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Unengaging Engagement Letters

In the world of professional services, engagement letters and schedules of services are as foundational as the principles of double-entry bookkeeping. They delineate the scope of work, outline responsibilities, and establish the legal and financial terms under which services are rendered. Yet, the necessity of these documents raises an intriguing question about the nature of the professional-client relationship: Do they enhance trust and flexibility, or do they foster a rigid, transactional relationship?

A big thanks to Dave Sellick for the inspiration of this article and the great cricket analogy from a conversation we shared about client war stories.

Trust vs. Transaction

At their core, engagement letters and service schedules are tools of clarification. They’re the rulebook of a football match, ensuring all players know the boundaries. Without these documents, the professional-client relationship might navigate murky waters, risking misunderstandings that can culminate in disputes or even negligence claims. Yet, some argue that an over-reliance on these documents can signal a lack of trust, suggesting that each party is preparing for a worst-case scenario rather than fostering a partnership built on mutual respect and understanding.

Rethinking Engagement: Setting the field for bad bowling

The analogy of setting a field for bad bowling versus improving your bowling is apt. Relying solely on engagement letters and service schedules without fostering a culture of open communication and trust can indeed set the stage for a defensive, rather than collaborative, relationship. It’s like playing a defensive game in football (parking the bus), focusing more on not losing than on winning. The goal should be to strike a balance, using these documents as a foundation for clear expectations while also building a relationship that transcends the transactional.

The Shield

Using terms and conditions as a shield has its pros and cons. On the upside, it offers a safety net, a clear set of guidelines to fall back on when disputes arise. It’s a bit like having a VAR (Video Assistant Referee) in a football match—there’s a mechanism to review decisions when things get contentious. However, the downside is that it can stifle open communication. When every interaction is filtered through the lens of contractual obligations, the relationship can become transactional, losing the personal touch that often leads to long-term collaboration and trust.

Scope Creep: Holy Grail of Pricing Software Vendors

Scope creep, that ever-lurking shadow in accountancy, is when work starts to grow beyond its original engagement, often subtly and without formal acknowledgment. It’s like inviting a few friends over for a casual game night, and before you know it, your house is packed, you’re out of snacks, and somehow, karaoke has been added to the mix. Initially, you might feel a mix of excitement and pride at the growing interest, but soon the realisation hits: you’re in over your head, resources are stretched thin, and your quiet evening is anything but.

For anyone working closely with clients, especially in roles that juggle accountancy and expectations, scope creep can significantly impact client relationships, and here’s how:

Trust and Satisfaction: Clients come to you with a set of expectations, agreeing on a budget, timeline, and deliverables. Scope creep can blur these lines, risking overruns in time and budget, which can erode trust and satisfaction.

Quality: With resources spread thin to cover the expanding scope, the quality of the original deliverables can suffer. It’s the classic jack-of-all-trades, master of none, scenario. You end up delivering a sprawling mess that vaguely resembles the sleek, focused output you initially promised.

Budget: Additional work means additional costs. Without proper management, these can spiral, leading to uncomfortable conversations about budget increases or, worse, absorbing costs that eat into profitability.

Time Management: Every job is a delicate balance of time, scope, and cost. Scope creep throws this balance off, leading to delays and conflicts with other commitments.

Relationship Strain: Continuously changing goals can lead to frustration on both sides. The client may feel their vision isn’t being realised, while you feel you’re being pulled in all directions. It’s a partnership turning into a tug-of-war.

Mitigating the impacts of scope creep involves clear communication, robust management, and setting boundaries. Regular check-ins with clients to confirm parameters and adjustments, as necessary, can keep things on track. It’s also about managing expectations; be upfront about what changes mean in terms of time, cost, and quality. This way, when scope creep does rear its head, you’re prepared to address it without sacrificing the client relationship.

It’s not just about avoiding scope creep but managing it in a way that maintains trust, quality, and satisfaction, ensuring a solid foundation for future collaborations.

