CXO

Turning around a nightmare client relationship

As a consultant, you often must deal with less-than-cooperative clients. See one consultant's suggestions for saving a client relationship. And read another's sample "out clause." It may save you from those relationships you can't salvage.


The problems you face with a nightmare client may seem insurmountable, but you can rebuild the relationship with three steps:
  1. Restore good communication tactics.
  2. Meet with your client's key players to clarify present standings.
  3. Work toward a mutually beneficial resolution.

Chris Ranno, vice president of IT at Total Support, Inc., an infrastructure solutions provider, uses this three-step method to restore relationships with clients. We recently interviewed Ranno and other IT pros to get their advice on dealing with difficult clients. Each had specific strategies that you can use to improve or leave a troubled relationship with a client.

Second of two parts
The first article addressed ways to avoid taking on nightmare clients and strategies for breaking away from clients you don't care to deal with anymore.

Chris Ranno's three-step method to restore client relationships
Ranno said that communication problems make good client relationships turn sour and communication is the first building block consultants should use to repair the relationship.

For example, during a service contract, a client's staff began making requests for service from Total Support without the knowledge of the decision maker. Because the client hadn’t set up an approval process, the charges to the client mounted during a two- to three-month period. At that point, Ranno said, his staff let the client know of the large balance it had accrued. "We started placing collection calls to let him know that it was outstanding," Ranno said. "As a courtesy, we continued to extend credit to maintain the business relationship."

Ranno said it was important to begin communicating that there was a problem as soon as possible. He didn't turn the client's outstanding debts over to a collection agency because he wanted to "salvage the relationship at all costs."

The next step in Ranno's three-point plan is to hold a client meeting with key players. In this instance, Ranno prepared to meet with the client by gathering documentation of all the work performed and the related charges.

"We opened our self up with all the information possible so they could understand what was going on," Ranno said.

The effect of the meeting with the client was positive, and Ranno was able to negotiate a resolution that established a single point of contact between him and his client so that requests for service would be approved before they were implemented. That led to Ranno’s third step: encouraging mutual trust in the future.

It took three or four months to resolve the client's debts, but in the end, the relationship was maintained, the client continued to receive services, and Ranno was able to collect on the money his firm was owed.

In the few cases where Ranno has come near to ending a relationship due to an uncooperative client, he has used drastic measures, such as placing the client on a prepaid service basis. To protect Total Support, Ranno said, the firm’s contracts include monetary penalty clauses that charge the client for severing the service relationship prior to the agreed end-of-service date. The company also tries to negotiate a retainer, in which 50 percent of expected fees are paid before the start of the project, just in case the relationship sours.

Ensuring that your contracts include an "out clause"
In some cases, it's impossible to reach an agreeable resolution with a troublesome client. A solid contract with an "out clause” may be the only solution. An out clause, or termination clause, describes the basis on which the consultant or client can dissolve the relationship and the payment terms for remaining debts or necessary reimbursements.

Judith Kallos, a Web development and business-coaching consultant who owns The Istudio in Gurnee, IL, said she includes an out clause in both her initial letter of engagement and the client's contract. The clauses she uses in The Istudio's contracts are shown in Figure A.

Figure A


Will these clauses fall short in court?
Many contractual agreements, like noncompetes, have questionable validity in a court of law. One legal expert said Kallos’ clause would stand up to legal scrutiny.

"Parties are free to enter into such clauses, and a court will uphold such arrangements," said Garrett Sutton, a corporate and transactional attorney in Reno, NV, and author of Own Your Own Corporation. Sutton said he found no ambiguity in the clause and that it was clearly drafted.

Mark A. Stafford, a lawyer with the firm of Kilpatrick Stockton, agreed but had some reservations. For example, he said a sharp lawyer might be able to capitalize on the language in the letter of engagement clause to reverse its meaning entirely.

"The termination clause…uses language of 'mutual trust and confidence,' and a clever user's lawyer might argue that this language created a 'fiduciary duty' by which the consultant is legally required to put the user's needs and financial interest at all times above his own," Stafford said. "Ironically, this is just the opposite of what the clause is intended to do."

It's impossible to say with certainty what a court would do, but making the clauses straightforward and making it clear that scheduling projections do not change the right of the parties to walk away will greatly increase a consultant's chances of winning a court case, Stafford said. He provided the following revision that included more specific information:

“The parties agree that either of them may terminate this agreement for any reason or no reason upon 45 days' written notice, notwithstanding any previous, contemporaneous, or future representations made between them as to project scope, definition, or scheduling. Upon such termination, the consultant will be paid for all services rendered prior to termination, and prior to the termination date the consultant will reasonably cooperate in the transition of any of the work envisioned under this agreement to a third party of customer's choosing.”

Bottom line
If possible, consultants should make the attempt to salvage a client relationship before ending the relationship. If, like Ranno, you use a methodology to ensure that the contract will continue, approach each conflict with the focus on completing the contract on good terms.

If, on the other hand, a relationship with a client is irrevocably damaged, falling back on a carefully worded termination clause could help extricate you and your consultancy from a no-win situation.

More about clauses
TechRepublic received many expert opinions regarding out clauses that we’ll share in an upcoming article. In the meantime, tell us what you’ve experienced in terms of exercising termination clauses. Have you used them successfully, or have you been in a nasty court battle? Send us an e-mail or discuss your experiences below.

 

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