ASCE Risk Management Resources

Claims Retrospective: Fee Disputes Often Lead to Retaliatory Actions Against Engineers

Posted on 3/12/2018 by ASCE Insurance in Claims

Waiting for payment for services rendered can quickly become frustrating if the client is slow to pay, or never sends payment at all. Choosing to take a client to court for non-payment can lead to other challenging issues that should be considered. Many engineers believe if they have not been paid for services rendered, their only recourse is to file a lawsuit for breach of contract to recover the amount due. However, these types of lawsuits can, and often do, result in retaliatory counterclaims against the engineer for negligence or breach of contract.

While many of these counterclaims are frivolous, the cost of defending them can be greater than the original fees the engineer sought to recover. On some occasions, the amount of the judgment or settlement can be much greater than the amount of the original fees, but that is very rare. Moreover, even when an engineer obtains a judgment against a client for the outstanding fees, the judgment may not be collectible if the client cannot pay. This is especially true with corporation clients with little to no collectible assets.

In addition, the filing of a lawsuit to recover fees can also result in an ethical complaint filed by the client with the licensing board. Most states’ licensing boards have the power to levy fines, require education or supervision, or even suspend or terminate an engineer’s license. Thus, licensing proceedings can be costly and interfere with an engineer’s ability to conduct business.

What should an engineer do to minimize their risk of fee disputes?

The best way to manage the risk of fee disputes is to reduce the likelihood of building up large unpaid balances in the first place. This requires clear communication with clients about fees from the beginning. It is a good practice to have a written contract with clients outlining when payments are due and conditions that may lead to termination of services, including non-payment or delayed-payment of invoices. To further minimize risk, clients can be asked to pre-pay certain services or a percentage of the total contract before work begins.

However, these provisions are only helpful if they are utilized on a consistent basis. In addition, clients should be billed in a timely fashion according to a prearranged schedule so payment issues can be identified as soon as possible. If necessary, termination proceedings should be initiated if invoices are not paid. While writing off payments due is difficult, it becomes more challenging to walk away from a fee dispute involving higher amounts of money.

When contemplating filing suit, it is important to consider the likelihood of recovery, the amount of the recovery, the possibility of a counterclaim by the client for negligence or breach of contract, and the costs and expenses involved. If there is a strong possibility the costs and expenses involved will exceed any recovery, such an action may not be worth the trouble. The good news is that concerted efforts prior to, and while, providing engineering services should significantly reduce the risk of a fee dispute, or lower the amount of fees involved if a dispute arises.