Developing Effective Client Agreements.

Confused as to whether the agreement with your chosen AMC should be short or long, brief or specific? Find help here.

A question that often arises when associations engage an association management company (AMC) is how to structure the arrangement between them. In other words, what should be the nature of the contractual relationship between the parties? We refer to this as a question--and not as a problem--because a clear understanding between an association and its AMC goes a long way toward establishing a productive, harmonious, and long-term relationship. Various ways exist to think about the nature of the agreement. While all association leaders, AMC executives, and especially attorneys recommend that this agreement be in writing, some believe that the relationship should be spelled out in a highly specific contract, tying down every ambiguity and not leaving the smallest detail as to who is responsible for what open to question. Others believe that the relationship between an association and an AMC is such that a broadly written agreement is the most effective for both parties. Between these two poles is, of course, a long continuum of various combinations.

Much can be said for both of these positions, and that is why there is a continuing debate in the AMC community. And while the exact form of the contractual relationship always should reflect the goals and culture of the association and the AMC, current practice is to lean toward the brief approach, where a three-or four-page letter of agreement spells out the relationship in broad terms.

Finding the best-fitting agreement

As is the case with any management tool, there is seldom one right way to structure a relationship. Rather, you must ask: "What is the objective of the structuring?" The answer lies in the mission, needs, history, and culture of the association and in the business goals of the AMC. Whether a lengthy contract or a brief letter of agreement, the document and approach must fit both parties and provide them with the confidence that the relationship is clearly understood. As management professionals, AMC executives should take the lead in suggesting the approach; however, as professionals in a service industry, AMC executives should be flexible to meet client needs.

To use a three- or four-page agreement, both parties must do their homework. First, the AMC should ask the association to identify what services it thinks it needs. Second, the AMC should forward a proposal to the association that covers major service areas, fees, and other expenses. Once agreement has been reached on what will be done and how the association will pay for those services, it is time to prepare the agreement.

Here are several do's and don'ts to consider.

Do

* call it an agreement, not a contract;

* include a copy of the agreement in the board orientation manual;

* explain services in the proposal and incorporate the proposal, by appendix, into the agreement;

* describe approaches to fees and reimbursement of expenses in the proposal;

* provide for future fee negotiation through the budgeting process; and

* provide for a termination period. For example, after the first full year of service, consider a termination period for either party not to exceed i8o days. Don't

* set an adversarial tone to your relationship in your agreement (e.g., by overengineering your agreement);

* let the lawyers dictate the relationship between the AMC and the association; or

* hamstring yourself into focusing on the minutiae as opposed to strategic direction.

An AMC always should ask prospective client associations if they want the short or long version of the agreement. AMCs and their associations rarely revisit an agreement after it has been signed.

Exercise caution with details Having legal counsel review the agreement always is prudent. Generally, however, the longer the agreement, the more likely it is that legal counsel will be compelled to modify and negotiate it. Then you will again need to agree on terms of the relationship. Lawyers like to nail down ambiguities in agreements. But when the service that is to be provided is ambiguous to begin with, you can get a document that rivals Moby Dick in size yet provides little true guidance.

Generally, the more detailed and laborious the agreement, the less the client benefits, as the AMC tends to get very specific as to what it will and won't do. In ambiguous situations, most AMCs tend to do extra work in the name of good client relations.

Most highly specific agreements are not as helpful as many lawyers think, as these laundry lists of tasks rarely speak to outcomes and productivity, which is what the client should want. And, as we all know, what gets measured is what gets done. More than one client has been unhappy with an AMC that fully completed the laundry list of tasks but didn't really meet the strategic targets (explicit or hidden) of the association-having focused on trees and missed the forest.

Agreement checklist Make sure that your agreement includes the following statements, which represent AMC and association concerns and address required legal issues.

* The AMC has authority to handle funds on behalf of the client. Consequently, specify who has signatory authority.

* Bank accounts shall be solely in the name of the client, not held jointly with the AMC.

* The client is responsible for expenses incurred by the AMC on the client's behalf.

* An annual independent certified public accountant audit or review will be conducted. (Make sure to specify which party will incur this expense.)

* The AMC has authority to negotiate and enter into agreements on behalf of client (such as a hotel agreement, purchasing insurance, etc.).

* The AMC will receive fees or compensation for its services. Specify how the fees will be paid by the client (through direct transfer of funds or via another method of payment), when this will happen (often at the first of each month), and what the fees cover and do not cover (with a simple statement that telephone expenses, for example, are not included in the fee but rather are reimbursable expenses).

* The client will not hire AMC staff.

* The AMC and client will indemnify each other.

* If the AMC accepts any commissions or rebates-such as hotel commissions or rebates from a printer or other supplier-full prior disclosure must be made to the client.

In addition, make sure that the term of the agreement and how it can be terminated are clearly stated. When the components of the agreement have been agreed upon, it should be signed by officers of the AMC and the client.

Specify fee information

A good proposal from an AMC will detail the method for billing expenses, what the expenses cover, and how they are to be paid (See the chart, "It Pays to Itemize," on page 11.) Some AMCs do not revisit this in the agreement but simply mention what is and what is not included in the fees and expenses. The most important point is for the AMC to be up front with the association so there is no surprise or doubt. Building a trusting relationship will reward the association and the AMC for many years.

There is no one best way to structure an agreement between an association and an AMC. However, current best practice seems to be that the relationship should be documented in a brier letter of agreement. Keep the agreement and the negotiating separate, but be specific on what is a fee and when it is collected.

Let your relationship build together-don't let your agreement pull it apart. An association/AMC relationship built on trust will provide positive results for both parties. A relationship focusing on fault or blame will self-destruct in due time.

Mark T Engle, CAE, is principal of Association Management Center, Glenview, Illinois. Philip Lesser, CAE, is vice president, Bostrom Corporation, Chicago. This article is a revised version of a previous article, "Client Agreements: Do's and Don't's," published in 1999 by ASAE.