Contract cancellations can occur for a variety of reasons, and generally carry no additional considerations. However, one issue which has come up on 2 occasions in the past are worth consideration.
On 12 July 2007, clause 5B was added to the Terms and conditions. This was added as a protection for work which was in process but not yet billed. Subsequently, in 2008, we had two companies execute cancellations during development and this clause was invoked, and the customers agreed to the payment as stated. There have been no other instances at any time.
How can the situation arise?
There are two instances when this issue can arise.
Case 1: There is specific development work being performed and the contract is cancelled, for whatever reason, during development and there is unbilled work.
Case 2: The second instance is somewhat more complex. Most customers have entered into both a development contract and a hosting service contract. Typically the development contract is completed within a few weeks or months and then the support considerations of the hosting contract come into effect and are covered by the ticketing system and the support level as specified in the hosting service invoices.
Typically, web sites are refreshed at periodic intervals, and usually, this refresh is already covered in the monthly fees already factored into the annual invoice. This again covers most large and small scale upgrades of the web site, and provided there is an ongoing service, the question of additional fees does not arise. The work is amortized through the life of the contract and the customer benefits greatly from the reduced costs of this approach.
Cancellation of contracted services which include support:
If a customer decides to cancel a contract before the development costs are amortized, then we get into the issue of unbilled services. If a web site undergoes a major upgrade during a hosting cycle, and then the customer decides to cancel, then the work may not be amortized. When the contract is cancelled, there is no contractual fee for the unbilled work and it would become billable at the non-contract or spot rates. These fees can be very high.
A contract cancellation notification in the first few months of the cycle could result in rates of US$250/hour for 2010 and US$450/hour for 2011 and likely higher in subsequent years. Very rapidly, this can become a very high cancellation cost.
Avoiding Surprises:
Such costs can be avoided by giving advance notice that a cancellation may be happening, however, this also may not work if there occurs a situation which mandates changes before the actual cancellation notice is given.
A customer who is considering cancellation for whatever reason, should give notice that such an event may occur and give an estimated time frame. This allows for an orderly transition and notification of the costs, if any, and probable terms of termination.
If the timing changes, that should also be advised, allowing both parties to communicate the possible ramifications.
If conditions change and the time frame of the advance notification expires, then the cancellation notice is assumed to have been withdrawn.
If there is a pending cancellation notice we would avoid all activity which would or could create "unbilled" work. If the pending cancellation period expires, or there is reasonable belief that the cancellation has expired, then we would continue normal development work as required. A subsequent cancellation notice could then incur "unbilled" work.
Formal Notice of Cancellation.
Once a formal notification of termination is given by the customer, then we would supply the current applicable termination costs and conditions. At this point the termination date becomes fixed, unless otherwise extended by the customer through formal notification. No "billable" work would be undertaken from this time forward unless absolutely required for the functioning of the web site.
Also, when formal notification of termination is given, we will draw up a schedule of "unbilled" work which will become part of the termination costs. All work performed from the beginning of the current contract cycle which exceeds the monthly contracted work or is out of specified contract scope, will be billed at non-contract rates.
Communication is key to avoiding surprises.
It is strongly recommended not to allow any of these situations to occur as they become onerous and burdensome for both parties. Good communication can avoid most surprises.
These notes are a guideline only and do not replace the wording of the terms and conditions.
Initially drafted on 1 January 2011. Released on 19 January 2011