The three-year contract nobody remembered

An engineering business with about 60 staff signed with an adviser in a hurry before a filing deadline, on a fixed fee of $35,000 a year. The claim was $250,000 on the shared example, the fixed fee was well below what a percentage fee would have cost on it, and the first years went well. Illustrative figures. In year three a large development project ended and the next claim was going to be much smaller. A new finance director compared the fixed fee with other proposals and decided to change adviser.

The engagement letter covered the current accounting period and renewed automatically for each following period, at the same fixed fee, unless notice was given at least six months before the period ended. Both terms were in the standard terms the letter referred to, not in the letter itself, and nobody on the business's side had read them. Illustrative figures.

The finance director gave notice four months before the period end, two months after the notice date had passed. The adviser pointed to the clause, politely, and the business was committed to another year at the fixed fee. The claim that year came to $100,000, and the business paid $35,000 for it, against the $20,000 that a 20% percentage fee offered elsewhere would have cost on the same claim. It gave notice for the following year on the day the letter allowed. The adviser's work was not at fault. The clause did what it said. Illustrative figures.

One more year on a fee basis the business had decided to leave: $35,000 on a $100,000 claim, against the $20,000 it had been offered elsewhere, which is $15,000 for a missed date. The fixed fee had been the cheaper model while the claim was large; it became the dearer one when the claim shrank, and the renewal clause meant the business could not change when its claim did. A three month notice period, or a reminder before the renewal date, would have cost nothing. Illustrative figures.

Reading the standard terms, which is where this renewal clause sat. The question do you claim every year by default?, asked before signing. The multi-year and renewal terms clause page, which shows what a three month notice period and a written reminder look like. And a date in the diary. The managing an adviser year to year guide puts the notice date in the yearly cycle. Its step on scoping the year's claim is where a business notices that the claim and the fee are about to part company. A rolling engagement is not a problem in itself; a business that values continuity may want one. The problem is a renewal nobody knew they had agreed to.