RLI PROFESSIONAL SERVICES GROUP PROFESSIONAL LEARNING EVENT PSGLE 121. Contract Clauses: An In-Depth Study of Key Contract Provisions

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1 RLI PROFESSIONAL SERVICES GROUP PROFESSIONAL LEARNING EVENT PSGLE 121 Contract Clauses: An In-Depth Study of Key Contract Provisions

2 Copyright Materials This presentation is protected by US and International Copyright laws. Reproduction, distribution, display and use of the presentation without written permission of the speaker is prohibited. RLI Professional Services Group

3 Course Description You ve secured the client and now it s time to negotiate the contract. Successfully negotiating a fair contract is vital to the success of every business that provides professional services, but often times understanding what those provisions mean and how they impact your business may not be so easy. This course will provide an in-depth look at various key contract clauses, including drafting tips, that every professional services firm needs to understand.

4 Learning Objectives Participants will explore 5 key contract provisions and how they impact your business: Standard of Care Limitation of Liability Indemnification Confidentiality Payment Terms

5 Disclaimer All provisions in this presentation are furnished solely for educational purposes. Nothing herein is intended as legal advice, nor as a means of establishing an attorney-client relationship. Laws and regulations may vary considerably by jurisdiction. Accordingly, you are advised to consult a knowledgeable attorney before making any contractual modifications. A Wise Lawyer

6 What Should Any Contract Do? Unambiguously describe what you are agreeing to do Specify when you will do it Identify your client s obligations Identify the expense and payment terms

7 What Is Unique About Professional Services Contracts? Professionals with common law duties to your client You are generally insured for your failure to perform your services in accordance with the common law standard of care If you agree to meet a higher standard or assume liability by contract you wouldn t otherwise have had you may be uninsured!

8 Standard of Care

9 Standard Of Care Ethical or legal duty of a professional to exercise the level of care, diligence, and skill prescribed in the code of practice of his or her profession, or as other professionals in the same discipline would in the same or similar circumstances. --The Business Dictionary

10 How is the Standard of Care Determined? Common Law Conduct Agreement

11 Superlatives and Extremes

12 More Superlatives and Extremes State of the art WORLD CLASS MAXIMIZE Very innovative and precise Superior

13 Promises Assure Will Ensure Attest Represent Shall Insure Guarantee

14 Unclear Or Misused Words Advise Administer Approve Oversee Manage Supervise Control Sufficient Adequate Suitable

15 Scope of Services The Consultant will provide and perform services as reasonably requested within the scope of services outlined in Exhibit A. The Consultant will perform all services: in a reasonably timely manner; in accordance with applicable laws and regulations; and with professional skill and judgment. No warranty or guarantee either express or implied is made or intended by this Agreement.

16 Limitation of Liability

17 Limitation of Liability Exceptions Exclude Consequential Damages Your Fee Capped to a Dollar Amount Limitation of Liability Available Insurance Proceeds

18 Limitation Of Liability Standard Provision To the fullest extent permitted by law, the total liability, in the aggregate, of CONSULTANT and CONSULTANT s officers, directors, employees, agents, and subconsultants to Client and anyone claiming by, through or under Client, for any and all injuries, claims, losses, expenses, or damages whatsoever arising out of or in any way related to CONSULTANT s services, the Project or this Agreement, from any cause or causes whatsoever, including but not limited to, negligence, strict liability, breach of contract, or breach of warranty shall not exceed the total compensation under this Agreement. 18

19 Consequential Damages Waiver Standard Provision Neither the Client nor the CONSULTANT shall be liable to the other or shall make any claim for any incidental, indirect or consequential damages arising out of, or connected in any way to the Project or this Agreement. This mutual waiver includes, but is not limited to, damages related to loss of use, loss of profits, loss of income, loss of reputation, unrealized savings or diminution of property value and shall apply to any cause of action including negligence, strict liability, breach of contract and breach of warranty. 19

20 Indemnification

21 Indemnification Provisions Review it carefully It should not be the only provision you review Limit to the liability of the client for damages resulting from your firm s negligence Should not obligate you to defend the client before any determination of liability

22 Sample Indemnification Provision The Consultant shall indemnify and hold harmless the Client, its officers and employees from and against damages, liabilities, losses, costs, and expenses, but only to the extent caused by the negligent acts, errors or omissions of the Consultant, or of those for whom the Consultant is legally liable, which arise out of the Consultant s performance of its professional services under this agreement.

