Why You Should Rethink the “Not To Exceed” Clause

“Not To Exceed” are three words that send a shiver down the spine of anyone delivering services to clients – especially if those services are creative. What the “Not To Exceed” clause typically implies is that the client has a set budget and expects the supplier not to go over that budget. It is often referred to as a Fixed Price. Seems fair, right? Sure… It puts the burden on the supplier to budget accordingly; set the scope, figure out the deliverables, build the team and then set a budget. Of course, they are doing this before any work has begun. It’s always an estimate; always. Until of course the contract is signed and then it is a fixed price. This is typical and has been the way digital and creative services have been sold for years. And I don’t see it changing anytime soon. Rarely will a client spend a little money up front to accurately scope and budget a project. That would be ideal!

But what clients sometimes say (in fine print or buried in their legal docs) is that in addition to the Not To Exceed clause, there will be unlimited rounds of creative work to be completed before the client signs off and approves the work. Wait….what? You want me to fix my price, not exceed it and you can ask for as many revisions as you want? I don’t think so… But time and time again suppliers agree to it. Why? Because they need the gig and… think they can manage accordingly. Easier said than done. Creative work is subjective. It’s emotional. Some clients simply do not know what they like – but they sure know what they don’t like! And that is when bad things happen.

“Not To Exceed” is bad for both parties.

For the supplier, it is the kiss of death. Unless there is a clear change order process or a way to raise red flags for scope creep, the supplier’s margin will shrink every day there is another round of creative. And the supplier will begrudgingly do the work and it will no longer be fun. And creatives like to have fun.

While it may not be as emotional for the client, this is a bad situation because they will lose their partnership with the supplier. The collaboration and good feelings will have been lost. The supplier now sees the work as a chore and the passion is gone. All they want to do is get it done. In fact, they may move their top talent off the project (due to hourly rates and margin shrinkage) and put less experienced people on task. And in the end, this is bad for the client. Because the work is rushed.

Many years ago, my agency had a top cosmetics brand as a client. We agreed to the “Not To Exceed” clause because a) we needed the gig and b) how could we pass up the chance to work with such a well-known brand. When we delivered our first round of creative they gave some notes and felt we were close. So when we delivered round 2 we were confident we would get sign off. Well…after round 15 we had blown through the entire budget and still had no approval. My team was burnt, frustrated and angry. For round 16 I delivered the creative for Round 1 and guess what happened? They approved it. Argh! At that point, we were out of budget and had to go through a very long process to get the client to allocate more money to the project. But at that point, the relationship was over.

The bottom line is this….don’t suggest or agree to a “Not To Exceed” clause unless there is a way to protect both parties with a change order process. A creative relationship between client and supplier is based on trust and empathy. If the supplier feels they are going to lose money or burn out, then they are going to fail – and in turn, the client will fail as well. The “Not To Exceed” clause simply is not worth it – emotionally or financially.

Michael Weiss is the Vice President of Consulting Services & Solutions at Creative Circle.
This article was originally published on LinkedIn here.