Contesting an expensive legal action from a disgruntled client could put you out of business. In the first of a three-part series, we examine where the risks lie - and what you can do to reduce and manage them
Because consulting advice will often influence the culture, strategy or
general business model employed by a company, it can be very hard for
consultants to distance themselves from subsequent business failures or
problems.
Similarly, when a high-profile IT or business infrastructure project goes
wrong, boards can easily seek external redress rather than sack their own
incompetent staff.
The better that management consultants understand the different risk
scenarios, the better placed they will be to manage them and avoid potentially
costly legal processes. The following five areas represent the most likely risk
scenarios:
Claims under contract
It is essential to clearly define responsibility and services under any given
contract. The client is then clear about what they are buying, and, just as
importantly, about what they themselves have to deliver. The more specific the
agreement, the less room for misunderstanding or ‘wriggling’ if expectations are
not met.
It is good risk management for the senior members of a business to have a
process in place to ensure that contracts are formally reviewed and signed off
and where appropriate include a full legal review to ensure they do what they
are expected to.
For smaller businesses, it is equally important to ensure that client
expectations are clearly defined and to resist the temptation to over-promise.
If a client is pushing for a ‘deal’, they will probably not be prepared to
define their objectives clearly or pay a reasonable price for the service. In
this instance, the consultant is better off walking away instead of ending up
with an unhappy client who has no benchmark to measure whether or not they have
satisfied the contract.
Many consultants tell me there could never be a professional indemnity claim
against them because they don’t really give any advice. Unfortunately, that will
not stop unscrupulous clients from suing you. Allegations can be a smoke screen
to avoid paying fees or to extract money from the consultant.
Professional negligence
Assuming your contracting procedures are tightly controlled and the
client knows exactly what they are buying, the next pitfall is professional
negligence.
As the consulting industry evolves, so will the law surrounding it.
Consultants can be sued under contract, as outlined, or the common law ‘in
tort’. Tort is moulded by legal precedent, which means that the standard of
skill and care expected of a HR or a process mapping consultant has not yet been
precisely defined by the courts.
However, professionals typically owe a high level of duty because they are
employed on the basis of possessing specialist knowledge or experience in their
particular field of expertise.
Over many years, the law affecting doctors, lawyers, architects and other
professions has evolved as more and more legal cases have been brought, and this
will be no different in the world of management and business consultancy.
As competition intensifies and clients become more aware of their legal rights
and remedies, litigation against consultants will become commonplace.
Defamation
Another pitfall is defamation. I recently attended a training course that
featured potentially defamatory content about some of the case studies used.
Although the companies mentioned would be unlikely to sue at this level,
consultants involved in training should be aware of the dangers of information
going beyond the training course.
Intellectual property
This is another area where consultants could find themselves exposed. For
instance, how much of a consultant’s knowledge and methods are the property of
their previous employer? In the creative professions, such as media and design,
this area of the law has mushroomed.
Often there is not a problem until a company becomes successful, at which
point claimants appear from the shadows claiming the ‘original process or
design’. Even if a claim is without merit, contesting it and proving the process
by which the original thought occurred can be very expensive.
Loss of documents or breach of confidentiality
Consultants often work closely with a company’s senior management and share
their working secrets. Loose tongues at a restaurant, or indeed a laptop left
accidentally on a train, could have serious consequences.
Gary Head is professions underwriting director at Hiscox