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We are a software development company that underpriced a project. The asking price was $5000 and our costs are now around $15,000 and the end is not near.

The project's requirements and outcome were agreed upon via email. Due to its unconventional nature we had to put in work that could not be foreseen during the planning stages.

What can a contractor do in a case like this? For example, can we simply return the deposit with an apology? Could we still be sued for damages despite making our best efforts?

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    Where is this?...in US contract law, when a professional simply misjudges the cost, that doesn't get you very far. – Pat W.♦ May 18 '16 at 15:28
  • I just rephrased this to be more generic so it won't be closed as "off-topic for requesting legal advice." Of course the answer in any particular case depends extremely on the terms of the contract. But it would be interesting to know whether there are any common law exits from a contract that was entered foolishly by one party. There certainly is common law recourse for damages against a party that unilaterally quits a contract without an agreement or provision for quitting. – feetwet♦ May 18 '16 at 17:09
  • Is there anything in the contract that makes revealing the contract (or parts thereof) a breach of contract? As a last-ditch negotiating tactic you might want to point out to them that you could reveal their bad faith publicly if they did decide to force you to continue the project without paying the additional money necessary. Or, if there's no definite end date in sight for the project, you could put in the minimum necessary effort. Really slow down development to a snail's pace. Do the minimum amount of work necessary to avoid breach of contract. – Parthian Shot May 20 '16 at 0:27
  • That's more relevant to negotiation than law, hence the comments' section. – Parthian Shot May 20 '16 at 0:30
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Prima facie it appears that you have a legally binding contract. See What is a contract and what is required for them to be valid?.

You can always attempt to renegotiate the contract but to change it or end it without breaching it would require the agreement of the other party.

If you break a contract you can expose yourself to substantial damages claims, basically the loss or damage the other party suffers by your breach. This could leave you liable for the cost of someone else doing the project, costs due to delay in completion, their loss of profits because the project was late, legal costs etc.

Ultimately this is a business decision: will the costs of finishing the contract be more than the costs of breaking it (including reputational damage)?

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There is no magic life raft in such a situation: for example, there is no rule that if you underestimate your costs, you get to raise the price on them. Your concern should be over your liability for damages to the customer. For example, if they relied on you providing the product by a certain time, then they could suffer monetary loss if you don't provide the goods. A lawyer (and only a lawyer) can give you advice, in light of the details and contract, about what you can do. In the interim, using any legal words would probably be detrimental to your interests, so let a lawyer tell you what words to use.

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In this case, a contractor can immediately hire a lawyer, which will look at the contract, analyze your legal situation and often knows how to solve that kind of problem without just looking at the legal situation, taking into account the goals of both sides.

BTW. I hope you have a Limited Liability Company.

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