Had a manufacturing client in Cleveland sign a 25% contingency agreement for their FirstEnergy account audit. We found $89,300 in billing errors going back 3 years on their GS-3 rate. Now they're claiming the engagement letter wasn't clear about our fee structure and trying to negotiate down to 15%. The letter clearly states 25% of all savings identified and recovered. Anyone dealt with this kind of client pushback? I'm thinking about involving our attorney but want to see what others have experienced first.
Client tried to back out after we found $89K - enforcement options?
Frank, I've seen this exact scenario multiple times. Clients get sticker shock when they see the actual dollar amount of our fee. Your engagement letter needs to be bulletproof - mine includes a clause that specifically states the percentage applies to ALL savings regardless of amount. I also include language about potential legal action for breach. Have you tried explaining the value proposition again? Sometimes a reminder about the complexity of the work helps.
This is why I moved away from percentage-based fees for larger commercial accounts. I use a tiered structure now - 30% on first $25K, 25% on next $50K, 20% above $75K. Clients feel better about it and I still get paid fairly. For your current situation, I'd send a formal demand letter referencing the signed agreement. Most clients back down when they realize you're serious about enforcement.
Frank, stick to your guns on this one. I've found that giving in once just invites more clients to try the same tactic. Your agreement is a contract, period. In Connecticut, I've had to take two clients to small claims court over similar issues. Won both times. Document everything - every email, every phone call where they acknowledged the fee structure. That paper trail is gold in court.
Had this happen with a client in Akron about 6 months ago. They signed for 30% then balked when we found $45K in Ohio Edison overcharges. I offered to split the difference at 22.5% just to maintain the relationship. Sometimes keeping a client happy is worth more than the few thousand you might lose. But every situation is different - if this client is being unreasonable, fight it.
I learned the hard way to include a mediation clause in all my agreements. Cheaper than court and usually gets resolved faster. The client knows they'll have to pay for the mediator too, which encourages settlement. TVA territory clients seem particularly prone to fee disputes - maybe it's the culture down here. Your $89K find is solid work Frank, don't let them shortchange you.
Thanks everyone. I sent them a formal letter yesterday citing the contract terms and giving them 10 days to remit payment. Also included copies of their signed agreement highlighted where it shows 25%. If they don't pay, I'm filing a lien against the property. This was 8 months of work digging through their demand profiles and finding the meter multiplier errors. Not backing down.
Good call Frank. Keep us posted on how it turns out. These stories help all of us tighten up our own agreements. I'm revising mine this week to include some of the language Vince mentioned about legal remedies. Can't be too careful these days.