One of the key contributors to running a successful practice in today’s economic environment is the existence of sound risk management processes and procedures. Lately, SAICA has become aware of a number of instances where one of the key risk management elements of a practice have been neglected, the element of contract risk, and it resulted in the practitioners paying dearly for their oversight of this very important element of practice management.
Some of the common scenarios which arise, and are difficult to resolve due to the absence of an engagement letter, are disputes over scope of work, lien over documents, fee disputes, disputes regarding timing of completion of work, and disputes and responsibilities over penalties and fines due to non-compliance.
The one key mechanism to manage a firm’s engagement/contract risk is by entering into an engagement contract with each and every client and ensuring all services performed for that client are covered with an engagement letter/letters. Having an engagement letter benefits both the client and the practitioner.
The engagement letter at a minimum should contain the following:
- Confirmation of acceptance of the appointment;
- Should outline the type of engagement;
- The scope and extent of the work;
- The objective of the engagement;
- Must detail the various partners’ responsibilities and
- Should contain, clear indications of the client’s and practitioners’ responsibilities, in order to manage the “expectation gap”;
- Should specify limitations on the work to be performed e.g. the level of assurance provided;
- What the expected deliverable will be;
- Set the fees applicable to the engagement and billing arrangements;
- Sets out the practitioner’s Terms and Conditions of engagement (this doesn’t need to be included in the agreement, however should be provided to the client) and their responsibilities in terms of legislation and regulations; and
- Ownership and liens over documents.
It is imperative to protect yourself and your client, that an engagement letter be entered into on an annual basis and should cover all services provided to the client. Many practitioners have rued the fact that they have neglected this basic, yet important risk management procedure, don’t be one of the casualties of poor risk management.
Reference:
Bridgette Kriel – SAICA Newsletter