Before submitting your response, it is prudent to evaluate the prospective client from the following standpoints.
1 Is the client financially capable and responsible?
In most cases, you will be extending credit to a client when you begin to provide services. The risk of not being paid should be considered. An under-financed client can be a concern as well. See whether your client has sufficient resources to undertake the proposed project by asking how the project will be financed. You should also consider whether the client is prepared to support a quality deliverable or is just looking for a quick solution. A few carefully worded questions can help you determine whether the client is price-oriented or quality-minded.
2 Does the client have a propensity to avoid risk?
A client who is averse to risk may try to shift an unfair proportion of the risk of financial loss and liability to you. Many times this cannot be determined until you review the proposed contract form (discussed later in this article). You should also consider that some clients can be more litigious than others. It would be wise to check local court records to see if this client has been a party to litigation.
3 Who is the client?
It is important to understand who the client is and determine if the client has ever-changing agendas that can lead to conflicts and potential claims. Is the client a legal entity with the competence and authority to execute a contract? If necessary, will you be able to file a lawsuit against this client? And, who is the authorized representative for the client?
4 What are the client’s expectations?
Listen carefully to what the client wants to achieve because it should indicate whether the objective is reasonable. A client who is unreasonable will likely become dissatisfied during or at the end of the project, which can lead to claims and other problems. An important risk management strategy early on can help the client understand how you plan to provide the required services and explain that there could be a level of uncertainty that accompanies the engagement.
5 What are the project characteristics?
Once you determine the needs and history of the client, you should consider the project or reason your services are required. Each project has unique dynamics; carefully consider the merits of each project and how potential issues could come into play. For example, as details are supplied to you about the project, be sure to separate the information provided by the client from information provided by other sources. The risk of receiving inaccurate information should be mitigated by the contract. In addition, you may wish to consider whether other key points are well-defined, such as the client’s budget and schedule.
6 What about site-specific issues?
Are there environmental issues or other constraints that may affect access to the site or increase the risk of loss? Are members of the community protesting the proposed worksite? Could your deal be affected by a public ordinance or one that is evolving?
7 Are your services appropriate for the project?
After the scope and parameters of the project have been determined, you should realistically assess whether your skills are appropriate to undertake and complete. If additional skills are required, will this entail the use of subcontractors? Is there a high level of uncertainty associated with completion? If so, then it might be appropriate to reconsider whether the project is even worth pursuing.
After evaluating the clientfor whom you will provide professional services and the type of project for which you will be engaged, analyze the contract. It is not uncommon to receive a contract that is designed more for those who provide construction-related services, and you should stay away from those. Instead, use a well-drafted, equitable contract that takes the form of a professional services agreement. It is wise to have it prepared for your firm and approved by your legal counsel. This type of agreement should incorporate terms and conditions that are favorable to professional services not commonly found in contracts for construction-related services.
For example, your agreement should include a well-defined standard-of-care, scope of service, duty of the client to cooperate, a clause that addresses unilateral or mutual indemnity, a clause for the limitation of liability, requirements for insurance, terms for payment, a right to suspend services in the event of nonpayment and a format for how disputes will be handled. While there are significant differences with contract forms, you should carefully review any client-provided contract and forward a copy to your legal counsel for review.
Moreover, be sure to carefully review a proposed contract in advance of submitting your response to the RFP to see what type of risk transfer language will be used and the requirements for insurance. This is where you will begin to develop a sense of the client’s view toward risk. There could be terms for defense, indemnity and hold harmless, which may be unreasonable or difficult to provide without a cost. And, there could be requirements for insurance that exceed what you maintain, thereby putting you in a position of having to purchase additional insurance. This could be a significant surprise if you do not make an allowance for it right away.
It would be wise to ask your insurance counselor to review a prospective contract and confirm whether you would be compliant in your proposal with the insurance terms or advise what additional costs you should consider including in your proposal.
With every opportunity RFPs provide, there are also some pitfalls for those who fail to exercise due diligence. By definition, due diligence entails the extra investigative steps managers must take to make an appropriate decision. If you begin to think like a risk manager now, you will increase your chances of maintaining a profitable business.
|The Risks of Working Without a Contract|
A land surveyor was approached by a contractor that required construction staking services. The surveyor provided a proposal for his services and was quickly asked to begin work. In good faith, the surveyor commenced his engagement without first seeing and signing a contract since the contractor claimed “time was of the essence.”
The surveyor completed his engagement and submitted an invoice for his professional services. The contractor then provided the surveyor with a contract and requested that he submit a Certificate of Insurance to confirm compliance with the requirements of insurance before payment of the surveyor’s invoice could be made.
In addition to finding unfavorable risk transfer language in the proposed contract, the surveyor was surprised to learn that his insurance program did not comply with the contractor’s requirements, and that he would have to pay an unanticipated sum of money in order to purchase additional insurance so he could become compliant and eventually be paid.
This was a costly surprise to the land surveyor, who had stepped out in good faith to accommodate an urgent need for his professional services. He could have avoided this situation by inquiring about the form of contract and arranging to have it reviewed before beginning his engagement.