Nancy P from Austin, TX. Austin Energy territory. I presented my audit findings to a commercial real estate client — $28,000 in rate classification errors across 4 properties. The engagement agreement says I earn 45% of the refund. Two days after my presentation, the client property manager contacted Austin Energy directly, filed the rate correction using my analysis, and told me they would handle it from here and did not need my services anymore. They are trying to use my work product to collect the refund without paying my fee.
Client took my findings and contacted the utility themselves — trying to cut me out
Nancy, this is why the engagement agreement needs strong work-product protection language. Does your agreement have a clause stating that the findings and analysis are your intellectual property until the fee is paid? And does it have a clause that says the fee is earned when the error is identified, not when the refund is collected?
Randy, my agreement says the fee is payable upon recovery of savings by the client. It does not have a work-product ownership clause. I wrote the agreement myself using a template I found online. I am realizing now that template had gaps.
Nancy, even without a work-product clause, you have a valid breach of contract claim. You performed the work under a signed agreement. The client benefited from your work. The fee was earned. The fact that they filed the claim themselves does not eliminate their obligation to pay you. If they collect the $28,000 refund, they owe you $12,600 per the agreement. If they refuse to pay, you have a straightforward contract enforcement case.
Phil, I agree I have a legal claim. But do I really want to sue a client? That is expensive, time-consuming, and terrible for my reputation in the Austin commercial real estate market. Everyone knows everyone.
Nancy, before you think about litigation, send a professional letter. Acknowledge that the client filed the claim directly. State that the work product used in the filing was produced under your engagement agreement. Remind them that the fee is payable upon recovery. Give them 30 days to pay. Most clients back down when they see it in writing because they know they are wrong. They were hoping you would just go away.
Jim, good advice. Drafted and sent the letter via certified mail. Professional tone, clear facts, 30-day deadline. Now I wait.
Update: the property manager called 10 days after receiving my letter. He apologized. Said his boss (the property owner) told him to file directly and cut me out, but after receiving my letter the owner consulted their attorney who said they clearly owe the fee. Payment of $12,600 received in full. Relationship is awkward now but at least I got paid.
Nancy, glad you got paid. Now fix your engagement agreement. Here are the clauses you need: 1) Work product remains the property of the auditor until fees are paid in full. 2) Fee is earned upon identification of the error, not upon collection of the refund. 3) Client agrees not to use findings to file claims independently without auditor involvement. 4) If client terminates the engagement after findings are presented, the fee for identified savings is still due. These four clauses prevent exactly what happened to you.
Randy, writing all four into my new agreement template. Lesson learned the hard way. To every new auditor reading this: do not use a generic template you found online. Get an engagement agreement reviewed by an attorney who understands contingency consulting.
Nancy, I will add a fifth clause: a non-circumvention provision that states if the client obtains savings as a result of errors identified during the engagement, the fee applies regardless of whether the client or a third party filed the claim. This covers the scenario where the client hands your findings to their attorney or another consultant to file.
Frank, adding that too. Five protective clauses. My agreement just went from one page to three pages. Worth every line.