Most, if not all, service professionals provide their expertise pursuant to a contract. When a misunderstanding or mistake arises, this contract is the main arbitrator or witness to the dispute. The best way to minimize your risk of a professional liability (PL) claim is to include the right provisions in your contract from the start.
Here are eight guidelines you need to know to minimize professional liability when it comes to contract disputes:
- Include a detailed scope of services. The scope should be specific about what the service professional intends to do, outlining each step with estimated time frames. In the event that the client adds additional work, the scope of services needs to be amended to reflect that. When it isn’t, contract disputes commonly arise.
Service professionals are often anxious to win and please the client, and therefore minimize the scope of work in the original contract, or take on additional tasks over the life of the project without going back to amend the contract. When the contract shows the total scope of services, it’ll back the professional in court. So, if the contract supports ongoing, non-project-based work, make sure it’s specified as such. When it doesn’t, it’s difficult for the professional to present a good case.
- Open communication is critical. When you’re in the habit of providing regular project updates to the client, lines of communication will be open to discuss any issues that arise. Better to deal with a disagreement or misunderstanding during a regular communication interval than after the project has been completed and billed. Revisiting the scope when the project has changed is part of maintaining open communication.
- Transfer your risk and indemnification provisions. Clients will often include an indemnification provision, or “hold harmless” agreement, in their contracts with a service professional. This provision holds the service professional responsible for disagreements arising from a third party. Make sure the indemnification provisions of the contract are consistent with your professional liability coverage. If not, and there’s a PL claim, you’ll have to pay for the loss if the carrier can’t extend your indemnification.
- Don’t make overly broad promises. Service professionals are often so anxious to get the contract signed that they over promise. Avoid using words like: best, superior, maximize or comprehensive, to describe your work in the contract. Instead, choose words that are measureable and can be verified at the end.
- Don’t commit to a specific deadline. When subcontractors or additional vendors are working on the project, or the client is supposed to provide materials pursuant to project completion, making a promise for deliverables by a specific date will likely set you up for failure. However, as is often the case, when the client insists on including a specific deadline in the contract, include a “Due to unforeseen circumstances” clause.
- Look at your project quote realistically. Service professionals tend to severely underestimate the cost of their work. Don’t fall into that trap. Instead, spend more time at the outset working on the quote and cost estimating. Add a clause about potential “unforeseen circumstances” into the contract that will allow you to add to the project cost if need be.
- Champion dispute resolution. As a service professional, no matter how careful you are, you’ll inevitably be involved in a contract dispute. Including a contractual provision that details a practical avenue for dispute resolution will avoid running to the courthouse to resolve small disputes. This provision should give the service professional the ability to cure the error. If that fails, allow for an alternate dispute resolution.
- Procure the right insurance with adequate policy limits. Because even the best of efforts to minimize liability can still result in a lawsuit, make sure you have appropriate PL policy limits in place, pursuant to your current contracts and project work.
Contact your HUB professional liability specialist to make sure you have optimal limits to support your current and potential contracts.