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Firms under fire Organization leaders say design firms must weigh the risks before agreeing to clients’ contractual requirements related to idemnification.
❚ ❚ Don’t accept. GLMV had a long-term relationship with a healthcare system, which was purchased by another organization with its own agreements. GLMV con- tacted its risk group and set up a phone call negotiation to review its concerns. After a lengthy conversation, the risk group acknowledged the concerns, but said, “Thank you for your concerns, but this agreement cannot be modified; that is our policy. Other firms in your area have already accepted it.” GLMA declined to work with the client because of internal risk. “Clients say that they have never had to enforce the indemnity language, but then why is the clause in the agreement?” What does this second scenario really communicate as the larger issue? Do the firms that agree to these con- tracts sign the agreement first and read the language later, or do they worry about it only when it becomes a “potential claim”? “We suspect the answer is ‘yes’ on the latter, but it is making it more and more difficult to win proj- ects when their stock answer is, take it or leave it,” McKee says. “We find ourselves turning down oppor- tunities with potential clients because the risk of out-
By LIISA ANDREASSEN Correspondent
“I know we’re not alone,” Larry Van Horn, senior vice president and CFO of GLMV Architecture (Wichita, KS), an 85-person firm says. “We’ve been experiencing recurring instances – from different par- ties – regarding contractual requirements that are un- acceptable and uninsurable.” Mac McKee, executive vice president and chief risk officer at GLMV, agrees that many contract terms re- garding indemnification are becoming onerous, unin- surable, or outside the company’s risk tolerance. The questions then become: When do you accept? When do you not? Here, he shares two real-life scenarios and their outcomes: ❚ ❚ Accept. GLMV received an RFP from a large company for a three-year, on-call agreement that would be their sixth renewal. GLMV has a great track record with the company. The contract language is similar, but, with its new merger, management wants to toughen up the agreement. Through GLMV’s legal counsel and insur- ance broker, it negotiated for a shorter term but was only able to make the indemnification language a little better, because the client was not willing to make ad- ditional changes. So, GLMV weighed the odds of the existing relationship and the large amount of work and chose to accept this agreement.
Larry Van Horn, Senior VP & CFO, GLMV Architecture.
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Mac McKee, Executive VP & Chief Risk Officer, GLMV Architecture.
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THE ZWEIG LETTER JULY 13,
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