The best way to avoid the problem, says Bonnie Paisley, an attorney with Modrall Sperling Roehl Harris & Sisk P.A., is to "eliminate the potential at the beginning."
To eliminate the scoundrels, determine the scope of work when making the deal, Paisley
advises.Laying the ground rules early in a contract protects both sides if the work isn't, or can't be, completed.Include services to be provided, billing procedures, payment-due dates, interest charged for late payments and a way to acknowledge when the work is done.
An important clause that many people fail to include, Paisley
says, is a stop-work order.If the work is not going well, or it's impossible to continue, a stop-work clause will allow either party to get out without losing everything.
"Ask for a retainer if you can, based on the scope of the work," if you're providing services, Paisley
says.A retainer, which is upfront pay for a future service, is often used by lawyers and consultants.It protects the contractor but also protects the customer by guaranteeing that a service will be available when it's needed.
You can also protect yourself by taking a security interest in a product, Paisley
says.This is accomplished by filing a Uniform Commercial Code form with the state, which puts you in line as a secured creditor.In the event of a bankruptcy, you get paid ahead of unsecured creditors.