Quick Tip #12: You won’t regret including a right to withhold payment or apply deliverable credits
We constantly see projects being priced on the basis of time rather than delivery. For example, if you have a project with five key delivery milestones, rather than building the pricing around the value of each of those milestones, customers will simply agree to pay an arbitrary amount at the end of each month during the plan. This drives material risk for the customer because the customer will be required to make those time-based payments irrespective of whether the milestones, due to be delivered in the relevant month, have successfully been delivered. Ensuring that you have payments linked to delivery allows for the following two very useful contractual remedies:
the right to withhold payment for failure to deliver the milestone successfully; and
the right to impose a deliverable credit as a price adjustment due to the failure to deliver on time and in turn the detrimental commercial impact on the customer.
Please see the Quick Tip #11 on service credits as a sole and exclusive remedy as the same concepts apply if a supplier insists that any deliverable credits should be a sole and exclusive remedy.