Question

Topic: Strategy

When Good Contracts Go Bad

Posted by Anonymous on 11/12/2004 at 12:53 PM ET 250 Points
BACKGROUND: A U.S.-based client hires consulting company to provide systems training at their overseas office. Total services revenue earned for 22-day assignment is $50K. Total expenses (airfare, lodging, food, etc.) incurred equal 22 % of service revenue. Signed proposal executed and work has already been performed.

TERMS & CONDITIONS: ‘Project cost’ section describes on page 6 of proposal as “includes 22 days of preparation, service, and incidental expenses”. ‘Billing terms’ section describes on page 8 of proposal that “project cost does not include travel expenses and all out-of-pocket expenses as incurred during the course of completing the work”

INCONSITENT CONTRACT LANGUAGE: My company needs to clearly define how they wish to handle this situation. The inconsistency of language lends itself to interpretation on both sides – and the company does not want to absorb all of the expenses incurred. The client formerly agreed verbally that paying 50% of expenses was fair & equitable – but has recently re-positioned themselves as not liable for any expenses.

SERVICE SATISFACTION: Client has verbally commented on their high satisfaction-level with services, as provided above and beyond expectations. Client is influential in industry, but is less than 2% of company sales. Client relationship has always been collaborative and positive.

THE QUESTIONS: How can my company position themselves to gain client cooperation and build a compelling argument that convinces them that sharing expenses (at some reasonable %) is appropriate?

Is there a compelling interpretation of the inconsistency of Terms & Conditions that can be leveraged in the favor of my company?

Is there a fair and equitable distribution of expenses that can be achieved? Is my company wrong to take this position? If so, why?
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RESPONSES

  • Posted by Inbox_Interactive on 11/12/2004 at 4:28 PM Accepted
    Personally, I don't think any reasonable person would consider travel "incidental." Morever, it's very clear in the billing terms that travel is not included. I think you're being kind to your client by suggesting that this is ambiguous.

    However, if this has happened once, it will happen again, so you're right to beef up the language a little. How about just adding the "does not include" language to the first defined term as well?

    As far as what to do here, you don't want to absorb $11,000, nor should you have to. If your client offered to pay half but has since backed off from that, find out why. Maybe you can still get 50%, which is better than nothing. This is probably not the kind of thing you would sue anyone over, especially if you think there is future business.

    Frustrating, I know.

    Good luck.
  • Posted by SRyan ;] on 11/13/2004 at 5:10 AM Member
    Dennis, I wonder who you're dealing with at the client company?

    Jim and Inbox are correct -- no reasonable and experienced businessperson would expect travel expenses to be absorbed. Perhaps you need to carefully go over someone's head to find the senior man or woman who can trump WonderKid's wishful thinking.

    The few times that I've had contracts like yours with my client, all I did to keep the terms clear was include examples. So I would write something like, "preparation, service and incidental expenses such as office supplies, printing and delivery costs." And "travel expenses such as airfare, hotel, meals, and local transportation costs."

    - Shelley
  • Posted by Deremiah *CPE on 11/13/2004 at 8:58 AM Member
    Den E V,

    If you are providing a service outside of the country or even with in your country travel expenses are a normal part of doing business (at least it is in the speaking industry). Everyone has offered very relevant advice. As Jim says if you have worked with this client before you have set a precedent and should expect the client to only expect what methods of business operations you have initiated in the past. However I would consider you using Shelley's "clear language" of communication in the future. Her advice is simple but very profound in the impact that it will bring you in future dealings.

    In regards to positioning yourself to gain client cooperation I must say all of that needs to be communicated very clearly right up front before contracts are signed. Present it in your meetings with clients over the phone, email or in person (depending on your level of communication medium). Make sure these are understood so that all objections can be handled in advance of your agreement documentation being signed. If at anytime your communication seems vague to the client this will most certainly become the area of contention. Never have an area of contention. Be intentional and almost obnoxiously repetitious in your communication early in the communication process. The last thing you want to do is to have to try and repair a breach (it's the hardest thing to do without losing face or losing your shirt in the process). Is there anything else I can do for you?

    Your Servant, Deremiah, *CPE (Customer Passion Evangelist)
  • Posted by mgoodman on 11/13/2004 at 6:14 PM Accepted
    One of the reasons you want to be very clear about travel expenses being rebillable is that you don't want the client to feel free to send you all over the place without first assessing the value of each trip. If they know up-front that they're paying travel expenses, they'll be more careful about where they send you and how often.

    At this point, you probably don't have too many options. You are right that the travel expenses should be reimbursed, but you probably don't want to fall on your sword over the misunderstanding. You'll be labeled as a contentious consultant if you do, and that doesn't do any good at all.

    My suggestion: Ask for a meeting with the senior person at the client. Show up in person and explain your position, appeal for fairness, and place the responsibility in their hands. If they don't pay what you've asked, you know what kind of people they are.

    I've only had situations like this with clients a few times. Each time there was a compromise (which means I didn't get what I thought I should have). What I learned is to be VERY EXPLICIT in the proposal, even to the point of repeating the terms in slightly different language so nobody could possibly misunderstand them.

    It's not a great position to be in, I understand. But take your best shot and be smarter next time. Experience is a harsh but effective teacher, eh?
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