Hospital Supply Chain and Materials Management: Attorneys' Fees in Vendor Contracts
Content
HOSPITAL SUPPLY CHAIN:
Attorneys’ Fees in Vendor Contracts
September, 2012 By: Dennis Stewart, Streamline Savings _____________________________________________________________________________
This is part of a series of articles explaining the provisions and requirements for “Standard Terms and Conditions” that a Hospital will want to use, or at least consider, for vendors selling products or services to their Hospital. The first thing to realize that there is nothing that is really “Standard” in drafting the Terms and Conditions for any Contract of this nature. Rather, as a Hospital, you are creating or defining the STANDARDS that you are saying vendors must comply with if they want to do business with you.
ATTORNEYS’ FEES
NOTE: Most States have laws that govern the awarding of Attorneys’ Fees in the event of litigation involving a Contract (Agreement). Generally, to be awarded Attorneys’ Fees, it must be covered in the Contract, or by Statute. ALWAYS confirm these issues with an attorney in your State. Provisions for attorneys’ fees are important in every contract, because we live in a litigious society, and sometimes the attorneys’ fees can exceed a claim, depending on the issues involved. Isn’t it is comforting to know that your hospital will be reimbursed for its attorneys’ fees in connection with a lawsuit that has cost the Hospital $200k. Remember though, sometimes an attorneys’ fee provision in an Agreement can come back to haunt you, especially if you are constantly arguing over invoices, and attorneys are continually writing your hospital demand letters, or filing collection actions. It is a big burden to pay your own attorneys, but having to have to pay your opponent’s Attorneys’ Fees can be a huge financial burden. NOTE: An Attorneys’ Fee provision can favor one of the parties to a contract, or both parties, so PLEASE READ this provision carefully. For example, the following provision only benefits the Vendor (AND SHOULD NEVER BE AGREED TO): Should the Contractor/Vendor engage an attorney for the purpose of enforcing this Agreement in any court, including bankruptcy court, courts of appeal or arbitration hearings, the Contractor/Vendor shall be entitled to receive its reasonable attorneys’ fees and costs in addition to any other relief granted, whether or not a suit is filed. The above provision is the WORSE type of Attorneys’ Fee provision for a hospital, because (1) it only allows for the Vendor to recover, and (2) it even allows a Vendor to potentially recover its Attorneys’ Fees, even if the Vendor does not prevail (win) the law suit- NOTHING COULD BE WORSE! CAN A PROVISION IN THE TERMS AND CONDITIONS PROVIDE THAT ONLY THE HOSPITAL CAN BE AWARDED ATTORNEYS’ FEES? YES If you want to be aggressive, your hospital may want to have a provision that ONLY allows for Attorneys’ Fees to be awarded to the Hospital. You may have to give in to Vendors that have issues with this provision (discussed below):
HOSPITAL SUPPLY CHAIN:
Attorneys’ Fees in Vendor Contracts
September, 2012 By: Dennis Stewart, Streamline Savings _____________________________________________________________________________
Should the Hospital engage an attorney for the purpose of enforcing or defending any claims in connection with this Agreement, or any of the terms of this Agreement, in any court, including bankruptcy court, courts of appeal or arbitration hearings, the Hospital shall be entitled to receive its reasonable attorneys’ fees and costs in addition to any other relief granted, whether or not a suit is filed. This provision again is very one sided, and there is no reason not to insist on this provision, and let a Vendor object. Note that the provision allows the Hospital to recover whether the Hospital brings the action, or is defending an action brought by a Vendor. NOTE: Some States have statutes that provide if a contract awards Attorneys’ Fees to one prevailing party of a contract, the other party shall also be entitled to receive Attorney’s Fees if they are the prevailing party. SO, check with your attorney before you rely on any conditions of an agreement. A “FAIR” provision, where neither party is favored, is the following provision, where