Banking

How to negotiate a kill fee

It's not uncommon for a project to end early or be canceled. When that happens, you may want to negotiate a kill fee. We'll explain how it's done.


In the publishing world, a “kill fee” is what a publication pays when an editor accepts your story for publication but then, through no fault of yours, doesn’t use it. If you work as a consultant on a contract basis, you may want to incorporate a kill fee into some of your contracts.

Projects can always end early or be canceled. If you’ve carved out a block of time for a six-month contract and your client ends the project three months in, what can you do? Or if you sign a contract for a project that will start two months from signing, but your client cancels it two weeks before the start date, what are your options? In both these and similar cases, your best protection against lost income while you’re scrambling to find another project is to build a kill fee into your contract. In this article, I’ll take a look at when to consider using a kill fee, how much is reasonable, and how to negotiate a fair fee for both you and your client.

When should you consider writing a kill fee into your contract?
You might want to consider implementing a kill fee, or cancellation penalty, when facing a project similar to either of the following situations:
  • The client asks you to commit to a fixed amount of time—compensating you either hourly or with a fixed fee paid in stages—but cannot assure you that the work will last the entire time. Without a kill fee in this case, you’re essentially committing your time and risking that you’ll be paid nothing in the event of unanticipated downtime.
  • The project starts well after the date you sign the contract. If the project actually begins a month or more later than the contract signing, not only have you potentially lost income from other projects you could have been working on, but the client also may have lost either interest in or focus for the project. The point is that lots of things that could hinder the project can happen in the interim between contract signing and project inception.

On the other hand, there are situations in which a kill fee would not be necessary—i.e., if a project is simply completed early. If you complete all the work needed by the client in less than the time anticipated, that isn’t any grounds to charge a kill fee—one more reason why it’s so important to define the scope of work. In that case, try to find other work with that client or simply move on to the next project.

Keep the fee reasonable
Obviously, if a project is cancelled halfway through, it generally isn’t appropriate to demand full payment for only half the work. Although full payment might seem fair if the cancellation isn’t your fault, clients won’t see it that way, and you can’t expect them to. After all, some amount of financial risk is part and parcel of contracting.

For very short projects, however, you can probably arrange to be paid in full in the event of cancellation. Shorter projects are, of course, usually less expensive for the client, and they therefore may be less opposed to paying in full if they’ve had to cancel the project—especially if you’ve had to pay for expensive travel arrangements such as airline tickets. In that case, your kill fee might include travel reimbursement.

Generally, the highest you can hope to set your kill fee would be 50 percent payment for the time left on the contracted project timeline. For example, if you’re being paid $1,000 a month for a six-month project and the client cancels at the end of the third month, a 50 percent kill fee would mean the client would pay you $1,500 for the remainder of the contracted time. But on more lengthy (i.e., more costly) projects, you’ll usually have less trouble getting paid if you set the kill fee at something more like 25 percent.

Using a sliding scale to determine kill fees
Many consultants see the concept of a sliding scale as the best way to determine a proper kill fee. Although a sliding scale can make the kill-fee clause unnecessarily complex and may cause it to seem punitive to the client, it can be useful for certain projects and situations.

This approach can work well if your client cancels the project before it starts. What follows is an example of a kill fee structure based around cancellation penalties; you may want to adjust the time frames and percentages based on the length of your project and your anticipated earnings:
  • If the client cancels the project more than one month prior to the start date, you will be paid a kill fee of 20 percent of the estimated project total. (Make sure you and your client agree on this amount.)
  • If the client cancels less than one month before the project start date, you’ll be paid a fee of 40 percent of the project total. (You could also break this down into 2-4 weeks and 0-2 weeks before the start date, but again, that can get confusing.)

You can also implement the same sort of structure for cancellations after the project begins:
  • If the client cancels less than halfway through the set project timeline, the kill fee is 20 percent of the remaining project total.
  • After the halfway point, the kill fee is 40 percent of the remaining total.

Of course, these fees are in addition to full payment for all work you’ve performed through the cancellation date.

If you’re being paid a per-project amount, as opposed to an hourly rate, you should set forth in the contract that you’ll pro-rate the full amount by the amount of time worked; for example, you’ll charge a third of the project total if you’ve worked two months out of an anticipated six. If you have a longer project, say, six to twelve months, you could waive any fee if the project is cancelled in the last month or two.

The concept gets trickier when you’re dealing with a project that isn’t tied to any specific time frame, but you might still be able use it. You’d need to divide the project into stages or phases and tie a kill fee to the cancellation of any or each of those. But of course, a kill fee may simply be unworkable for some types of projects.

How to negotiate your kill fee
You may find that a client objects to a kill fee in the contract. Your counter then, should be to point out to the client that if they are fully committed to the project, then the kill fee will never be invoked. If that doesn’t work, you can try slightly lowering the fee. If the client absolutely refuses to agree to the fee under any circumstances, try to uncover why the client is so uncertain about the scope of the project—perhaps another part of the contract needs to be rewritten.

Kill fee vs. non-performance
You should be sure to draw the distinction, both in your contract and with your client, between a kill fee for your client’s arbitrary cancellation of the project versus cancellation for non-performance or a breach of contract on the part of either party. Pointing this clause out to a client can help ease any concern over a kill fee.

The client should have the right to terminate the contract without penalty if you don’t perform (define this clearly) or if you violate a term of the contract, in which case the client shouldn’t have to pay you anything beyond what you’ve already earned. The converse is also true: If the client doesn’t perform his or her contractual obligations, you have the right to terminate the contract with full payment for services performed.

Note that some contractors don’t bother with kill fees. Instead, they take a hard line on client cancellations: If the client cancels a project after its start date and the contractor isn’t at fault, the client owes the full money due. However, you’re likely to have a difficult time getting a client to sign a contract that contains such a clause on a project of any substantial length or expense.

Meredith Little wears many hats as a self-employed technical and travel writer, documentation consultant, trainer, business analyst, and photographer.

Do you have a kill fee written into your contracts? Has this helped you to cover salary and expenses when a project ended early or was canceled? Post a comment below or send us a note.

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