A Quarterly for the Real Estate, Design, and Construction Industries
TO ARTICLES INDEX
- Marketing and the Law: When Can Good News Be Bad News?
- LLPs: Who Gets Stuck With the Obligation?
- Chasing the Non-Paying Client
- What's On Their Minds?
Marketing and the Law: When Can Good News Be Bad News?
By Barry B. LePatner, Esq. and Timothy F. Hegarty, Esq.
From the very first contact a prospective client has with your firm, you are shaping the likelihood of a lasting relationship--or dooming it. Will Rogers is believed to be the first to say that "You never get a second chance to make a first impression." In today's ferociously competitive world, clients are demanding a great deal more from service providers and checking carefully to see if the reward of future business is warranted.
This article is designed to answer the questions posed so often by my clients requesting a critical checklist of ways to identify elements of added value to their service offerings. It is also intended to help firms energize their staffs to meet the challenges set by the marketplace of the 90s.
What is a Client Looking For?
1.Courtesy and a clear sense that he or she is treated in a friendly fashion.
2.Honesty in all dealings. The best clients would rather receive an "I don't know the answer, but I will promptly find out", than a wrong answer that is provided without any basis other than pretense.
3.Expertise and good judgment based on the experiences of the service professional. In truth, what else is the client paying for?
4.Clients universally want to be recognized as singular relationships rather than as just another one of the pack being "handled" as a fungible commodity with a you-don't-really-count attitude.
5.Prompt service, whether in returning phone calls, meeting deadlines or showing up on time for every meeting is a singular request by clients in all surveys.
6.Satisfaction. This does not mean that clients are looking for fireworks, home runs and award-winning designs in every instance. In truth, clients generally have reasonable expectations as to the outcome of their projects if only you will ask them at the outset and seek to meet those expectations at every opportunity.
Understanding the Concept of Added Value
As service professionals, you win high marks from your clients (and the likelihood of repeat business and glowing referrals) when you and everyone in your firm:
1.Never take the client for granted. Never. Your every thought and internal policy should be governed by the motto: "But for you, the client, we wouldn't exist".
2.Understand that each client is extraordinarily valuable to you in that it costs five times more to develop a new client than to keep an existing one.
3.Never view a client's request--whether large or small-as an interruption, but a further opportunity to impress your service ethos upon him or her.
4. Treat them like a valued member of your family, and over time, hope they become one.
5.For you to recognize that they have the same emotions, wants and dislikes that each of us has. The golden rule applies at all times. Be aware that the rude shopkeeper we encounter or the surly service provider we frown upon could be us if we let down our standards for even a moment.
6.Every time a client asks us to solve their problem they flatter us with the belief that we are the precise ones they entrust to help them put their anxiety to rest.
Several years ago, a car service I used was asked to pick me up and take me from my office across town. Although I was in a hurry, the assigned car did not show up on time. When I called the headquarters the main dispatcher assured me a car would arrive shortly, though twenty minutes late. Ten minutes later when the new car failed to appear, I hailed a taxi and raced to my meeting. I called the car service and voiced my complaint about the broken promises and, almost as an aside, mentioned that I did not expect to be billed for the non-trip. To my surprise, the representative told me that, in fact, I would be charged as the second car arrived eventually and waited fifteen minutes for me.
No amount of protest or appeal to reason could dissuade the company from penalizing my failure to wait for the car they promised--notwithstanding the fact that they never met their initial commitment for the first car, caused me to miss my meeting and I had been using their service for the past several years as a valuable customer. You can imagine my instructions to my office when the bill arrived and included a charge for the service I never used.
Defining the "Value" in Value Added
Clients are no longer buying marketing glitz or fancy brochures as the basis for determining selection of their design professionals. Today, they seek, above all, the advantages of what your firm provides beyond the technical proficiencies it brings to the project.
In today's competitive world you must fully recognize that clients want what Jay Conrad Levinson, in his compelling treatise called "Guerilla Marketing Excellence" defines as:
- Benefits, not features.
- The promises you make and are expected to personally keep.
- Your credibility, and don't return if you lack it.
- Your solutions to their problems.
- The service ethos of your firm.
- Your reputation and good name.
- Other people's opinion of your business.
- Brand names over strange names.
- The consistency you have shown.
- The value you provide--which is not the same as price.
- Your style that matches their style.
- Good taste and they know it from bad taste. Clients do not find any value added from: Marketing or marketing materials that are glitzy and overly expensive, or those that... Make outrageous or unrealistic promises or expectations. Humor that merely masks benefits or promises that cannot be given or made.