the “Prevailing Party” is entitled to recover its Attorneys’ Fees: “Should any party to this Agreement engage an attorney for the purpose of enforcing this Agreement, or any provision of this Agreement, in any court, including bankruptcy court, courts of appeal or arbitration hearings, the prevailing party shall be entitled to receive its reasonable attorneys’ fees and costs in addition to any other relief granted.” This is the most common type of provision, and most attorneys representing Vendors will not object to this provision. You can add the provision “whether or not a suit is filed”, depending on the situation. DOES A HOSPITAL ALWAYS NEED AN “ATTORNEYS FEE” PROVISION? Ask yourself: “In this contractual arrangement/agreement, who will the Attorneys’ Fee provision really benefit?” Sometimes the answer may surprise you. If you know from experience that there is a good chance that the company has been sued in the past, and generally loses, you really need the Attorneys’ Fee provision. You are probably going to be in the same situation of one day having to file a suit, and them knowing that they are going to have to pay your Attorneys, along with their own Attorneys, may give them the incentive to settle. NOTE: If you are ever asked to sign Terms and Conditions that do not have an Attorneys’ Fee provision, that is a RED FLAG. There is probably a good reason why the provision is excluded, and that is probably the same reason why you should consider adding it. For example, if a hospital is outsourcing a service, let’s say security, the Security Company’s only concern for having to rely on an Attorneys Fee provision is having to file a suit for collection. If you are a reputable hospital that pays your bills, this is probably very little concern. So would the Security Company favor leaving out the Attorneys’ Fee provision? YES, because the hospital is the party that is likely to seek to recover its Attorneys’ Fees from incidents where the hospital is sued for the negligent acts of the security personnel.
HOSPITAL SUPPLY CHAIN:
Attorneys’ Fees in Vendor Contracts
September, 2012 By: Dennis Stewart, Streamline Savings _____________________________________________________________________________
CAN A PROVISION IN THE TERMS AND CONDITIONS LIMIT THE ATTORNEYS FEES THAT CAN BE AWARDED? This is a tricky question, but the answer is generally YES, with exceptions. For example, suppose that you know that a certain vendor is very litigious, and will file a collection action against the hospital if you are late by 5 days paying a certain bill. The Attorneys Fee provision could read: “Should any party to this Agreement engage an attorney for the purpose of enforcing this Agreement, or any provision of this Agreement, in any court, including bankruptcy court, courts of appeal or arbitration hearings, the prevailing party shall be entitled to receive its reasonable attorneys’ fees and costs in addition to any other relief granted. However, in any collection action filed by the Vendor, the Vendor shall not be entitled to receive its attorneys’ fees if the unpaid balance of the invoice in question is paid by the Hospital within 30 days of the date the suit is filed.” Or, if you want to be more specific, you could provide the following: “Should any party to this Agreement engage an attorney for the purpose of enforcing this Agreement, or any provision of this Agreement, in any court, including bankruptcy court, courts of appeal or arbitration hearings, the prevailing party shall be entitled to receive its reasonable attorneys’ fees and costs in addition to any other relief granted. However, in any collection action filed by the Vendor, the Vendor’s attorneys’ fees shall be limited to 10% of the amount of the unpaid invoices in which the suit is based.” In both of the above instances, the Hospital has limited its exposure. The bottom line is that if you are responsible for reviewing the Terms and Conditions of agreement for your hospital, the decision should be on a case-by-case basis, if you really want to limit your exposure. So, pay attention, and ask questions to your Hospital’s attorneys, and ask friends in the industry if you need to know why a certain Vendor has an Attorneys’ Fee provision that you are not familiar with.
