From the book, What You Need to Know to Be a Pro: The Start-Up Business Guide for Publishers, by Terena Scott
Editing is my favorite part of publishing, the time when you and the author work together to transform the manuscript into a work of art. This is also when you build your relationship with the author and create trust. Editing an author's work requires compassion, dedication, mediation skills, humor, and vigilance. You must find a way to help an author see what improvements need to be made without destroying their often delicate egos. A weepy author can't get any work done, but while you’re supporting them emotionally and creatively, you also need to be tough about deadlines. And don’t be afraid to use your red pen. You are a professional and you need the author to be professional too. Be honest about what needs to be fixed and clear about your expectations.
When critiquing, I start with what's working, and then point out what needs improvement. Usually there's a lot that needs to be changed, so I continue to point out the positives while finding the negatives. It is important to be as specific as possible when offering suggestions. Try not to say things like, "This isn't working for me." Instead, say, "This section feels preachy. Ground it in sensory details and focus more on the character than the message."
Occasionally, you and the author will disagree, and that's when you need to decide if the edit is important. The publisher has the final say and the author must defer to your opinion. Don't make demands the author can't provide, though. This is still the author's voice, her work, her writing, so she isn't going to write like you. If it's a minor detail, let it go. If it changes the plot profoundly, you may need to insist. When working with Laura, she was very attached to her descriptions of the landscape. I wanted those descriptions cut and the focus put back on the action. Slowly she cut them down from several pages to one page, then to a few paragraphs. After many months, I was satisfied with the amount of description remaining. I wanted even more cuts, but I let it go because the remaining descriptions didn't distract too much from the book's pacing. I decided to let her keep some of her descriptions, remembering it was her writing style, not mine.
In the example contract provided above, there is a clause that allows both of you to pull out during the editing process. If the author can't deliver a manuscript acceptable to the publisher by a certain date, the contract is void. She gets her work back and you are free to find a different project. Every now and then, it happens.