Case Study: Architecture
Smarter Contract implemented expert determination in the contracts of a thriving architecture and interior design firm based in New York’s Upper West Side.
We began by learning where expert determination could help by getting answers to these questions:
• What disputes do you want to avoid?
• What concerns are often raised during contract negotiations?
The following dispute types were the most concerning:
• Professional malpractice claims
• Wrongful employment termination claims
• Client non-payment
We discussed with the firm’s owner how expert determination can prevent frivolous malpractice and wrongful termination lawsuits at no cost. Contractually, the counter party would not be allowed to initiate a lawsuit for those matters. Instead, an expert would be selected to determine the relevant facts, which would imply a specific outcome. That outcome would be enforceable by a relatively trivial arbitration or summary judgement. The party that were incorrect about the facts would incur the cost of the expert.
We similarly discussed how expert determination can efficiently resolve client non-payment disputes.
Initial Attorney Feedback
At this point, the owner sought his attorney’s input and wrote to us that the attorney ‘thought it was a great idea.’
Attorney Feedback on Contract Modifications
Next, based on our analysis of the firm’s client agreement, we suggested six specific modifications to it. We presented these modifications to the firm’s attorney. These modifications were the product of our Expert Determination Setup Guide, which you will receive after providing your email address.
Get the Expert Determination Clause
The contract modifications specified which factual matters would be resolved by expert determination rather than litigation, included parameters by which they would be resolved, and specified the outcomes produced from the determination of those matters.
After reviewing the modifications, the firm’s attorney wrote to the owner, “The Modifications (which I’ve revised simply) are an impressive process to limit and/or control client disputes that otherwise get out of control. Well done!” We accepted the attorney’s simple revisions.
4. Implementing Contract Modifications
We then got on a call with the owner and his Office Manager to explain in greater detail how expert determination would work in practice and to explain how it would be implemented in his contracts. On the call, the owner agreed on parameters specifying how each dispute would be resolved.
After the call, we reviewed the firm's professional liability insurance policy to verify what would happen in the event of an expert determination. First, we explained why the insurance company would benefit from requiring expert determination as the dispute resolution mechanism. We also explained that the insurance company would have the ability to settle a dispute before expert determination expenses were incurred. We then explained that the insurance company was required to pay any "Damages," which included any monetary judgement against the firm or any settlement negotiated by the insurance company. If expert determination determined that the firm were in the wrong, there would either be a monetary judgement or a settlement negotiated by the insurance company, both of which would be covered by the insurance company.
With the above information, the owner gave final approval of the modified contract, which is what the firm has since used for new client projects.