ARE THER OCCASSIONS WHEN IT IS BETTER TO LEAVE OUT AN ATTORNEYS’ FEE PROVISION? YES There are instances where leaving out an Attorneys’ Fee provision would benefit a hospital. There is a famous case of a small vendor in New York that was notorious for filing small claims against hospitals. Their average claim was for an amount that was less than $1,000.00. The average Attorneys’ Fee that was awarded to the vendor’s attorneys was in excess of $2,500.00. Do the math…. If there are smaller companies that have a reputation of being litigious, consider leaving out an Attorneys’ Fee provision. There may be instances when vendors may have issues with the Standards you are trying to establish, so remember that you may have to be flexible. It would be nice if you could develop Standards that always favored your Hospital, and vendors could or would not object. In reality, unless you are a multi-Billion
HOSPITAL SUPPLY CHAIN:
Attorneys’ Fees in Vendor Contracts
September, 2012 By: Dennis Stewart, Streamline Savings _____________________________________________________________________________
dollar hospital, you will have to be reasonable with your demands/Standards. Conversely, the larger the Vendor, the less likely they will be willing to “bend” as far as their agreeing to your “Standard Terms and Conditions”. Some Vendors are large enough, and therefore have the clout, to actually say “These are OUR Terms and Conditions, we accept NO changes”. Should you still persist with changes that are important to your Hospital? --- of course. Will you always succeed?—of course not, but you should still try. Written By: Dennis Stewart, Streamline Savings, Florida [email protected] Stay tuned for more Articles, and feel free to comment……. If you want to learn about “Evergreen Provisions” in Vendor Agreements, please visit:
http://www.scribd.com/doc/104433553/Hospital-CFO-News-Evergreen-Clauses-in-Vendor-Contracts-Watch-Out For a Complete Set of Hospital Standard Purchase Order Terms and Conditions, please visit:
http://www.scribd.com/doc/108982885/Hospital-Standard-Purchase-Order-Terms-and-Conditions
Attorneys’ Fees in Vendor Contracts
September, 2012 By: Dennis Stewart, Streamline Savings _____________________________________________________________________________
This is part of a series of articles explaining the provisions and requirements for “Standard Terms and Conditions” that a Hospital will want to use, or at least consider, for vendors selling products or services to their Hospital. The first thing to realize that there is nothing that is really “Standard” in drafting the Terms and Conditions for any Contract of this nature. Rather, as a Hospital, you are creating or defining the STANDARDS that you are saying vendors must comply with if they want to do business with you.
ATTORNEYS’ FEES
NOTE: Most States have laws that govern the awarding of Attorneys’ Fees in the event of litigation involving a Contract (Agreement). Generally, to be awarded Attorneys’ Fees, it must be covered in the Contract, or by Statute. ALWAYS confirm these issues with an attorney in your State. Provisions for attorneys’ fees are important in every contract, because we live in a litigious society, and sometimes the attorneys’ fees can exceed a claim, depending on the issues involved. Isn’t it is comforting to know that your hospital will be reimbursed for its attorneys’ fees in connection with a lawsuit that has cost the Hospital $200k. Remember though, sometimes an attorneys’ fee provision in an Agreement can come back to haunt you, especially if you are constantly arguing over invoices, and attorneys are continually writing your hospital demand letters, or filing collection actions. It is a big burden to pay your own attorneys, but having to have to pay your opponent’s Attorneys’ Fees can be a huge financial burden. NOTE: An Attorneys’ Fee provision can favor one of the parties to a contract, or both parties, so PLEASE READ this provision carefully. For example, the following provision only benefits the Vendor (AND SHOULD NEVER BE AGREED TO): Should the Contractor/Vendor engage an attorney for the purpose of enforcing this Agreement in any court, including bankruptcy court, courts of appeal or arbitration hearings, the Contractor/Vendor shall be entitled to receive its reasonable attorneys’ fees and costs in addition to any other relief granted, whether or not a suit is filed. The above provision is the WORSE type of Attorneys’ Fee provision for a hospital, because (1) it only allows for the Vendor to recover, and (2) it even allows a Vendor to potentially recover its Attorneys’ Fees, even if the Vendor does not prevail (win) the law suit- NOTHING COULD BE WORSE! CAN A PROVISION IN THE TERMS AND CONDITIONS PROVIDE THAT ONLY THE HOSPITAL CAN BE AWARDED ATTORNEYS’ FEES? YES If you want to be aggressive, your hospital may want to have a provision that ONLY allows for Attorneys’ Fees to be awarded to the Hospital. You may have to give in to Vendors that have issues with this provision (discussed below):
HOSPITAL SUPPLY CHAIN:
Attorneys’ Fees in Vendor Contracts
September, 2012 By: Dennis Stewart, Streamline Savings _____________________________________________________________________________
