises. Make sure your project managers and account managers know how and when to use a pause clause in your Services Agreement.