Insight

Agreeing contracts and scope of service agreements

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You’ve been working for a client for years. Out of the blue something goes wrong - she claims you were negligent and sues for damages. You are asked for a copy of your retainer letter – but it is vague and out of date. Suddenly you find yourself in a tight corner. A cautionary tale maybe, but it is vital to ensure your appointment letters and the scope of service you provide is clearly agreed and documented. 

Agreeing on contract terms

When you start working for a new client you’ll need to agree the contract terms that govern your ongoing relationship.  In the euphoria of signing up new business its easy to agree to terms and conditions without fully considering what these may mean in practice. It’s essential you set out the scope of your agreement the outset, including what services are included and your charges. This will help to ensure a successful long-term and mutually rewarding relationship.

Setting clear service boundaries

The agreement letter should set out exactly what you will do, but it is helpful if it also sets out what you will not do - for example to provide tax advice or other ancillary services. You can always revisit your contact later if you want to extend your services for additional fees.

Duty of care and insurance coverage

All professionals owe their clients a ‘duty of care’ to exercise reasonable care and skill. This will be covered by your professional indemnity insurance policy. But be wary if you receive a draft contract from a client that sets out a higher duty of care, as this may be excluded from cover. For example, the draft may try to make you liable for ‘any or all’ types of losses which is unlikely to be covered by your policy. You can check with your broker if you are unsure.

Collateral warranties

Equally, ensure that any collateral warranties are not greater or longer lasting that the scope of your professional indemnity cover.

Financial caps on liability

Many professionals now include financial caps in their contract which help to limit exposure in the event of a claim. While trying to limit liability is not always straightforward, it can help to secure insurance a competitive premium.

Net-contribution clauses

If you are working in a sector where more than one business may be involved, for example construction where the use of sub-contractors is common, consider including a ‘net-contribution clause’. This will ensure the third party can be called on to contribute in the event of a claim.  However, make sure they carry a similar level of professional indemnity insurance as your business, otherwise they may be unable to contribute.

Right to refuse 

Remember you can always say no and walk away from a contract if the terms are too onerous. It’s better than signing up to terms which make it hard for you to make money – or worse, leave your business uninsured. If you would like to discuss this topic further and understand the implications for your firm, please don’t hesitate to contact the team.

Paul Gillett

Paul has 20 years’ experience securing Professional Indemnity insurance for his clients. He and his team support financial and construction professionals with insurance, risk mitigation, and claims management.