Can Clients Sue You If Your Consultancy Efforts Fail?
Something has gone wrong in a consultancy project. Does this mean you're legally liable? Well, it depends on a couple of things.
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Can You Be Sued?
Let’s imagine you are a marketing consultant. You give your client a strategy to follow. They follow the strategy but their market share doesn’t increase.
Are you legally liable for this failure? Could the client sue you and reclaim their money?
There is a simple and a more complex answer to this.
The simple answer is it depends on your contract.
The Contract
Only Promise Deliverables, Never Outcomes
Around 2013, I worked with a client who insisted on a performance-related contract. I put together the strategy and created our usual set of deliverables. Then the person running the project left and wasn’t replaced. The project was kept in stasis for a few months and then cancelled. I invested a huge amount of time and only received a fraction of the payment I should have received.
This is the problem with being paid by the outcome; you can’t control all of the outcomes.
Likewise, major external events can also have an impact. What if the client is ready to begin using your deliverables and a pandemic strikes, a war begins, or the industry suddenly changes? Or what if the client changes their mind about the project?
If you agree to an outcome, all unforeseeable risks are shifted onto you.
As a golden rule, you should only promise deliverables in a contract, never the outcomes. Deliverables are the things you will create for the client, outcomes are the results the clients will achieve by using those deliverables. The reason for this is simple. You can’t control all the things that can impact outcomes.
Your contract should clearly specify the deliverables you are responsible for and will be paid for. If a client gives you a contract to sign, carefully check the acceptance clauses.
Anything outside of what’s detailed in the contract is beyond your zone of responsibility.
Don’t Make Performance Guarantees
However, contracts aren’t absolute and you should be careful about making any performance guarantees in your proposal and in communications with clients.
It’s okay to make performance guarantees regarding your personal performance (i.e. 48-hour response time to client questions), but don’t make promises in areas over which you don’t have full control.
I’ve found clients will sometimes try to elicit guarantees in our proposal or even in the contract itself. I avoid this. If they ask what kind of outcome they should expect, I reply with the truth - but a caveated truth along the lines of:
‘There are plenty of factors which can influence the results, so we don’t make guarantees. But in our past work, we’ve typically found….”
This gives the client an answer they can work with while also being clear that we’re not guaranteeing the outcome itself.
Cap The Liability
In some areas of consulting like financial, legal, IT, and construction it’s more common to include causes which cap the damages a client can be held responsible for.
But be mindful that local law overrides this and if they’re deemed unreasonable they will be ignored altogether.
What If Your Deliverables Are Faulty?
The question becomes more complex if the deliverables you create are somehow faulty.
For example, imagine you create a website for a client which uses copyrighted photos or isn’t GDPR compliant. Or imagine you interview stakeholders in a technology project and recommend a platform which doesn’t fulfil their specifications. Or imagine you provide advice which conflicts with local law.
Aside - I know one consultant who helped a client create a competition for their customers and the client got into a lot of trouble for running an illegal sweepstakes in multiple countries.
In these situations, we would consider the ‘deliverables’ to contain defects. And if those defects cause a client to suffer a financial or reputation loss, then you might be liable for that (as you should be).
This is why you 100% should have $2m of professional indemnity insurance. This insurance protects you and your clients.
The Danger For New Consultants
It’s also why if you’re relatively new to consulting you should always check the potential legal implications of your deliverables.
It’s not uncommon for consultants to do things which seem perfectly fine when they work within an organisation but could cause major problems if they do it as a solo consultant.
For example, downloading data from a client’s system to your own laptop can be seen as a huge breach of a client’s data security system. Likewise, if you then upload that into another system to analyse it (which the client’s customers didn’t consent to), you’re creating a dangerous situation. If you then improperly dispose of that laptop or are hacked exposing that data to the world then the fines for your client are considerable.
No one is expecting you to memorise every law of every nation. But you should be familiar with key principles, investigate potential issues, and run your recommendations past the client’s legal team if possible.
Be Cautious and Smart And You Should Be OK
Ultimately, liability is a simple and complex question. As long as you don’t promise the outcomes you’re not liable for the performance of the deliverables you create. There are simply too many things which can impact that performance.
However, if the deliverables themselves are considered faulty, then you are on the hook if those faults cause your clients to incur a financial loss. This is why you should exercise extreme cause in your recommendations and have professional indemnity insurance.