23 Confidentiality

24 Confidentiality Confidentiality A promise that limits access or places restrictions on certain types of information Privacy Rights and duties created by statute, regulation, or common law Security Physical and technical actions to assure Confidentiality or Privacy

25 Guarding Confidentiality Failures can lead to An excuse to terminate you. Strict and expensive enforcement. Substantial administrative burdens. Denying you a complete set of project records.

26 Guarding Confidentiality Narrow definition of Confidential Information Include subconsultants. Confirm you may retain a complete set of project information. Try to require the confidential documents must be identified in writing. Make certain that administrative burdens are manageable and do not restrict project performance. Try for mutuality. Exclude information you already have or that is already in public domain. Exclude information required to be disclosed by court or government official, to prevent harm, or to perfect a claim.

27 Confidentiality The Consultant acknowledges that its employees, subcontractors and agents may be exposed to certain information, materials, and property, including but not limited to financial information and client lists, related to Client and its activities that Client may consider to be confidential or proprietary ( Confidential Information ). The Consultant shall respect and maintain the confidentiality of the Client s Confidential Information and the Consultant, its employees, subcontractors, and agents shall not use or divulge, or cause to be used or divulged, Client s Confidential Information or proprietary property without the express authorization of Client. This provision shall survive the completion or termination of this Agreement.

28 Privacy

29 Laws protect personal information Individual first name or initial + last name plus the following: User IDs, passwords, mother s maiden name, answers to other security questions Government identification number (driver s license, SSN) Financial account numbers and security codes Employee identification number Biometric data: fingerprints Medical Information/Personal Health Information(PHI) Personally Identifiable Information(PII)

30 Frequent Allegations of a Privacy Breach Failure to protect customer information/privacy Reduction in value of claimants PII Failure to notify/timely notify Cost to reissue cards/open new accounts Cost of fraudulent purchases Cost to inspect and repair computing devices Redress credit monitoring identity theft insurance Regulatory Actions fines and penalties

31 Payment Terms

32 Payment Provisions Is the fee adequate for the services? Is the fee adequate based upon the schedule? Is the fee adequate in relationship to the business terms? Are there provisions that allow for changes to fee based on additional services?

33 Payment Provisions Is there a clearly defined process of invoicing and payment? Does the contract clearly define when you are going to be paid? Is your payment contingent upon receipt of money by your client? Does the contract clearly define the process by which you have to go through in order to get paid?

34 Payment Tips Keep close tabs on payments; Follow up promptly and regularly regarding payments that are overdue and outstanding; Do not let outstanding invoices linger without attempting to receive payment; and The longer an invoice is outstanding, the harder it is going to be to get paid.

35 Interest Provisions Include a provision that provides the right to charge interest on overdue outstanding balances. Why? Because interest provisions are: Not a controversial term to incorporate into your contract; A deterrent to letting outstanding invoices linger and encourages timely payment; and An effective trigger to induce payment of overdue invoices.

36 Sample Payment and Interest Terms Invoice Language Invoices are sent monthly for services performed during the previous month. Payment is due upon receipt. A late charge will be added 30 days after the invoice date at 1.5% per month.

37 Attorneys Fees Include a provision to provide recovery of costs, including attorneys fees, to collect unpaid invoices.

38 Sample Attorneys Fees Terms Collection of Fees and Expenses If it is necessary to enforce collection on any amount past due under this Agreement, the Consultant shall be reimbursed for all legal and other reasonable costs related thereto, including attorneys fees, court costs, expert witness fees, professional and administrative time at regular hourly rates and other collection costs.

39 Negotiation Tips

40 Negotiation Tips: Client Obligations Pay you for services performed Give you all information you need about the project Designate someone as a representative

41 Negotiation Tips: Contract Review Summary Letter To Client Clear, concise identification of the provision(s) at issue Reasonable wording for modification that takes into consideration your client s interest as well as your own Prepared in a manner that takes into consideration what is in the best interest of the project

42 Contract Language Resources Attorneys Brokers Insurance Companies

43 This concludes the Professional Services Group Learning Event Marie Bernier, Senior Risk Management Consultant, Specialty Products Client Solutions

44 THANK YOU!