The book of inspiration

October 6, 2015

LIMITATION OF LIABILITY

Filed under: life — zproxy @ 9:04 pm

Include in your contract a Limitation of Liability clause, an agreement between you and the client to establish the maximum liability you will be responsible for if there is a claim by the client on the project.

Any professional firm that continually accepts unlimited project risks can eventually expect huge losses and, perhaps, financial disaster. An LoL allocates a project’s risk in some reasonable proportion to the profits and other benefits to be derived by each party.

You may have more success in obtaining a Limitation of Liability from your client if you use a preprinted form that contains an LoL provision with a blank space you can use to specify the liability cap.

Be sure to select a limit that is meaningful (e.g., an amount tied to your project fees) and takes into account potential damages on a project.

 

DON’T ACCEPT

  1. As a general rule, any contract without an LIMITATION OF LIABILITY. (Some exceptions are projects for public entities, which almost never agree to an LoL.) Also, don’t use a preprinted liability cap in your agreement, as it may weaken the premise that the clause was negotiated.
  2. Language that would permit your client to withhold payment of disputed invoices.
  3. Other terms that, in effect, guarantee, such as “all,” “every,” “insure,” “ensure,” “assure,” “state” or “declare.”
  4. Any language in a client-drafted contract that would make you responsible for consequential damages.
  5. Any language that calls for your “supervision” on a jobsite, or any extreme contract language that calls for you to “assure strict compliance” with plans and specifications or to provide services beyond the traditional standard of care. Delete any client-provided contract clause that gives you control or charge of the contractor, including the authority to stop work.
  6. A contract that doesn’t call for mediation as the first step in dispute resolution. Otherwise, you’ll have a difficult time convincing a client to use mediation when the two of you are in the middle of a dispute.
  7. Any client-drafted clauses that ask you to agree (or even certify) that the scope of services proposed will be “adequate to meet the project needs,” that you will “provide any and all professional services necessary for completion of the project” or similar sweeping language.
  8. A client’s contract language that requires you to “perform to the highest standard of practice.” Nor should you accept broad or ambiguous language such as “appropriate” or “necessary,” or provisions that would have the client making a unilateral determination as to the performance of your services, such as “to the satisfaction of the Client,” or “in the Client’s sole judgment.”
  9. Language that permits only the client to terminate or that transfers the ownership of documents.
  10. A contract that doesn’t address the issue, since, in the absence of such a clause, a court may follow what it believes to be precedent or it may make new law based on its predilections.

 

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