DEFINITION of 'Drop Dead Date'

A drop dead date is a provision in a contract that sets out a finite deadline which, if not met, will automatically trigger adverse consequences. The drop dead date is the last possible date on which something must be completed. In most circumstances an extension is not possible. Time-critical contracts usually contain a drop dead date. For example, a contract for construction of an industrial facility or infrastructure project will stipulate a definite date for the commissioning of the former and completion of the latter. If this deadline is not met, the project contractor may automatically be liable for such damages and penalties as are set out in the project contract.

BREAKING DOWN 'Drop Dead Date'

Drop dead dates are usually made explicit in the terms of a written agreement, along with the consequences of not meeting them. The consequences may simply mean the deal is terminated, but it is just as likely to be a financial penalty that cuts into the offending party's profit margin on the project. Some drop dead dates do not have to be explicit. The classic example of an implicit drop dead date is if the baker attempts to deliver a birthday cake a day late. In this scenario, the consequence is also implied - the angry customer isn't going to pay so the baker wasted materials and time on a cake he can't sell. 

It is also worth noting that a drop dead date is different from a rush date. When a party in a contract requests a rush - a deadline that is moved up from the original plan - then it is usually upon them to provide an incentive to make the work happen. This can be an increase to the contract value or a separate payment covered in a separate agreement to be paid out if the project or milestone is delivered by the rush date.  

Drop Dead Dates as a Project Management Tool

Drop dead dates are particularly useful in encouraging contractors to keep to the timeline outlined in the original agreement. The bidding process for large contracts is prone to being gamed by companies who overestimate their ability to deliver on time and on budget. If there are not sufficient disincentives in the contract, a company may simply ride to the end and request extensions, leaving the contracting organization with an incomplete project and beyond the original budget. To discourage this, there can be multiple drop dead dates that are used as a type of milestone tracker to ensure the timely delivery of an entire project. Rather than hit the contractor with the penalties at the end, these are sprinkled throughout the project to spur greater action through immediate financial pain. 

RELATED TERMS
  1. Dead Money

    Dead money is a slang term for money invested in a security with ...
  2. Drop Dead Fee

    A drop dead fee is a fee paid by a borrower to a lender when ...
  3. Dead Presidents

    Slang referring to U.S. paper currency
  4. Trade Date

    A trade date is the month, day and year that an order is executed ...
  5. Forward Delivery

    A delivery of the underlying asset at the date agreed upon in ...
  6. Adjustment Date

    An adjustment date is when financial changes will be made to ...
Related Articles
  1. Trading

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  2. Financial Advisor

    5 Ways to Date on a Budget

    Dating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
  3. Retirement

    The Unknown Dangers of Target Date Funds

    If they fit within your risk tolerance and have reasonable fees, target date funds can be an option.
  4. Investing

    Declarations, Ex-Dividends and Record Dates

    Understanding the dates of the dividend payout process can be tricky. We clear up the confusion.
  5. Trading

    Futures Fundamentals

    This tutorial explains what futures contracts are, how they work and why investors use them.
  6. Investing

    What is a Forward Contract?

    A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
  7. Retirement

    Who Actually Benefits From Target Date Funds?

    This pre-packaged retirement investment option could be the perfect fit for some investors and a downfall for others. Which are you?
  8. Investing

    A Quick Guide for Futures Quotes

    Here is a quick guide for reading and understanding futures markets quotes.
RELATED FAQS
  1. What is dead money?

    Dead money is a common term used on Wall Street to describe money that does not earn a return for an investor. It could be ... Read Answer >>
  2. If a company moves its dividend record date forward, does the ex-dividend date change ...

    When a dividend is declared, there are three important dates for investors: the dividend payable date, the dividend date ... Read Answer >>
  3. How can I find out the ex-dividend date for a stock's dividend?

    Learn about the various information sources from which investors can obtain information about upcoming ex-dividend dates ... Read Answer >>
  4. Forward Contracts vs. Futures Contracts

    While both forward and futures contracts allow people to buy or sell a specific asset at a specific time at a given price, ... Read Answer >>
Hot Definitions
  1. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  2. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  3. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  4. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  5. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  6. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
Trading Center