Project Management Legal Issues: Are You At Risk?

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Contract law, in and of itself, is a tricky legal game and it can vary from state to state. Every project management effort, whether it’s with a direct client or a project management outsourcing company, needs binding and legal agreements to protect your company against litigation.

Many project managers do not err on the side of caution, unless they’re in the building and construction industry, and they often make verbal agreements that are unreachable. Often, employee or team theft of confidential or proprietary information is another avenue for a client to seek an attorney.

While it’s best to have a contract attorney in your state write your project management services agreement, we have provided an example-only template of a service agreement in our Media Gallery and it should not be used as legal advice. To ensure you have full protection from litigation, have your counsel write your service agreement. Keep in mind that you may need to alter your services agreement per project to avoid project management legal issues.

If you do have a service agreement in place, does it cover the following?

• Project Terms – Not only should this include the timeline of the project, it should state who will manage and work on the project. Include a change order clause as well for unforeseen expenses. Your client may request a penalty clause if work is not completed as promised.
• Outsourcing – If you need to use outside resources, vendors, and even suppliers, how will you monitor these sources. A sub-contractor agreement with your company named as additional insured is a must.
• Communication – How much communication where there be between you and the client? If it’s weekly, indicate that. Stick to a written communication agreement and make sure you outline if communication can be verbal or in the form of email or faxes.
• Risk Insurance – Do you have enough project or business liability insurance in case of litigation? What about employee theft insurance? Speak to your company’s insurance broker to ensure you have enough coverage and coverage that will pay for attorney’s fees in the event you are sued. Check with your insurance carrier as well. Often they provide risk management training to help you avoid unnecessary litigation.
• Arbitration or Mediation Clause – Court battles and lawsuits can cost hundreds of thousands of dollars. To prevent this, make sure your attorney includes a mediation or arbitration clause. This forces both parties to enter into an outside court source to solve the dispute. While it’s not free to mediate, it is certainly less costly.

If a client is unhappy with deliverables, timelines, or even the outcome of the project, they could file a lawsuit based on your management service agreement. While your first impulse may be to contact the client directly, if you feel the lawsuit was filed unfairly, it’s best to have your attorney represent your company and speak with the client’s lawyer.

Stay clear of sending letters, emails, faxes or written communication of any kind once a lawsuit has been filed to avoid further fuel for the fire. In the long run, it’s best to let your company’s counsel handle the lawsuit.

If you are a new project manager, make it a point to ask upper management what sort of written agreements they utilize including confidentiality agreements. Be clear in what you say you can deliver and seek an attorney if you don’t have a service agreement in place to avoid project management legal issues.