Legal fine print in a recession

What is the role of legal "fine print" in an economic downturn? Is it something to ignore because of the overhead of dealing with it (lawyers, negotiations)? Does it go on the backburner because the most important thing now—really, the only thing, for heaven's sake—is landing the project before the other guy does? Some legalities deserve increased attention in an economic downturn, including...

03/01/2009


What is the role of legal "fine print" in an economic downturn? Is it something to ignore because of the overhead of dealing with it (lawyers, negotiations)? Does it go on the backburner because the most important thing now—really, the only thing, for heaven's sake—is landing the project before the other guy does?

I'm sure your company has its own answer for that and I am not here to fault it. Managing risk (including legalities) is one of the two or three most important buckets of institutional decisionmaking that every automation enterprise must make. And if your management doesn't have pretty strongly held opinions on those issues, just what is it that they do in those corner offices anyway?

But I am here to say (OK, I am here to urge) thoughtful risk managers to consider the following thesis: Some kinds of legalities deserve increased attention in an economic downturn. Why? Because during a recession, project risk is magnified in at least three ways.

Risk of insolvent partners

Let's face it—not everyone is going to come through this thing alive. Now I can already hear the rationalizations in response: "We can weather this thing. We know what we're doing. I'm confident it's going to be the other company—not us—that ultimately falls down."

But does that response really work on automation projects? There are typically several parties involved with legal connections to your company. What happens if one of those "project partners" goes bust? Obviously, such a development could have a cascading negative effect not just on the project as a whole, but on you.

How well you do in such a meltdown, in my opinion at least, will depend on whether you gave attention to some very specific fine print:

  • Are payments linked or unlinked? Unfair linkages include "pay when paid" clauses that can penalize your company for upstream problems that are not its fault. One potential upstream problem is an end user or middleman becoming insolvent.

  • Liens, bonds, upstream retainage. These are third-party sources of money that can make your company whole even when a contracting partner goes belly up. Do your project personnel have their eyes on all of the applicable requirements and notice deadlines?

Likelihood of litigation

A second reality in a recession is that litigation is more likely. When money is short, long-term business relationships are less certain, and backs are against the wall, companies fight. Are the negotiated "rules of engagement" for the war favorable? Does the battle have to be fought on your opponent's turf? Can you recover your expenses from your adversary if you win? Addressing those questions before problems start can be an investment with a huge return.

Risk of fewer projects

A third reality is that because projects are more scarce, each one can assume an outsized importance. This means that there is much less company resilience in the face of the upside-down project—and no resilience whatsoever in the face of a project that is suffering a meltdown. For this reason two questions in an economic downturn must always be asked:

  • Is the project a mine field? Although it's tough to turn away business in tough economic times, some automation projects are clearly "mine fields" and you are betting on walking a perfect path to make it through unscathed.

  • Is liability restricted? Limiting total liability to the contract price is fair. Excluding "consequential damages" should be a dealbreaker if not permitted.

I know what you're thinking. The guy writing this is a lawyer who makes his living advising automation companies throughout North America and beyond—and who therefore has a vested interest in promoting the use of lawyers. Well, true. But that just leads us to another reality that unhappily circumscribes all of the others: There is no avoiding lawyers in a recession.

In other words, see us now or see us later.


Author Information

Mark Voigtmann is a lawyer with Baker & Daniels, LLP (Indianapolis, Chicago, Washington DC and China). His group assists the automation and process industry in structuring projects and resolving disputes. Reach him at Mark.Voigtmann@bakerd.com or 317-237-1265.




No comments
The Engineers' Choice Awards highlight some of the best new control, instrumentation and automation products as chosen by...
Each year, a panel of Control Engineering editors and industry expert judges select the System Integrator of the Year Award winners.
Control Engineering Leaders Under 40 identifies and gives recognition to young engineers who...
Learn more about methods used to ensure that the integration between the safety system and the process control...
Adding industrial toughness and reliability to Ethernet eGuide
Technological advances like multiple-in-multiple-out (MIMO) transmitting and receiving
Virtualization advice: 4 ways splitting servers can help manufacturing; Efficient motion controls; Fill the brain drain; Learn from the HART Plant of the Year
Two sides to process safety: Combining human and technical factors in your program; Preparing HMI graphics for migrations; Mechatronics and safety; Engineers' Choice Awards
Detecting security breaches: Forensic invenstigations depend on knowing your networks inside and out; Wireless workers; Opening robotic control; Product exclusive: Robust encoders
The Ask Control Engineering blog covers all aspects of automation, including motors, drives, sensors, motion control, machine control, and embedded systems.
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
News and comments from Control Engineering process industries editor, Peter Welander.
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
This is a blog from the trenches – written by engineers who are implementing and upgrading control systems every day across every industry.
Anthony Baker is a fictitious aggregation of experts from Callisto Integration, providing manufacturing consulting and systems integration.
Integrator Guide

Integrator Guide

Search the online Automation Integrator Guide
 

Create New Listing

Visit the System Integrators page to view past winners of Control Engineering's System Integrator of the Year Award and learn how to enter the competition. You will also find more information on system integrators and Control System Integrators Association.

Case Study Database

Case Study Database

Get more exposure for your case study by uploading it to the Control Engineering case study database, where end-users can identify relevant solutions and explore what the experts are doing to effectively implement a variety of technology and productivity related projects.

These case studies provide examples of how knowledgeable solution providers have used technology, processes and people to create effective and successful implementations in real-world situations. Case studies can be completed by filling out a simple online form where you can outline the project title, abstract, and full story in 1500 words or less; upload photos, videos and a logo.

Click here to visit the Case Study Database and upload your case study.