Working in Hiscox’s claims team, you start to become attuned to common claims in particular industries. In the case of IT consultants insurance, despite each business being unique and each claim having its own specific challenges, they often come under a specific heading.
Working as an IT Contractor can be a particularly rewarding job. You work for yourself, you can often choose some of the most interesting projects to work on and you’re often making a real difference to the work of major companies.
But if there is a downside, it’s the worry that comes with a dispute between yourself and the client. No matter whether you run a large contracting firm, a small company, or its just you, any kind of IT dispute takes time, money and an emotional toll on the person running the business.
And these claims can take time to resolve, both from a technical and a legal point of view. It’s not uncommon for disputes to last months while both parties try to come to an agreement – a situation that’s far from ideal when you just want to get on with running your business.
While it’s impossible to completely eliminate risk, there are steps you can take to prepare for and hopefully prevent the stress and cost that comes with a dispute. Below, I’ve outlined the areas the majority of disputes fall into and how you can take practical steps to protect your business.
A breakdown in communication
It’s easy to get excited when you start a new project. Often the client is keen to move as quickly as possible or, in the case of individual contractors, get you started in the role as soon as possible. This is perfectly understandable and very common. What can also be quite common is that not enough time has been spent planning the project or defining what the end result can be.
Perhaps you’ve been hired after the project spec has already been developed. Perhaps the overall objective isn’t well defined – you’re probably familiar with the vague instruction “We want our website to look good”, which is then up to you to define what “good” looks like.
In an ideal world, the project would take shape through a series of meetings where the client explains what they want, before the consultant then develops a detailed specification for the job, which all parties agree on.
Sadly, this ideal is often hard to achieve. The less time that’s spent on planning, developing the spec and agreeing on targets, the greater the risk of a breakdown in communication and a dispute between the contractor and client over the end product.
A change of financial situation
We’re getting to the time of the year where firms finalises their budgets and address any overspend or underspend. And if there’s a change of focus financially or savings that need to be made, it can impact on their contractors.
One example would be when a company has invested heavily in a new IT solution but, for whatever reason, decide to scale back on their investment further down the line. This, in turn, can lead to greater scrutiny of the project as they look for faults as a reason not to pay or to cancel the project entirely. There may be no actual basis for these claims, but it can still lead to a lengthy dispute, especially if, as a contractor, you’ve already budgeted for this income yourself.
A change of focus for the project
Projects can often change as they develop and it’s fairly common for clients to change their minds about what’s actually needed after seeing an early iteration. What will usually follow is a series of amendments that means the finished article bears little resemblance to the original brief.
The risk here is the client may not like what has been delivered and can use the original brief to show that the project hasn’t been delivered properly. Or the client may be delighted with the results, but the amendments mean that the cost of the project has risen.
Either way, the result is almost always a stalemate. The contractor wants payment, the client disputes either the work or the price and the only record of the changes is a series of emails, which can be hard to interpret.
A breach of IP
This is probably one of the most confusing areas for IT contractors yet is probably one of the easiest to avoid if due diligence is done at the very start.
If you establish whether you, as a contractor, or the client owns the intellectual property (IP) at the beginning of a project it can avoid an expensive and often stressful claim, that is quite often an inadvertent mistake on the part of the contractor.
If you complete your work for one client but then use elements of this work for another client, you could be breaching the copyright of the original client, if they own the IP. In the worst case scenario, the original client could take out an injunction or other legal proceedings against you, which can be quite a frightening process.
So how can I avoid these disputes?
Each dispute is different, but there are a few basic rules it’s good to follow. They’re also good habits to get into in general.
- Have a clear contract, including the project’s scope and function, deadline and cost.
- If the client wants a major alteration in the project or the project has now expanded to include a substantial amount of extra work, then it’s good practice for both sides to agree a change in the original terms of the contract.
- For fixed-term freelance work, set out at the very start whether it is you or your client who will own the intellectual property contained in the product you are creating.
- Check your professional indemnity. Disputes with dissatisfied clients can be protracted, messy and stressful. Having the right policy in place can protect you against breach of contract and IP infringements claims and may provide access to an experienced team of lawyers to help fight your case. Not sure what you need? Visit our indemnity insurance definition FAQ to find out how best to protect your business.
The examples I’ve given are sadly all too common and often time consuming and stressful for the contractor involved. You may not be able to prevent the dispute entirely, but you can take steps to mitigate the risk to your consultancy, both from a financial and reputational perspective.