Presentations that are obscure or appear to be evasive or misleading. Promises of technical advances that do not evince clearly-defined benefits. Adding value to the range of services that professionals must provide is a necessary concomitant to marketing and meeting the business needs of your clients. Identifying the elements of added value is only the first step to aligning your organization in this critical direction. Sensitizing your staff, from the top down, to listen carefully to your clients and then meet their demands, personally and with enthusiasm, will place your firm higher on the spectrum of short lists for that important next project.
Courts often utilize four factors to determine whether the parties intended to be bound in the absence of a document executed by both sides.
First, the court must determine whether the parties have agreed not to be bound in the absence of a writing. Under some state law, a party can object to a contract until it is in writing and signed, then there is no contract until that event occurs.
Second, the court must look to see whether there has been partial performance in reliance upon any writings between the parties. Indeed, partial performance is an unmistakable signal that one party believes there is a contract; and the party who accepts performance signals, by that act, that it acknowledges a contract to be in effect. Third, the court must decide whether all, or substantially all, of the terms of the alleged contract have been agreed upon. Fourth, the court must consider whether the agreement at issue is the type of contract that is usually committed to writing, e.g., a real estate agreement.
So there you are: a brief primer on how the law treats proposals that are accepted. To make life simpler for all concerned, let us establish six ground rules for submitting all of your firm's future proposals:
Six rules for submitting proposals
1.Review each RFP carefully, dividing the information into three categories:
- Information available in pre-printed format e.g., Resumes, prior related project history, etc.
- Information that requires a marketing response, e.g., your firm's approach to a fast-track or multiple-prime format.
- Information that is project specific and must be tailored to respond to the RFP question as posed.
2.Determine each of the business issues called for in the RFP. Fee and schedule issues should be well-thought out with an emphasis on staffing availability and the specifics of any special services to be included in the response.
3.Do not be afraid to qualify your proposal to conform to or address special concerns as to how your firm will perform its work. If your proposal is aas to how your firm will perform its work. If your proposal is accepted, these qualifications.
4.Make sure that the principal in charge reviews every proposal to be certain that the firm can faithfully fulfill its promises.
5.Check to be certain that all references can easily be contacted and are prepared to speak affirmatively to the prospective client on the issues at the heart of the RFP.
6.Attach a copy of your standard contract. If your proposal is accepted, you will ensure a full negotiation on all contract terms after selection.
Thus armed, design professionals may now look with a fresh eye to their proposals. The time spent at the outset will be time well spent.
LLPs: Who Gets Stuck With the Obligation?
By Ronald B. Feingold, Esq.
As many of our design professional clients recast their general partnerships into limited liability partnerships, the question has arisen whether to include in their partnership agreements a provision for inter-partner contribution or indemnity with respect to liability for partner negligence or malpractice.
Under the New York Limited Liability Law, which became effective on October 24, 1994, the New York Partnership Law was amended to provide that general partnerships rendering professional services, including architects and engineers, may register as limited liability partnerships (LLPs). An LLP permits professionals to practice their profession in partnership form, with limited personal financial liability for the debts of their businesses which is generally afforded to professional corporations under the New York Business Corporation Law.An LLP limits the liability of its members for contractual or other debts and obligations (such as office rent) and malpractice claims in the same manner as liability is limited for shareholders in a professional corporation. In an LLP, it is only the partnership's assets and the personal assets of the negligent or supervising partner rendering professional services that are available to a claimant of the firm.
Despite the opportunity to limit liability except where one is actively negligent, some partnerships wish to retain some form of pro rata sharing of liability. This situation arises where a liability judgment exceeds the firm's insurance coverage and its assets. Under an LLP format, the judgment creditor can no longer look to all of the partners, jointly and severally, to make up the difference. Instead, the judgment creditor must look to the partner who committed or supervised or controlled the negligent or wrongful act for the excess (the "obligated partner").
But a partner may be reluctant to take on complex projects which may be more prone to large malpractice costs . How can this problem be avoided? An LLP may include in its partnership agreement a provision which requires partners who are not involved in the negligent or wrongful act (the "remaining partners") to indemnify or contribute to the obligated partner. This provision would provide for the remaining partners to pay a pro-rata contribution amount in accordance with their pro-rata shares of their interests in the annual profits of the partnership.
Caution should be followed, however, before drafting amendments to the partnership agreement because this agreement to indemnify and/or contribute a pro-rata share could work against the interests of the firm. An obligated partner, who knows that he or she will be indemnified on a pro-rata basis from the remaining partners, may be less inclined to strongly defend and more inclined to settle with the plaintiff at a possibly higher cost. Where there is no contribution agreement in place, the obligated partner's interest in zealously defending is more aligned with the partnership's interests.
