Terms of endearment

Over recent years the relationship between professionals and their clients has become more formalised and circumscribed. A few years ago, in professions like the law and accountancy, the personal rapport between an individual professional and his client was all that really mattered. Indeed it is not that long since even discussion of the likely fee that was to be charged would almost have been considered to be in bad taste. Times have changed.

It is hard to say whether the rise of consumer sentiment caused the increasing regulation of financial and professional services or whether the two have proceeded in parallel, but the fact is that professional advisors are now regulated to an unprecedented degree and are more likely to be the object of criticism than ever before.

In the legal and accountancy professions there are now detailed rules of professional conduct governing the formation of a firm’s relationship with its client, not only in circumstances in which the client is new but also even where new instructions come from an existing client. The underlying theme in these rules is to require the professional to define the basis upon which his services are being provided so well that the chances of complaints and recriminations later are reduced. In the case of solicitors it is, perhaps, ironic that over a century of legislation and case law relating to solicitors and their rights and obligations in respect of clients have not prevented record numbers of complaints and a perception of client dissatisfaction. The answer may be that the public is more demanding and service levels are failing to keep up. The lesson, however, may be that a legal framework is insufficient if a professional’s communication with his client is poor.

Management consultants obviously provide a very broad range of services and are not subject to the particular legal regulation of some of the other professions. If it is, however, the case that times are changing and clients are becoming more ready to criticise and dispute their advisors’ fees, it would be sensible for any consultant to consider the risks intrinsic in the business relationship with their client. It was in this context that the IMC came to consider how to offer its members more assistance in defining the professional relationship between consultants and their clients. The IMC has, of course, promoted the highest standards of integrity and practice for some time and already has a code of professional conduct supported by disciplinary procedures as well as legal and ethical helplines.

The latest initiative is to make available standard terms to consultants, so that there is a better chance that they will identify any particular issues in relation to an assignment which may cause trouble. Once identified, properly recorded terms of business should reduce the risks of arguments later. The exercise was not intended to produce cunning “small print” but rather as an aid to communication between consultants and their clients.

The new terms, which are now available from IMC, give a format for the description of the particular assignment and a set of standard terms which can, where appropriate, be incorporated by reference without the need for lengthy retyping. The terms are being produced with an accompanying commentary which should make them more accessible and easy to use. Whilst there may be a number of areas for which the terms are inappropriate, for many purposes they should provide a good starting point.

A consultant may practice for many years without a serious difficulty with a client, and it is possible that there are some consultants for whom more formal terms may not be required. There are, however, three good reasons for every consultant to approach their terms of engagement fairly seriously. Firstly, good contractual terms are like insurance.

In many cases the assignment will proceed so smoothly that they will never be referred to. Occasionally, however, events will expose the absence of terms by which time it will be too late to use them. The fact that a problem has not arisen in the past does not mean that one will not arise in the future. Secondly, the use of well worked out terms demonstrates a professionalism of approach and can be justified on the same basis as well produced documents. Thirdly, there may be occasions upon which a client’s understanding of the basis of engagement is different from the consultant’s. The client may accept the consultant’s approach without complaint but nevertheless feel discontented because their expectation has not been met in some respect. The consultant’s goodwill may be damaged without the consultant even knowing about it. Clearer and more comprehensive terms should help a consultant to manage a client’s expectations.

So what are the issues that the terms cover? The first section is where the consultant describes the assignment and terms of reference and records the basis of charging including the recovery of expenses. Provisions in this section may also deal with a guarantee of the client’s obligations and professional indemnity insurance. It is here that a consultant might include specific additional provisions which relate only to the particular assignment or client. The second section of 16 clauses is contained in a printed booklet and can be incorporated in the terms of the assignment by words such as “The Institute of Management Consultancy Terms (1999 Edition) are incorporated as terms of this assignment”. Because assignments vary so much, incorporation will require specific thought as to whether all of the terms apply and how they should be varied in the circumstances.

The terms, however, do provide at least one answer to a number of questions which arise in any assignment. These questions include:

– Can I charge interest if fees are not paid on time?

– How do I increase my charges in long running assignments?

– Can I stop working if interim invoices are not paid?

– Can I delegate part of the job or use sub-contractors?

– If intellectual property rights are created, who owns them?

– Would I be liable for financial losses to the client if I make a mistake?

– How badly does the client have to behave before I can call the assignment off?

– What happens if the client recruits my staff and stops using my services?

– Can I publicise the assignment for promotional purposes?

– If my client is a multinational company, does that mean that any dispute will be under the laws and in the courts of the country of their head office?

– If I once don’t insist on the client doing something that has been agreed, does that mean I can’t ever insist on it at any time during the assignment?

– Are the Inland Revenue right to say that the assignment has lasted so long and taken so much of my time that I am really the client’s employee and PAYE and National Insurance should have been paid?

The supporting guidance notes give a brief commentary on each of the terms and the rationale behind them.

No contractual terms can make good a relationship which has failed but the better defined the obligations and the responsibilities at the outset, the less the chance that arguments or dissatisfaction will arise. Standard provisions in themselves cannot achieve this but greater thought as to the details of the assignment at the outset make it more likely that a consultant’s services will be delivered in the way expected on both sides.

It doesn’t take the expertise of a management consultant to see the relationship between this and quality and at the end of the day quality is probably what it is all about.

The new IMC Standard Terms and Conditions with accompanying Guidelines are available from IMC at a cost of #9.00 for IMC members and #20.00 for non-members. Please make cheques payable to IMC.

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