800.668.7020
M-F 8:00AM TO 5:30PM CST
Better coverage. Better price.
Don't Risk IT
What Is Contract Negligence?

What Is Contract Negligence?

Tuesday, March 08, 2016/Categories: errors-and-omissions

Contract negligence is a bit of a misnomer. It’s actually two legal terms smooshed together: breach of contract and negligence (specifically professional negligence).

Why is this term so important? First of all, small-business owners are often confused about it. And secondly, anytime we’re talking about contracts, we’re really talking about what you can and can’t do to protect yourself from a lawsuit. Needless to say, the stakes are high.

Paul Menes, principal at , explains that the often hard-to-read language of contracts gets small-business owners all befuddled. And that can be a problem. He recommends getting on the same page as your lawyer and having them explain your contract in plain English to you.

While this article won’t substitute for having a good sit-down meeting with your lawyer, we’ll do our best to explain “contract negligence” in terms any business owner can understand.

"The cost of getting sued… can easily put that small business out of business." – Paul Menes, principal at Menes Entertainment Law

Negligence vs. Breach of Contract

If you hear someone refer to contractual negligence, they’re really confusing two separate issues:

  1. Breach of contract: Did you deliver what you said you would?
  2. Professional negligence: When you delivered goods or services, did you make errors or oversights?

Gary Port, former assistant district attorney of Kings County, New York, and current partner at , explains the issue with a simple metaphor. Imagine you’re buying a car.

“If I agree to sell you a car then sell it to someone else for more money, I have breached the contract,” Port explains. If you don’t deliver what you say you will, that’s breach of contract.

Negligence is less straightforward. A court may rule you were negligent if a client can show you didn’t uphold a certain level of care when delivering your goods and services. If they can show you delivered sloppy IT work, you could be held liable for negligence. But negligence gets complicated here: sometimes a case of negligence can lead to a breach of contract.

Let’s go back to the car metaphor. What if you crash the car on the way to delivering it to a customer? Port explains that that would be negligence, but moreover, it’s also breach of contract. You didn’t deliver what you said you would. You delivered a smashed-up car rather than a working one.

The lesson: breach of contract and negligence are separate legal issues, but can be interrelated.

Contract Negligence for IT Professionals

Car metaphors aside, what do IT professionals need to know about contract negligence?

  1. You can be liable for breach of contract if you fail to deliver what the client contract requires.
  2. You can be sued for negligence if you overlook an error or deliver faulty work.
  3. Many contracts include a “waiver of liability” where one party agrees not to sue the other one.

Waiver of liability? You may be thinking, “Wait, can I put a clause in my contracts that protects me from lawsuits?” Yes and no.

First of all, in a contract negotiation, usually the party with more leverage tries to get the other party to waive their right to sue. If you’re a small-business owner, chances are you won’t have that leverage.

Unfortunately, your bargaining position can force you to sign less-than-favorable contracts. If a company with 100 employees hires you as a contractor, you may not be able to throw your weight around and fight for better contract terms. This why it’s smart to hire a lawyer to review your contracts and make sure you won't be blindsided by unfair terms.

And secondly, waivers of liability won’t hold up if your business is “grossly negligent,” which Gary Port explains means that you were really, really negligent. In other words, if you really mess up, your clients can still sue you. (See Professional Liability Insurance for information on covering the cost of IT lawsuits.)

3 Tips for Reducing Contract Negligence and IT Professional Liability

As you look to protect your company from unfair lawsuits, there are a few things to keep in mind:

  1. Always work with lawyers to review your contracts.
  2. If you’re in position to do so, add a limitation of liability clause to your contracts.
  3. Make sure you know what your contracts say in plain English – miscommunications between you and clients can lead to claims of breach of duty or negligence.

Be sure to check out “Should You Add An Errors and Omissions Clause to Contracts” for more tips on how contracts can protect your company.

The Small Business
Insurance Leader
800.688.1984 | 8 am - 5:30 pm CST | M-F
Customer Rating 4.9 out of 5
Read Customer Reviews

Categories

The Small Business Insurance Leader