How to write contracts to ensure you get paid

Consultants, lock down your contracts. Otherwise you’re getting a big zero in court. (Or, if you’re the consultee, fight to Earth’s end to keep that contract loose.)

Consider a not atypical case: John M. Floyd & Associates v. First Imperial Credit Union. The consultant entered a contract to provide recommendations (on implementing an overdraft prvilige program) to the consultee (a credit union). Under the the contract, the consultant’s compensation pended on the number of recommendations that the consultee installed. If the consultee installed none, the consultant got nothing.

But what happens if the consultee installs something functionally identical to the recommendations? Does the consultant get paid then?

Not in John M. Floyd & Associates.

The consultant’s got two conceivable claims: breach of contract and misappropriation of trade secrets. Both will pend on the specific contractual language and facts at issue.

Breach of contract was a nonstarter in the case because the contract didn’t stop the consultee from implementing a functionally identical program. The consultee needed to pay only if it installed the recommendations, not equivalent ones. (So consultants: draft your contracts to cover this!)

Misappropriation of trade secrets went nowhere either. The consultee offered evidence that the overdraft program was generally known and used in the industry; similar programs existed at financial institutions of all sizes throughout the US.

The consultant blundered by not rebutting this. It didn’t provide any evidence showing how its recommendations were confidential and valuable. Sure, every bank could have overdraft programs. But that does'n’t mean their programs are as good as the consultant’s. 

Yet the consultant didn’t provide evidence showing why its program was better. So it lost on the trade secret front as well.