Penalty Clauses

[TConnolly]

I'm not a fan of using them, in fact, I've never used one before, but the subject came up regarding a job we have out for bid right now as this job absolutely must remain on schedule and we have been burned before. What kind of verbage have you all seen or used yourselves and what is fair and reasonable?

[Chris Elston]

I've see crap where if we accept the contract and we are late on our machine delivery that they will bill us $1,000 a day each day the machine is late. We then turn around and make them sign one that says for each day we deliver the machine early, they will pay us an additional $1,000 each day we are early on top of the cost of the machine... That generally shuts them up.

[ssommers]

Yep, got burned myself on a $1500 per day penalty that included Saturdays & Sundays. There were many reasons, but here were the big ones... - Management miscounted the number of weeks from receipt of order to required ship date and started the engineering late. I almost had the machine wired by the ship date - missed it by about 1 week. - The customer refused to provide good sample parts to test the process. All they sent us was scrap. I spent hours sorting parts to find usable ones! 50% was a very good batch. - They wanted an 8 hour mechanical run. There were never enough parts to do an 8 hour run in any way, shape or form. The customer finally relented on this requirement and accepted a 2 hr run prior to shipment with an 8 hr run required at their place. - The quality acceptance terms were very vague. A certain # of parts to test good after our process before shipping the machine. This was nearly impossible because they only sent bad parts in the 1st place. All quality testing had to occur at their facility. This meant that we could only make process changes about once a day since the parts had to be sent overnight for early delivery. Data would come back about noon. Adjustments would be made and another short run done to send parts by the last UPS pickup. There were several weeks lost to tuning the process this way. As for fair & reasonable penalty clauses... - Make sure everyone clearly knows the ground rules for the contract. No surprises, no vague terms. - Make sure there is a cap on the clause if you're on the receiving end. I've seen 5% caps in several jobs. - Be willing to negotiate penalty dates if you're the customer & ask for changes mid-stream. - And if you're in the middle and subcontracting some of the work and the end customer is holding you to set penalty dates, You have the responsibility to make sure that everyone knows anything that might affect your ability to meet that date. HTH! Susan

[DWControls]

I usually make sure that the time does not start until the Company you are dealing with signs off on all Mechanical,Electrical and Hydraulic prints. If they are furnishing the prints and they are in a foreign language have an addenum that while the problem of missed or hard to understand verbage is being corrected it will extend the delivery date. On foreign prints with parts only available in there country and are hard to get be sure you have the right to sustitute american equals that are available where you are. Some times the verbage is more important than the Quoted price