Overbudget and unable to complete software contract. What can I do and what can I expect to happen?

This might be a slightly long story, but I really would appreciate any help you can give me here. I am a young entrepreneur and currently run a struggling website development / software company.

About a year ago we gave an estimate for a project that we estimated would cost the client $100,000 and take approximately one year for my small development team to complete. My team at that time was 3 people, and we were young and somewhat inexperienced. We mistakenly thought we would easily be able to complete this project for the estimated amount.

The project has been a struggle from the beginning and has never been on track. The client and I communicated very infrequently in the beginning, and specs on the project were constantly changing. New features were being requested, and I did not do a good job specifying for each new feature, what it was going to cost in terms of the contract price.

Our development team was also in constant flux, with only myself and one other member around for the entire project.

Now the website needs to be ready to launch in less than one month and I don't believe there is any hope to launch it to meet the client's expectations. Also, the client no longer has the budget to continue paying for the additional development, even though I mentioned we were going to be over budget and have to cut some features.

I really would like to be able to finish this project, however, my company now has very little revenue coming in. Is it reasonable for our client to expect us to continue working on the project for free? I understand that it was our mistake on providing an incorrect estimate, but if my company continues to work on this project, then we will not longer be able to find the other projects necessary to continue the business.

I am one of those people who do not generally accept failure, so I have been working tirelessly on this project as well as trying to do other projects at night to keep the lights on, but 80+ hours a week is taking its toll and I am not sure how much longer I can physically or mentally keep this going.

If we do not continue the project and just provide the client with what we have completed so far. We would be able to work on enough other projects to keep the company afloat. However, I fear that would open up the potential for a lawsuit. However, if we keep working on the project, there is no guarantee we will finish the project on time anyway. Also, within the next month our company will no longer be able to continue running as we will not have enough money to pay our personal (or business) expenses.

We are in a tough situation, because we don't have enough money to go talk to a lawyer, or would we have enough money to hire a lawyer to represent us in court (if it came down to that).

I have never had a software project that I could not finish so I am not sure what happens at this point. What are my options? Is there anything I can do to try to protect myself and my company.

If the worst were to happen and my company was to go under, what effects would this have on my ability to start a company again someday?

In the end, the projects failure is due partially to the clients failure to follow up, communicate, and most importantly provide clear direction (he changed his mind constantly). But also, in major part, because of the failure of me personally, along with the failure of my development team, to be able to perform the task required based on the contract.

Any advice would greatly appreciated. Thank you very much in advance.

I am so sorry that you have had an awful experience with such a big project for your start up company. Clearly no one is beating you up more than yourself.

If it is any condolence -- we have all been there. We have all had project grow, migrate, change. We have all worked with clients that have expectation on the suspect side. We have all given ourselves timelines that become unrealistic.

It sounds to me that a "let's solve this problem together" meeting needs to happen. You need to facilitate a meeting with your client that lays out that the deadline is not going to be met. Period. Spend a limited time acknowledging the reasons -- balanced between their changing of the business requirements, and the disappointing changes to your team. Acknowledge these but don't allow them to become a bunch of finger pointing. It it heads that way you can simply say "There are lots of reasons we are here today, none of them will get us where we want to be tomorrow."

Make it clear that you would like to continue to move forward with them -- but that if they would like to take the current product and go find someone else they can. But that you can not continue in the current model. Period. If they have any sense they will realize that bringing on a new team at this time is just not feasible. The ramp up time, the lack of funds, the learning curve, the deadline . . .

So then bring the conversation to focus on the cost and time to realistically accomplish what needs to accomplish. Layout the critical path's baby steps. Set up no more than "two day" project scopes. Make sure there is an equal amount of what they need to do and what your team will do.

Make sure that you are getting paid to move forward -- even if at a significantly discounted rate. Offer to allow up to "x" amount in built up differed compensation as a reflection of your commitment to seeing this effort through.

You are an LCC for a reason. . .you can always shut it down, walk away. Lawyers only sue when there is something to get. Let's hope that it doesn't go there, but it wont be the worst thing that's ever happened.

Thank you for sharing your experience with us so that we could all be reminded how import the project development and management is, and how important it is to maintain ongoing management of client expectations and responsibilities.

NetTecture pretty much got it right, but there is a silver lining to all this that you probably forgot: your client is just as dumb and inexperienced as you.

1. They took an unrealistically lowball bid for the project, setting themselves up for failure.
2. Then they failed to manage you properly, keeping in touch and requiring status reports on a weekly basis. It sounds like your project is pretty important to them, so this is more or less inexcusable.
3. Now they have run out of money for the project and are going to have to take a complete loss or come up with more funding to carry on.

By the way... this is how every home remodeling project ends up going down :)

From your post I can't really tell much about what is going on with your client (which might be a sign that you are having trouble seeing things from their perspective).

• How important it this project to them? Are they going to shut down now? Are they really out of money?
• Why did they hire you to do it, when $100,000 for three developers for a full year is obviously a ridiculous price?
• What are all their possible moves? If you were in their shoes what would you do?

Chances are they're not likely to sue you, because there's literally nothing to be gained. You probably don't have anything that they could win in a lawsuit. But you should start thinking about things from their perspective right away so you know what to do next.

Another one bites the dust.

You made three core4 mistakes.
First, you did not understand an estimate is an estimate. Heck, one year detailed project plan? Not worth the paper written on.
Second, you obviously did not have good milestones, good control and an adequate management aproach (like scrum). Proejcts are not suddenly late. projects are late a day at a time.
Third, you failed to communicate the impact of constant changes with the client.

Fourth, you are unfit to run a business, because you pretty much put yourself into a dead cornder. Chance to salvage the company are pretty low now if you can not even pay a lawyer.

Four is actually the worst. Running a company is like playing chess, and you are two moves away from being checkmate and now ask how to win.

The best you can hope is:

• Immediately stop development. Lawsuit? Talk to the customer. Tell him you have to take capacity off as you are running out of money. Point.
• Try to find another project (bad news - even with the current market that can take some months, and you have none).
• Try to work that out with the customer.

At the end an estimate is an estimate. On the other hand, you as professionals, have an obligation. As you said - the project was behind timeplan from one.

But at the end, unless your customer gets more funds, and you find an agreement, your company is history. Chances of finding another revenue stream within a month is close to zero. Sorry. Unless you have them:

If we do not continue the project and just provide the client with what we have completed so
far. We would be able to work on enough other projects to keep the company afloat. However, I
fear that would open up the potential for a lawsuit.

If you can do it, do it. Communicate with the customer. But whatever lawsuit comes, comes in some months. And you can proove you tired what you could. But if you dont do that - your alternative is liquidation NOW. Not "possible maybe some damage later on".

Only alternative. move capacity to other projects, talk to customer and then see what happens.