Sounds complicated and formal right? There are lots of apps for ‘dealing’ with Scope Creep. The alternative is building trust and rapport with your clients so you both know you have each other’s backs and won’t take the piss but before it becomes a problem we can have a sensible conversation.

Imagine dealing with your personal relationships the way Scope Creep should be managed according to software vendors. “Doesn’t matter how important it is you haven’t signed or paid for it!”.

Knowledge is Power, but Is It Common?

One crucial aspect often overlooked is whether employees, especially those on the frontline of client interaction, fully understand the business’s terms and conditions. How can they execute strategies effectively if they’re not fully aware of the rules? Ensuring that all team members are not just familiar with but also understand the engagement terms is vital for cohesive and consistent service delivery.

How many employees have read your Engagement Letters, Schedule of Services or Terms and Conditions. Come to mention it how many clients do you think have taken the time to read and understand what they are signing up to? Full disclosure I only ever read them when something goes wrong and then suck it up.

If the team do not know what is expected of them, they are doomed to failure before they begin. Each engagement needs to be understood by those working on a client account, so they are given the best opportunity to deliver and meet the client expectations. This is a team event.

Towards a Future of Flexibility and Trust

The future lies in dynamic engagement models that blend the clarity and security of formal agreements with the flexibility and warmth of personal relationships. It’s about moving from a purely transactional approach to one where mutual respect and understanding are paramount. Engaging in regular reviews of the terms and adapting them as the relationship evolves can foster a more adaptable and resilient partnership. Professional services like accountants need to balance the formal with the flexible.

When was the last time you reviewed your engagement documents? Are they up to date, are they relevant and representative of how you work with clients? Or are they templated documents provided by your professional body from 1987?

These documents are going to be the first proper interaction your clients have with your practice. What do they say about you?

Accountancy professional bodies like the ACCA (Association of Chartered Certified Accountants) do require their members to have engagement letters in place as part of holding a practising certificate but it doesn’t mean they have to be in legalise. This requirement is rooted in the broader objective of ensuring clarity and mutual understanding between accountants and their clients regarding the scope of work, responsibilities, fees, and other critical aspects of the professional relationship.

Having engagement letters is often a requirement or strongly recommended by insurers. Professional indemnity insurance provides protection for professionals against claims of negligence or breach of duty made by a client. Insurers view engagement letters as a critical risk management tool because they:

– Provide evidence of what was agreed upon between the professional and the client, thus offering a clear basis for defending against any claims.

– Help prevent disputes by ensuring both parties have a clear understanding of the terms of the engagement, thus potentially reducing the likelihood of a claim being made in the first place.

In essence, engagement letters are not just a requirement but a cornerstone of professional practice, underpinning the relationship between accountants and their clients with a foundation of clarity and mutual agreement. This, combined with the protection offered by professional indemnity insurance, forms a robust framework supporting the delivery of high-quality, ethically sound, and compliant professional services.

Conclusion

It’s “not in the engagement letter” is no defence for not providing support and guidance in areas you know the client needs. Scope creep is a not derogatory term to use about clients wanting additional support that they are probably willing to pay for but didn’t understand it wasn’t included in your 50-page manual on how to behave.

While engagement letters and schedules of services are indispensable in agreeing the scope and terms of professional engagements, their role should be viewed as a starting point, not the entirety of the relationship. By fostering open dialogue, ensuring all team members understand and align with these terms, and prioritising mutual trust and respect, professionals and clients alike can aim for a partnership that is both secure and dynamic. In this context, these documents do not limit potential but rather provide a clear framework within which trust and collaboration can flourish.

There will be clients that are not a good fit for this type of relationship. Your job is spot the Red Flags and work with people where trust and respect are a given. Improving your radar for PITA clients is better than subjecting everyone to reams of paperwork.

Working with great clients and providing truly exceptional service is the only shield you need from concerns of claims.