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Project Management Legal Issues: Are You At Risk?

written by: Jean Scheid • edited by: Michele McDonough • updated: 5/28/2013

No matter what profession or field of industry you make your occupation in, there will be legal concerns, including project management legal issues. Do you have a project management service agreement and does it cover all the aspects of the project? Read on to find out more.

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    Skipping the Risk of Legal Issues

    US Supreme Court by DBKing In these days of “I’ll sue,” not only do you need to be clear with clients and stakeholders, but also with your project teams on what is expected of them and what your project management service agreement outlines.

    Contract law, in and of itself, is a tricky legal game and it can vary from state to state. Every project management effort needs binding and legal agreements to protect your company against litigation, whether you're dealing with in-house or outsourced project management.

    Many project managers do not err on the side of caution, unless they’re in the building and construction industry, and they often make verbal agreements that are unreachable. Often, employee or team theft of confidential or proprietary information is another reason for a client to seek an attorney.

    While it’s best to have a contract attorney in your state write your project management services agreement, we have provided this example-only template of a service agreement; it should not be used in lieu of legal advice. To ensure you have full protection from litigation, have your counsel write your service agreement. Keep in mind that you may need to alter your services agreement per project to avoid legal issues resulting from a project you've managed.

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    PM Legal Issues – Can It Happen to You?

    If you do have a service agreement in place, does it cover the following?

    • Project Terms – Not only should this include the timeline of the project, it should state who will manage and work on the project. Include a change order clause as well for unforeseen expenses. Your client may request a penalty clause if work is not completed as promised.
    • Outsourcing – If you need to use outside resources, vendors, and even suppliers, how will you monitor these sources? A sub-contractor agreement with your company named as an additional insured is a must.
    • Communication – How much communication will there be between you and the client? If it’s weekly, indicate that. Stick to a written communication agreement and make sure you outline if communication can be verbal or in the form of email or faxes.
    • Risk Insurance – Do you have enough project or business liability insurance in case of litigation? What about employee theft insurance? Speak to your company’s insurance broker to ensure you have enough coverage and coverage that will pay for attorney’s fees in the event you are sued. Check with your insurance carrier as well. Often it will provide risk management training to help you avoid unnecessary litigation.
    • Arbitration or Mediation Clause – Court battles and lawsuits can cost hundreds of thousands of dollars. To prevent this, make sure your attorney includes a mediation or arbitration clause. This forces both parties to enter into an outside court source to solve the dispute. While it’s not free to mediate, it is certainly less costly.
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    If You Do Get Sued

    If a client is unhappy with deliverables, timelines, or even the outcome of the project, he could file a lawsuit based on your management service agreement. While your first impulse may be to contact the client directly, if you feel the lawsuit was filed unfairly, it’s best to have your attorney represent your company and speak with the client’s lawyer.

    Stay clear of sending letters, emails, faxes or written communication of any kind once a lawsuit has been filed to avoid further fuel for the fire. In the long run, it’s best to let your company’s counsel handle the lawsuit.

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    Protect Your Services

    If you are a new project manager, make it a point to ask upper management what sort of written agreements they utilize including confidentiality agreements. Be clear in what you say you can deliver and seek an attorney if you don’t have a service agreement in place to avoid project management legal issues.