Part II – Helping your lawyer help you: Poor performance by contractors

January 20, 2017 | BY SHANNON Q

A lawyer’s time is expensive, as anyone who has reviewed a legal bill knows. It’s why bringing legal work in-house is often viewed as a way to save costs on legal spend. But even if your in-house counsel doesn’t charge by the hour, there is an imputed cost of their time. There is also an opportunity cost of their working on your issue. There is always something else important they could be doing. 

So if you’re like me – a “non-lawyer” – it’s important to prepare effectively in advance for a meeting with your lawyer. That way you will avoid multiple turns at the issue, get the advice you need sooner and maybe even make your lawyer’s Christmas card list.  And of course, you’ll save time and money.

So in this second of a series of articles on helping your lawyer help you, we’re going to tackle a topic that’s part employment and part procurement: What you need to know when your company is experiencing performance issues with a contractor’s work.

I interviewed Erika Holt, one of our Calgary-based lawyers who has 10 years of experience with commercial contract negotiation and litigation matters.  Here

 are her thoughts:

What are the common scenarios you see when approached for advice?

Typically, I’m consulted when there’s been an extensive history of poor performance, or my client wants to terminate the contract due to poor performance.

What would you want to know from the client about the issue?

All surrounding circumstances and facts, including:

  • Is there a contract in place?
  • What types of services or goods are being provided by the contractor?
  • Details around all aspects of the poor performance—what are the issues? How has performance differed from expectation or contractual specification?
  • How long have the performance issues being going on?
  • Has the client suffered any losses or incurred any expense(s) as a result of the poor performance? (e.g. delays, damage to property, downtime etc., and any associated costs or losses)
  • What are the risks associated with the poor performance? (e.g. safety, property damage, environmental etc.)
  • What steps have been taken to address these problems with the contractor? (e.g. discussions, emails, formal notice of default etc.)
  • Aside from correspondence with the contractor, is there any other evidence of poor performance? (e.g. pictures, reports, physical damage etc.)
  • Is there any basis for the contractor to suggest that the performance issues are wholly or partly due to the client’s fault?
  • Is there any basis for the contractor to suggest that the client has accepted the poor performance or that the deal has changed from what was originally negotiated?
  • Is the client in breach of any of its obligations under the contract, even if unrelated to the performance issues?
  • What is the client’s goal?
    • Do they want the contractor to remedy the situation going forward?
    • And/or do they want the contractor to correct past poor performance by re-performing, repairing, reimbursing costs etc.?
    • Or do they want to terminate the contract and possibly pursue damage?

What information would you want to review and why?

  • The contract between the parties including any renewals or amendments.
  • If there is no formal written agreement, emails or even a handshake agreement can sometimes form a contract.  So, if there is no formal agreement we will want to discuss anything that could be construed as a contract.
  • Correspondence or discussions between the parties relating to performance issues, if any.
  • Any other documents or evidence relating to the performance issues.

What special circumstances would you flag as being important for the client to disclose?

  • Any significant risks that have arisen or could arise.
  • Any possible contribution by the client to the contractor’s performance issues, or any failure by the client to meet its own contractual obligations.
  • Any other special circumstances of which the client is aware and that might relate to the performance issues, such as financial difficulties on the part of the contractor or the state of the business relationship between the parties (e.g. other disputes with the contractor, interpersonal conflicts etc.).

What general advice do you have for companies?

  • It is important to notify the contractor of any performance issues in writing, possibly more than once if the issues are ongoing. Whether to do this informally by way of email, formally by way of an official notice of default, or something in between, will depend on circumstances such as the seriousness of the issues, the duration, the risks, and the outcome desired by the client. Often the contract requires notice to the contractor of any problems and grants a period of time for the contractor to remedy—if so this should be done. Tolerating poor performance over a protracted period without notifying the contractor could result in a court finding that the client has waived its right to complain, or at the very least gives rise to poor optics (i.e. could be seen as unfair to the contractor).
  • Be proactive about collecting and retaining evidence relating to performance issues, such as taking pictures or making reports.
  • Don’t give any indication of accepting the poor performance and don’t agree to any changes to the deal. If the contract no longer reflects the business reality, contact legal to prepare an amendment.
  • To the extent possible, the client should address any of its own performance issues or breaches.
  • If you’re ever in doubt, it’s a good idea to consult with legal—the earlier, the better.

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