As an engineer, you will likely enter into agreements with your clients, outlining each party’s rights and responsibilities. Whether you are a civil, mechanical or electrical engineer, your client agreement will largely contain similar key clauses with only commercial differences. Some necessary information to include will be:
- the scope of services;
- payment;
- indemnities;
- limitation of liability; and
- dispute resolution.
In this article, we explain what these clauses are and their importance to your client agreement.
Scope of Services
Your client agreement should set out the scope of services that have been agreed upon between the parties. It should also outline each party’s obligations that must be met to complete the scope of services. If parties must reach specific milestones and milestone dates, you should also outline these in the contract.
If you are going to have an ongoing arrangement with a client, you may choose to have an overarching scope of services and an agreement that allows for work orders to be issued for each scope of services. This work order would then outline the commercial details of each arrangement, including the scope of services and payment terms.
Price and Payment Terms
Your client agreement or work order should clearly outline your services’ price and payment terms, including:
- how much you will charge the client;
- how you will invoice for the amount; and
- when the payment is due.
You should also clearly outline any extra payment required, such as deposits or expenses. It is also good practice to clearly state whether late payments are payable and what constitutes as ‘late’. This clause is essential to avoid future confusion that may disrupt your business’ cash flow. Clearly written terms also improve the working relationship between you and your client, as the entire agreement contains detailed information leaving nothing to chance.
Continue reading this article below the formIndemnities
An indemnity is an obligation for one party to compensate the other for damages, losses, expenses or costs caused by a specific event. When one party breaches an indemnity they have provided, the other party can claim compensation. As the service provider in this context, it is not market standard for you to seek broad indemnities from your client.
If you do include an indemnity, your client will likely want to make this indemnity mutual or seek even more extensive indemnities from you. If your client does request any indemnities, you should either try to remove them or limit them as much as possible.
Limitation of Liability
A limitation of liability clause defines the liability you can incur as a service provider. This clause is a very important risk management tool and will likely be negotiated by the other party. You can limit your liability in many ways, for example, by including a clause stating that if anything goes wrong, your liability will be limited to reperforming the services for your client or to a specific monetary amount. You may also include a time cap, limiting how long your client has to claim after an incident.
An exclusion of consequential loss clause will also be important to limit your liability as a service provider. Consequential loss is loss experienced by a party that is indirect and does not naturally flow from an event or breach. You should include a clause that you will not, or neither party will be responsible for consequential loss or other losses of revenue, profit, or financial opportunity.
Dispute Resolution and Governing Law
Although nobody enters into a contract assuming the worst, it is essential that you have a well-drafted dispute resolution clause in case things go wrong. A dispute resolution clause will outline what steps parties need to take if there are any issues. For example, you can stipulate that representatives from both parties must meet in good faith and attempt to resolve concerns before proceeding to court. It may also outline whether parties must follow alternative dispute resolution methods, such as mediation, prior to litigation. This will save both parties a lot of time and money.
To avoid doubt, you should also include a governing law clause stipulating which courts will deal with any dispute. Ideally, the governing law is the jurisdiction within which you operate, as this will make matters more convenient for you.
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Key Takeaways
If you are an engineer, it is crucial to have a well-drafted client agreement to protect your interests and avoid any issues later. Your contract should have clauses that outline each party’s responsibilities and rights and limit your liability as a service provider.
If you need a client agreement drafted or want us to review a client contract you already have in place, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
An indemnity is an obligation for one party to compensate the other for damages, losses, expenses or costs caused by a specific event. When one party breaches an indemnity they have provided, the other party can claim compensation.
A limitation of liability clause defines the liability you can incur as a service provider. This clause is a very important risk management tool and will likely be negotiated by the other party. You may also include a time cap, limiting how long your client has to claim after an incident.
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