what to do when a vendor/sub-contractor breaches contract?

Question

I'm kind of like an long-time, in-house it/marketing shop for a small startup. I bill them monthly but for whatever hours were put in that month... no min or max, contractual-speaking and this has been working fine.

We recently contracted a company to do some stuff outside my wheelhouse. It still rerquired hours from me managing and working with them, but the final product was to be delivered by them. There was a very tight turn-arounnd for this project, so the company I work for paid them up front in full (via credit card). Buyer Beware.

Long story short, they did sh*@$y work and missed deadline. we still don't even have the final product, deadline aside... they're contract states "money back guarantee" and all that which I have called them out on, but they are giving some fierce pushback and handing me off from this department to the next as I try to get a refund for my client.

My issue is this: it's not my money directly lost to this vendor, but it might as well be. If I was a salaried employee, i wouldn't think twice about it. But I'm not going to bill them for a project they paid me to manage (and be a part of) when there is no deliverable. I obviously don't have a legal team to go after them with, not does the the company I'm working for. They have general counsel (contracted), but at $400/hr, they're inclination is just to just let it all go.

When you do the math out, i know it still probably makes sense to have my client's pursue some sort of legal action. They don't see it this way... understandably (in the end, their time is worth more than the lawyer's rate + my rate). They don't want to spend any more time hearing from me that they won't give a refund and that I'm doing X, Y and Z about it. They just want to get the project done and done right.

So I know it's my choice not to bill them for the work I did on that project, and if they were a 1-time client I'd tell them they were on their own and bill for my time. But this is not the case. I'd have a hard time doing that to anyone, much less a bread-n-butter client like this. like i said, I can't, in good faith, bill them for work on a project done in any unsatisfactorily manner.

Not sure if my best move is to play chicken and send them some sort of legal notice (under my name or the company's name)... or whatever. In the end, I don't want to eat those hours (and lose a good foothold with this client), which is what I'll have to do if the company won't move forward with any action... and then nobody wins.

All of this is causing me and my client crazy stress. For me, in addition to having an unsatisfied client (when I told them they'd be more than satisfied), I have a a chunk of hours that I don't feel good about billing. A for them, as discussed with them, they don't feel good about paying.

Any advice?

Answer 1

Your reputation is more important than the money. Customer satisfaction is more important than the money (when the mistake is yours). Since you introduced the contractor and said you would manage them there's a huge responsibility on your part to make things right. You need to take the loss here and look at it as a lesson learned.

You're looking at this like 'how much money can I get out of it' when you should be looking at the fact the client isn't running to review sites to bad mouth you and be grateful. They may even give you positive reviews in the future based on past & future projects. That's worth gold to you.

Sometimes we have to say, 'no thanks' when a client names a timeline that is too short for us to be confident that we can deliver or when the project just doesn't make sense. It doesn't even matter how long you have worked with them or how much they pay because you have to protect your reputation.

The client has told you what they want (not to pursue the contractor) and they paid them directly so you have to respect that.

Keep in mind that who you work with is more important than contracts unless you can afford a really good lawyer and want to waste time in courtrooms. So it pays to really do your homework on who to work with and best case someone you know & trust professionally vouches for them.

Next time, don't claim that you are going to manage someone unless they get paid by you. Otherwise let the client 'manage' them themselves (which only makes sense if the contractor isn't a direct competitor of yours). Don't introduce anyone you haven't worked with before unless they are vouched for by someone you know only works with the best. Avoid paying your sub contractor 100% upfront unless the amount of money is very small.

Anyhow, the client understands that accidents happen. I don't think they are as upset about this as you are. In other words their pockets are probably a lot deeper than you think. Nobody is perfect so stop beating up on yourself. I guarantee you that your client could have hired someone else besides you who they know wanted to charge them way more money. They did the math and decided to go with a less experienced person to save money. That's on them. Now you gained some more experience on the business side of things.

Answer 2

I would bill for the time you spent managing them - that is still time where you had to use your expertise, and could not bill other clients.

I would then do what I can to pursue legal action. What's the point of a contract if it doesn't get upheld? Talk to a commercial lawyer, bringing the contract you had the subcontractor sign, along with all your documentation, and let them deal with it. Usually, two things will happen:

• Either the subcontractors get scared of real legal action and pay you right away to keep you away; or
• They try dragging it out through court.

Even if it's only one letter from a lawyer's office, that may be enough to scare them into listening to you - which shouldn't be more than an hour or two from a decent lawyer.

Obviously, communicate with your main client throughout the process. They may not want to pursue legal action, and that is their option. If you paid for them, and it caused you or your client a loss, then I would attempt to recover that cost for my client.

Answer 3

In addition to what HenryM said, it sounds like you want to bill the client for the work you helped manage that the contractor did (but did poorly or not at all). If this is the case, and the project did not even meet their specification, you would be the one considered in breach of contract by the client. No one delivered to the client. You hired a contractor to do your work, so you were in charge of delivering the product by default when you look at it from your clients perspective. You paid for the contractor and not them and thus you failed to meet the deadline and any specifications of the project.

It would be unreasonable to charge them whether it is a long term customer or not for a mistake that when boiled down to it, is all on you in a sense (I understand it was the contractors fault though).

They are still wanting to work with you though, which is even more of a reason to not charge them for an undelivered project.