I think we can all agree that reading the fine print in professional services agreements isn’t much fun, especially when you’d rather be surveying a site or scanning a building or building a BIM model. But I am learning everyday that these are tasks you have to do anyway.

I find myself spending more time negotiating terms and conditions than I do winning the client over or developing a fee proposal. So let me ask you: do you have a standard contract that you use and are you proficient in revising a bad contract? Both of these items need to be an essential part of your business and are an absolutely crucial aspect of managing your risk.

Even the simplest project can be risky if you agree to a contract that transfers the owner’s liability to you. If you’ve ever signed a client-written contract without really reading it only to later realize that you’ve agreed to some heart-stopping terms, you know what I mean. My firm recently walked away from such a project and contract only to find out that a competitor went ahead and signed the client’s contract as is. Hopefully all goes well for our competitor, and the contract that they signed does not come back to bite them.

So why do we look at the contract at all? One reason is to reduce the chances of being sued, which is critical to the success of your firm. The costs of litigation are skyrocketing and can have an impact on your bottom line for many years to come. If you’re a small firm, such costs could threaten your very survival. That’s because if you’re sued, your direct costs include your insurance policy deductible, in addition to the payments you make to resolve the issue and potential attorney fees—yours and those of your clients.  But there are indirect ramifications that may be bigger than the cost in dollars: damage to your reputation, lost business opportunities and the cost of your time to manage the problem.

If you have a solid insurance liability agent, I would bet that they believe that a good contract is the cornerstone of a solid risk management program. By clearly and realistically defining the expectations and responsibilities of each party, a professional services agreement can significantly reduce the potential for conflicts and claims. If a dispute should occur, the proper agreement can facilitate a faster, more cost-effective resolution.

Just as developing the scope of services, compensation and schedule is important for your business, contract formation needs to take the top line between you and your client. This will define the terms by which you’ll operate, and it requires your client to communicate his acknowledgement of the issues. As a result, you both will come to a better understanding of the other’s needs and concerns. And better understanding means a better relationship.

Reference: XL Group Insurance Contract eGuide for Design Professionals.