"Famous Last Words"

A View To A Kill: When Convenience Becomes Cause (July 2005)

Dear Jim,

Our publisher has been very late paying for milestones, just decided to cancel our game, and now claims it does not have to pay us the “termination for convenience” kill fee. How can they do this?

Dear RJ:

All development contracts have termination clauses.

Publishers reserve the right to “termination for convenience” so development can be stopped in the event of market change, management change, or the publisher's decision along the way that it no longer likes the game.

When developers negotiate the “termination for convenience” clause, they usually manage to provide for payment of all milestones that have been accepted, and then some sort of further payment for milestones delivered but not yet accepted, and maybe the next milestone or two as a buffer. After all, the publisher has just yanked the rug out from under the developer who has staffed up for the project and has to cover salary, overhead, and other costs while looking for a new project.

Development contracts also provide for termination in the case of “material breach.” A material breach is a breach that “goes to the heart of the contract” and is discussed in further detail in the IGDA Contract Walk-Through (part 2). In a contract, any breach labeled as “material” in the contract language will be treated as a material breach.

Many contracts also provide that “time is of the essence” when it comes to delivery of developer milestones. When dates or deliverables are governed by “time is of the essence” language, any late delivery, even by so little as a day, or even an hour, rises to the level of a material breach.

Couple this with typical contract language providing that acceptance of work product is at the sole and exclusive discretion of the publisher, plus the failure of publishers in some instances to respond predictably within the contractually mandated time periods, and you can see that the door is wide open for dates to slip.

When all this results in late delivery, even when publishers have a hand in it through arbitrary and/or late approvals, requests for additional work, design changes, or changes in milestone deliverables, it is the developer who can find itself having failed to meet the required dates.

When “time is of the essence,” this gives rise to material breach and termination for the agreement, for cause.

Strictly on an anecdotal basis, it is the projects that have seen the most jockeying of milestone deliverables, and uncertainty of approval criteria, that seem most prone to cancellation.

When that happens, a publisher looking to save money on a project for which there will never be any return, may be tempted to try and turn a “termination for convenience” into a “termination for cause” (material breach).

How can a developer protect itself?

First, never agree that “time is of the essence.” If a breach does not rise to the level of a material breach, the publisher's remedy is a suit for damages and not cancellation of the contract. If a developer is sued for late delivery, the developer has the opportunity to defend itself by showing the reasons – which can include changing standards for approval, changes to milestone deliverables, alterations to the design, etc. that all lead to slippage.

The publisher in such a suit must also prove it has suffered money damages as a result of the slippage. This makes it much more difficult for a publisher.

Second, keep a detailed notebook of all publisher communications, decisions, approvals, deliveries, changes, personnel, etc. so that a complete and accurate timeline can be reconstructed to show the full story of the development project.

Even if it is never used in court, this could be helpful in demonstrating to your publisher the reasons why the project slipped.

Every contract has a requirement that the parties act in good faith. But a publisher who is intent on calling “termination for convenience” a “termination for cause” may still be looking for way out without paying what is required.

In such a case, if you can present a compelling story, it may be possible to negotiate a settlement that provides for a cushion as you work to land your next project.