Preparing for the Client and Project—Part II
Different projects may also present different collection challenges. Some of the more relevant considerations are the following:
Defined and Realistic Scope of Work
Although it is ultimately a contract issue (see below), the first key to project selection is whether it is susceptible to a scope of work which is both definable and realistic. The reasons are obvious. If a project cannot be defined with clarity, how will the firm prove it is complete and entitled to full payment? Even more importantly, if the project is terminated early and the scope is generic or vague, the firm has no controlling means to establish entitlement to fees. Even worse, an unrealistic scope of work almost guarantees a lack of both payment and a claim for breach of contract and negligence.
There are two keys to a sufficiently-defined scope of work for collection purposes:
- Detailed description of the total project and service sufficient to enforce final payment.
- Identification of project milestones and related fees sufficient to enforce incremental payments. This will also help define the project process and schedule.
If such a scope of work cannot be achieved at the outset, it is acceptable to proceed on a time-and-materials basis if it is of a limited duration and commitment, and sufficient protections are provided (see below).
As stated above, open-ended contract obligations are among the greatest challenges to collection of design fees in that there is no definitive means to say all contract obligations necessary for payment have been fulfilled. This may actually arise in two ways. The first is by ambiguous or open-ended contract obligations. The second is by scope creep, whereby services exceed the contractual scope of work and thereby often lack any genuine definition. Two provisions in the scope of work or the agreement itself can be used as a means to overcome these obstacles. They are:
- Consultant’s services shall be limited to those expressly set forth above, and Consultant shall have no other obligations or responsibilities for the Project except as agreed to in writing or as provided in this Agreement.
- All of Consultant’s communications, actions, and documentation relative to the Project shall be covered by this Agreement.
Funding and Financing
For collection purposes, the next greatest consideration is the project funding/financing. The most relevant considerations include the following:
- How is the project to be funded and financed? Is it fully funded now or is some portion contingent deferred? If it is contingent or deferred, the firm’s obligation and exposure should be limited accordingly.
- What access does the firm have to the project funds? If the project is funded, but the funds are held by third parties such as investors, banks, or holding companies, the firm should have a path of direct access to those funds.
- Is payment dependent on the review and approval of a third party, such as a bank officer, construction manager, or inspector? If so the process, standards, and timing should be defined in advanced.
Limitations on Collection Tools
Some projects may have limitations on collection rights and procedures. Those should be evaluated carefully. For example, public projects typically have no lien rights. Contracts may also limit collection rights by waiving lien rights, requiring Alternative Dispute Resolution procedures, or requiring continuing services during a dispute.
Other Claims on Project Funds
The final consideration is other possible claimants to the project funds. The key considerations here are timing and priority (i.e., while others have prior or prevailing claims which would relegate the firm to secondary status). If so, procedures should be implemented in the contract and in practice to minimize those risks.
Client education should be a project-long undertaking. It should and must begin with the very first client meeting. Informed clients tend to be happy and satisfied clients. Happy and satisfied clients are most likely to pay on time and in full. By contrast, clients who are surprised or disappointed are those most likely to delay or stop payments.
As will be reiterated multiple times below, the two-fold key here is to both communicate and then document the communications and understandings. Absent documentation, there is no reference point, recollections will differ, and there is no common point of accountability and confirmation. Ideally, such documentation will come in the form of a “meeting of the minds” in the agreement, and then continue through the course of the project in the course of contract amendments, meeting records, and correspondence. Too often, if it is not written down and conveyed, when issues later arise, it is as if the communication never occurred.
While client education can involve many issues, three areas are most important for collection purposes and avoidance of claims:
Process and Schedule
Regardless of a client’s sophistication, the design professional should review the expected process and schedule for the project with the client. In doing so, the design professional should be realistic or even conservative. Most importantly, the client should be taught that unexpected events or conditions may arise and the design professional is not in control of or responsible for many elements of the process and schedule. These conversations should be documented and, ideally, included as part of the contract.
The client should and must be advised that delayed decisions or changes by the client (or others, such as building officials) during the project can impact the schedule and cost of the project. This should be reiterated each time the client delays or makes changes during the project.
Standard of Care
The client must be educated as to the design professional’s standard of care. Specifically, the client should be advised that there is never a perfect set of plans or specifications, and that no design can fully anticipate every contingency. The client should be advised that there will be expenses and schedule impacts associated with design clarifications and corrections during the project, and the client should plan accordingly with appropriate contingencies. This advice should be oral and in writing and, ideally, will even be a part of the contract. However, the design professional should be very cautious before providing any recommendation or commitment as to a specific design contingency. Such an “enhanced” standard of care provision might provide:
CONSULTANT’s services shall be provided consistent with and limited to the standard of care applicable to such services, which is that CONSULTANT shall provide its services consistent with the professional skill and care ordinarily provided by consultants practicing in the same or similar locality under the same or similar circumstances. Such standard of care is not a warranty or guarantee and CONSULTANT shall have no such obligation. Accordingly, Client should prepare and plan for clarifications and modifications which may impact both the cost and schedule of the Project.
A Strategic No-Go Decision
The investigation of the client and project, as well as the client education, should not simply lead to a “check the box” accomplishment. Rather, it should lead to a rational and strategic “yes/no” decision. This decision may be a more holistic evaluation or more regimented through a rubric. The former often works better when the project represents a subject matter or geographic “expansion” from the core practice. The latter may work better when it is a “core practice” project. Potential forms are attached as examples of each approach (e.g., “Pre-Contract Project Evaluation” or “Go-No Go Checklist”).