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Professional Services Firm Contracts: Fair Bargaining or Adhesion?

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Presentation on theme: "Professional Services Firm Contracts: Fair Bargaining or Adhesion?"— Presentation transcript:

1 Professional Services Firm Contracts: Fair Bargaining or Adhesion?

2 Singin’ The PL Blues MODERATOR: John Edward Love, MPA, CPCU, President, TechAssure Association, Inc. PANELISTS: Marcia Blanco-Gorog, RPLU, Vice President, Underwriting, Navigators Group, Inc. Nick Economidis, MBA, ARM, Underwriter, Beazley, USA Aaron Latto, Esq., Vice President, Business Insurance Claims, Travelers Insurance Richard A. Simpson, Esq., Partner, Wiley Rein LLP Michael Stolarski, Esq., Partner, Howrey LLP

3 Agenda Risks associated with professional services contracting. Contracting language best practices. Underwriting and claims service issues for Professional Services firms. Review of contract terms and case study examples.

4 Objective The audience for this presentation should be able to: 1) identify the causes of breakdowns in professional service relationships that lead to challenges to the contract and its terms 2) identify important contract terms- how they can be fairly constructed, yet still protect the contractor, and be integrated with the contractor’s liability insurance program.

5 Best Practices in General for Professional Services Firms Clearly defined deliverables & ability to measure success. Break the job/deliverables into milestones so the customer can incrementally sign off on acceptance. Partner with the customer – Make sure everyone understands the customers’ expectations, desired outcome. Have the customer host an orientation session for staff. Clearly define the team’s roles, especially for addressing complaints– don’t ignore any problem. Move quickly and communicate with the client when there is staff turnover. Document all communications with client.

6 Practical Considerations Going Into a Negotiation Who stands to gain financially and how many competitors are there for the services needed? Do state/federal laws impose responsibility and/or specify damages? Be responsible for only your own errors or omissions, unless customer asks you to assume an extraordinary risk. Every negotiating point has a price, but not all points are insurable!

7 Underwriting Process What does the insured company sell? Who makes it? (contract manufacturer?) Who do they sell to? What is the length & size of the average & largest contract? Contracts Terms & Conditions Dispute resolution ability and terms Adequate pricing for risk Agree to Terms!

8 Claims Issues Review of policy and allegations Are any complaints retaliatory? Which counts are covered, which are excluded, and how are they connected ? Review Insured Contract Terms Analysis of facts and circum- stances Analysis of facts and circum- stances Assess likelihood of defense effort

9 Emerging Risk Trends Intellectual property disputes. Do you need to change how they are addressed in the contract language? Need to protect the customer’s systems and data from attack or theft by 3 rd parties. Need to protect the customer from acts by your employees. A “real time” world in which customers expect everything to run flawlessly, 24x7 (and want to pay less for it).

10 Key Contract Terms Description of the professional services to be provided. Fees & fee schedule – are they adequately tied to the description of services? Is a customer acceptance procedure delineated? Duration of the contract and time for each deliverable. Indemnification – one-sided or dual? Limitation of Liability – what is limit and is it effective? Consequential damages – is there a waiver? Liquidated damages – is there an agreed amount? Warranty language and Guarantees. Intellectual Property clauses.

11 What Goes Wrong in the “Real World” Customer specifications, expectations are not thoroughly anticipated, examined, and documented. Customer changes performance parameters and forces “scope creep” in the work being performed. Personnel changes, at the service provider or the client, cause “warm & fuzzies” to dissolve, expectations to change. Customer is dissatisfied, refuses to pay; contractor sues for non-payment; customer counter-sues alleging failure to perform (among other things). Some counter-claims may trigger policy exclusions that limit or eliminate coverage.

12 Case Study 1 Company A is a behind-the-scenes hotel reservation services operator, with dozens of hotel chain customers, taking millions of reservations per year. Company B provides the technology for Company A and hosts the systems, which incorporated software from Company G, the sole-owner of a proprietary algorithm. The credit card processors are behemoths with iron-clad, unilateral, contracts. Companies H & I pay B for trend reports on traveler activity and also provide up-sell services through B, through A, back to travelers.

13 Database w/ customer info Company B Accessed Via Internet Accessed Via Internet ISPs Hotel reservation services provider Multiple hotel clients Millions of guests’ info. Hotel reservation services provider Multiple hotel clients Millions of guests’ info. Company A Credit card processors Companies C-F Software Developer Company G H H I I Guests/Travelers Companies H & I, which sell information for/on travelers Privacy Laws Case Study 1 Hotel reservation system operator

14 Case Study 2 Company A is a medical device company with patents on a heart rhythm monitoring device. Research was performed by Company B. Assembly of the finished units by Co. C, with components from Cos. D-H. Distributed through resellers, of which Company L “owns the market” and likes to train its doctors.

15 R&D Company Owns the IP R&D Company Owns the IP Assembly Battery Housing Wires & Harness Wires & Harness Circuit Chip Software Product Delivery Distributor Doctor Patient Wearable monitoring device for arrhythmia patients CRO B A C D E F G H IJ KL M N Case Study 2

16 Questions & Answers

17 Many thanks to … John Love Marcia Blanco-Gorog Nicholas Economidis Aaron Latto Richard Simpson Michael Stolarski


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