To help alleviate this concern, the indemnification agreement may provide that the remaining partners are required to approve the settlement terms before the contribution obligation arises. In this way, if the remaining partners believe that the settlement cost is too high, they can vote against contribution. This may motivate the obligated partner to defend the claim more vigorously.
The partnership agreement may also provide that the obligated partner shall not be entitled to contribution from the remaining partners until a judgment has been entered and the obligated partner has paid such judgment in full. The obligated partner may want to defend more vigorously if he or she knows that a judgment will be entered before he or she is reimbursed by the remaining partners.
The indemnification agreement may result in higher settlement costs for another reason. When a plaintiff learns, through discovery in a lawsuit, of the contribution obligation among the remaining partners, the plaintiff may hold out for a more favorable settlement than could be obtained if the obligated partner were the only party who had to bear the costs of the settlement.
A plaintiff may also seek to recover against the contributing remaining partners under a third party beneficiary theory. Thus, a plaintiff may be more prone to exact greater settlement terms should the plaintiff become aware that he or she can collect against all of the partners, and not just against the obligated partner.
With this in mind, the partnership agreement should include language negating third party beneficiary status, thus precluding a plaintiff from enforcing such status under the agreement. The remaining partners will not have personal liability to the plaintiff if the partnership's assets are insufficient to pay the liability.
But, there still may be reason for concern since a claim could be made in a state which does not enforce "no third party beneficiary" provisions. And a bankruptcy trustee may argue that he or she is not limited by the "no third party beneficiary" clause.For the foregoing reasons, partners may elect to register as LLP's without providing for contribution, believing that it is unlikely that a negligent partner will be exposed to liability that exceeds the partnership's insurance and assets.
LLPs offer design professionals an alternate form of practice for doing business. Their benefits from a tax as well as from a personal liability standpoint are already resulting in the emergence of LLPs as the principal form of partnership entity.
Chasing the Non-Paying Client
By Barry B. LePatner, Esq.
Nothing is more frustrating to the service professional than a client who was well-served refusing to pay for those services in a timely fashion. What is even worse is the dilemma faced by the professional in dealing with the vagaries and costs of collecting that debt.Quite often, the client who fails to pay receives one or more monthly invoices, raises no objection to them, but nevertheless, ignores its obligation. In many states, an expedited method in litigation is to sue the client for "an account stated". As the New York Court of Appeals stated in an opinion many years ago, "[a]n account stated is an account balanced and rendered, with an assent to the balance express or implied; so that the demand is essentially the same as if a promissory note had been given for the balance." Volkening v. DeGraaf, 81 N.Y. 268. More recently, the courts have restated this straightforward concept to reflect the habit of non-paying users of services that ignore bills due in the ordinary course of business affairs: "The mere rendering of an account does not make it a stated one, but where an account is rendered showing a balance, the party receiving it must within a reasonable time, examine it and object, if he disputes its correctness. If he omits to do so, he will be deemed by his silence to have acquiesced, and will be bound by it as an account stated, unless fraud, mistake or other equitable considerations are shown. Whether on a given state of facts, the transaction amounts to an account is a question of law and not fact." Peterson v. IBJ Schroder Bank & Trust Co., 567 N.Y.S 2d.704 (App. Div. 1st Dept.) 1991.
In other words, barring a client's timely objection to your invoice, it is in your best interest to send a prompt follow-up to your unpaid bill which requests the client to advise whether there is any impediment to its immediate payment. In the absence of either a response or a valid reason for the non-payment, a subsequent decision can be made for proceeding with litigation on the theory of an account stated. In order to set forth a viable cause of action, the plaintiff must prove that:
1. Plaintiff had business dealings with the Defendant prior to sending the invoices;
2. The Defendant received from the Plaintiff the specific invoices plus any additional support documentation reflecting the balance owed for the services rendered; and
3. The Defendant failed to object to the invoices within a reasonable time.
Once the complaint is served on the client, if its answer does not deny the above facts, counsel can then consider whether a motion for summary judgment should be filed to permit the Court to award judgment in favor of your firm.
What's on Their Minds?
According to an informal survey of principals of large and medium-sized design firms, the most pressing issues for which they are seeking answers are the following:
- Restoring principal capital accounts to adequate retirement levels.
- Developing the next level of leadership in their firms.
- Implementing a game plan for redemption of their capital entitlements without scaring off younger principals.
- Determining where their future business will be coming from.
- Questioning whether a merger or acquisition is right for their firms
TO LEPATNER REPORT CONTENTS
TO ARTICLES INDEX
