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Consultant's failure to define 'success' means no fee payable

Posted: 28th August 2013   In: Commercial Property

When drawing up a contract for consultancy work it is important that both sides agree what the objectives are and what will constitute success.

If there is no clear understanding, disputes can arise over fees, as shown in a recent case before the High Court.

It involved a company that engaged a consultant to advise it on how to cut costs in several areas of expense including air travel. Under the agreement, the target reduction in each category was 5%. The fees were to be paid on a contingency basis with the consultant receiving 50% of the savings obtained.

The consultant produced a report as agreed but the company rejected the findings and refused to pay any fees.

The court found in favour of the company. It held that if the consultant’s findings were to qualify as a recommendation report there had to be a benchmark report setting out the current levels and prices paid.

The consultant had produced a benchmark report but the judge considered that it contained no clearly identifiable yardstick against which success in reducing costs could be measured. Such imprecision could be acceptable in a preliminary discussion document, but not if the intention was to provide a benchmark for calculating subsequent savings.

As the benchmark report contained no intelligible success criteria, the consultant could not show that such criteria had been met and so could not claim any fees.

Please contact Jon Alvarez about the issues raised in this article or any aspect of contract law.

Posted by: Jon Alvarez
Corporate Commercial
Luton Office