CPR for your CFP

November 2010 » Columns » RISKY BUSINESS
John P. Bachner

Few things in civil engineering practice are more important than having a comprehensive, enforceable written agreement in place before initiating a commission. One of those few things is an effective contract-formation process (CFP) — the process you engage in to develop the written agreement. Why is an effective CFP so important? Just go into a court of law where two parties to a contract are represented by attorneys who are using their best litigation skills to prove the other side’s interpretation of the agreement is flawed. How could such a thing happen? After all, if the contract itself was comprehensive and enforceable, shouldn’t a dispute about its intent have been avoidable? No. And it happened because the CFP — a prelude (even when absent) to the inking of all contracts — was ineffective.

An effective CFP is characterized by in-depth communication that achieves comprehensive, mutual understanding, which is then memorialized via the written agreement. The CFP should be comprised of at least two people — individuals responsible for ensuring that both sides fulfill the contract — who, whenever reasonably possible, meet face-to-face to discuss pertinent project issues. To outline the process, these individuals should abide by the following six elements common to the best client/consultant contracts.

Project description is the contract section that should memorialize everything known about the project, such as its location, purpose, approximate size and siting, budget, and so on, including the client’s goals. Although the information is pertinent to almost everything else the contract considers, it seldom is discussed in depth. Committing it to writing is especially important because changes are common.

An effective scope of service details precisely what you will do along with any important services the client decides to dilute or forgo, and the client’s reasons for doing so. Discussing such issues permits you to explain costs and benefits and thus reveal the client representative’s outlook, possibly giving you a better opportunity to convince the individual to do the smart thing. Including the client’s reasoning in the agreement can foreclose the possibility of a client arguing, “If the consultant told us we needed that, we would have done it.”

The schedule should be based on the realistic amount of time required to get things done. Client representatives assume you are technically proficient, causing them to worry most about the delivery date and budget promises they made to their bosses, making it all the more important that you keep your delivery date and budget promises. An effective CFP allows you to explain the “wills and maybes,” and thus set schedule and budget expectations you know you’ll be able to fulfill.

General terms and conditions are the contract elements that deal with explanations and what-ifs. Use the CFP to explain some of the key terms and conditions such as limitation of liability and service suspension. Clients almost invariably increase your risk when they modify your proposed terms and conditions or insist on using their own. In those cases, you can discuss these heightened risks in light of what the project entails, the services you will or will not perform, and fee. It could result in your walking away from a project when client representatives refuse to alter provisions that create significant, uninsurable risks you cannot manage through an expanded scope, lengthened schedule, or other means.

Discussion of fee should include what you expect the fee to be (including risk allowances), by how much you will adjust it, and at what rate, should the scope shrink or expand. You should also discuss how frequently you will bill, when the client needs to pay, the effect of late payment, how the client disputes a charge, and how you will charge for extras. To whom should you issue bills? Is a special format required? When should the client receive bills? These and other questions need to be asked, answered, and written down.

Although definitions are staples of many types of contracts, they seldom are included in those developed by consultants and their clients. As a result, while both parties may agree to the use of a certain word or phrase, they do not necessarily agree about the meaning involved. Call some of the more important words and phrases to the client representative’s attention; explain what they mean for a given service.

Tools such as ASFE’s and others’ model agreements, contract reference guides, prepackaged client hand-out pieces, and case histories can help you lead the effective CFPs that initiate successful projects. Use the tools to improve. Or not. After all, it’s your business … and it’s as risky as you make it.

John P. Bachner is the executive vice president of ASFE/The Geoprofessional Business Association, a not-for-profit association of geoprofessional firms — firms that provide geotechnical, geologic, environmental, construction materials engineering and testing (CoMET), and related professional services. ASFE develops programs, services, and materials that its members apply to achieve excellence in their business and professional practices. Bachner can be contacted at john@asfe.org.


Upcoming Events

See All Upcoming Events