What Is a Kill Fee in a Master Services Agreement? A Guide for a Creative Studio

Introduction

When running a creative studio, having a solid Master Services Agreement (MSA) is essential. One vital aspect that you should consider including is a Kill Fee. A Kill Fee helps safeguard your time and finances in the unfortunate event that a project gets canceled. Without it, your studio could face significant losses, especially in a world where projects can change at a moment's notice. This blog post will delve into what a Kill Fee is, why it matters specifically for creative studios, and how to create a clause that works for you. If you're not yet familiar with this term, keep reading for insights that can truly protect your business.

What Is a Kill Fee?

A Kill Fee is a sum of money that a client agrees to pay a creative studio when a project is canceled. Essentially, it compensates the studio for the work and resources it has invested up to that point. The purpose of a Kill Fee is to ensure that your business is financially covered if a project is terminated unexpectedly. This could apply in various situations, like when a client decides to pull the plug on an agreement without sufficient notice or a valid reason.

Why It Matters for a Creative Studio

For creative studios, time equals money. When you're in the throes of working on a project, you likely have devoted hours of hard work, creative energy, and often financial resources already. If a client decides to terminate the project midway, it could leave your studio in a lurch. This is where the Kill Fee becomes your safety net. For example, if a client cancels a project after you've put in 50 hours of work, you deserve to be paid for that effort. A Kill Fee helps manage cash flow by ensuring that you’re compensated for the work already done, along with the associated costs. This way, even if the client walks away, your studio doesn't get stuck with a financial loss.

Suggested Clause Language

Including clear language in your MSA about a Kill Fee can make all the difference. Consider incorporating the following clause: If Consultant terminates this Agreement or a SOW due to a material breach or Client terminates this Agreement or any SOW without cause prior to all Fees being paid, Consultant shall provide a final invoice to Client for all Fees and Reimbursable Expenses incurred and unpaid through the date of termination and an additional fee equal to [__% of the total unpaid Fees as of the date of termination][$___]. This clause can be adapted to specify whether you want to charge a percentage of unpaid fees or a flat amount. For instance, you could set a Kill Fee at 20% of total unpaid fees, which makes it clear to all parties what to expect if the contract is terminated.

Example Scenario

Imagine this situation: your creative studio is hired to develop a brand identity for a new tech startup. You’ve already invested significant time and resources into the project, including market research and multiple design drafts. Midway through the project, however, the client decides to change direction and ends the agreement. Without a Kill Fee, your studio is left to absorb the costs for the work done, which could be substantial. On the other hand, if you had a Kill Fee clause in place, you would be able to invoice the client for the work done along with the pre-agreed Kill Fee, giving your studio a financial cushion to fall back on.

How Counsel Club Helps

Counsel Club re-imagines legal for startups, freelancers, and creative entrepreneurs. Our platform allows you to search for lawyer-drafted forms for startups, freelancers, content creators, and other creative entrepreneurs. Our platform guides you through modifications, both to the contract and the scope of work. Counsel Club has the most sophisticated drafting tool on the market, and it was designed and developed by lawyers. If you want more help, reach out to a Counsel Club lawyer through our Concierge program. Our legal agent, Amicus, was trained on proprietary legal data to be your best legal assistant. Finally, legal for today, that is fast, protective, and cost effective.

FAQs

What is the difference between a percentage fee and a flat amount?

A percentage fee is based on a proportion of the total unpaid fees at the time of termination, while a flat amount is a fixed sum agreed upon in your contract. Both options have their uses, depending on your business model and client relationships.

When should milestones be aligned with the Kill Fee?

Aligning Kill Fees with project milestones can ensure that you receive compensation for completed work and help keep the project's financial flow organized. It’s best to set these milestones upfront in your contract.

How does a deposit relate to a Kill Fee?

A deposit is typically collected at the beginning of a project to secure the client's commitment, while a Kill Fee acts as a safety net for work completed if the project is terminated before completion. Together, they provide more financial security.

Where should I place the Kill Fee clause, in the MSA or SOW?

The Kill Fee clause can be included in either the Master Services Agreement (MSA) or the Statement of Work (SOW). However, placing it in the MSA ensures it applies across all projects under that agreement, offering broader protection.

What notice is required for termination?

Typically, your contract will specify the notice period required for termination. It’s crucial to include this detail in your agreement to avoid misunderstandings and ensure smooth project transitions.

Final Thoughts

In the ever-evolving world of creative projects, having a Kill Fee clause in your Master Services Agreement is crucial. It not only protects your hard work but also secures your studio's financial health. Adding this clause now can save you from potential headaches down the road. If you need help drafting or populating these agreements, don’t hesitate to reach out to Counsel Club for guidance that can keep your business safe.