Should the Hospital engage an attorney for the purpose of enforcing or defending any claims in connection with this Agreement, or any of the terms of this Agreement, in any court, including bankruptcy court, courts of appeal or arbitration hearings, the Hospital shall be entitled to receive its reasonable attorneys’ fees and costs in addition to any other relief granted, whether or not a suit is filed. This provision again is very one sided, and there is no reason not to insist on this provision, and let a Vendor object. Note that the provision allows the Hospital to recover whether the Hospital brings the action, or is defending an action brought by a Vendor. NOTE: Some States have statutes that provide if a contract awards Attorneys’ Fees to one prevailing party of a contract, the other party shall also be entitled to receive Attorney’s Fees if they are the prevailing party. SO, check with your attorney before you rely on any conditions of an agreement. A “FAIR” provision, where neither party is favored, is the following provision, where the “Prevailing Party” is entitled to recover its Attorneys’ Fees: “Should any party to this Agreement engage an attorney for the purpose of enforcing this Agreement, or any provision of this Agreement, in any court, including bankruptcy court, courts of appeal or arbitration hearings, the prevailing party shall be entitled to receive its reasonable attorneys’ fees and costs in addition to any other relief granted.” This is the most common type of provision, and most attorneys representing Vendors will not object to this provision. You can add the provision “whether or not a suit is filed”, depending on the situation. DOES A HOSPITAL ALWAYS NEED AN “ATTORNEYS FEE” PROVISION? Ask yourself: “In this contractual arrangement/agreement, who will the Attorneys’ Fee provision really benefit?” Sometimes the answer may surprise you. If you know from experience that there is a good chance that the company has been sued in the past, and generally loses, you really need the Attorneys’ Fee provision. You are probably going to be in the same situation of one day having to file a suit, and them knowing that they are going to have to pay your Attorneys, along with their own Attorneys, may give them the incentive to settle. NOTE: If you are ever asked to sign Terms and Conditions that do not have an Attorneys’ Fee provision, that is a RED FLAG. There is probably a good reason why the provision is excluded, and that is probably the same reason why you should consider adding it. For example, if a hospital is outsourcing a service, let’s say security, the Security Company’s only concern for having to rely on an Attorneys Fee provision is having to file a suit for collection. If you are a reputable hospital that pays your bills, this is probably very little concern. So would the Security Company favor leaving out the Attorneys’ Fee provision? YES, because the hospital is the party that is likely to seek to recover its Attorneys’ Fees from incidents where the hospital is sued for the negligent acts of the security personnel.
HOSPITAL SUPPLY CHAIN:
Attorneys’ Fees in Vendor Contracts
September, 2012 By: Dennis Stewart, Streamline Savings _____________________________________________________________________________
CAN A PROVISION IN THE TERMS AND CONDITIONS LIMIT THE ATTORNEYS FEES THAT CAN BE AWARDED? This is a tricky question, but the answer is generally YES, with exceptions. For example, suppose that you know that a certain vendor is very litigious, and will file a collection action against the hospital if you are late by 5 days paying a certain bill. The Attorneys Fee provision could read: “Should any party to this Agreement engage an attorney for the purpose of enforcing this Agreement, or any provision of this Agreement, in any court, including bankruptcy court, courts of appeal or arbitration hearings, the prevailing party shall be entitled to receive its reasonable attorneys’ fees and costs in addition to any other relief granted. However, in any collection action filed by the Vendor, the Vendor shall not be entitled to receive its attorneys’ fees if the unpaid balance of the invoice in question is paid by the Hospital within 30 days of the date the suit is filed.” Or, if you want to be more specific, you could provide the following: “Should any party to this Agreement engage an attorney for the purpose of enforcing this Agreement, or any provision of this Agreement, in any court, including bankruptcy court, courts of appeal or arbitration hearings, the prevailing party shall be entitled to receive its reasonable attorneys’ fees and costs in addition to any other relief granted. However, in any collection action filed by the Vendor, the Vendor’s attorneys’ fees shall be limited to 10% of the amount of the unpaid invoices in which the suit is based.” In both of the above instances, the Hospital has limited its exposure. The bottom line is that if you are responsible for reviewing the Terms and Conditions of agreement for your hospital, the decision should be on a case-by-case basis, if you really want to limit your exposure. So, pay attention, and ask questions to your Hospital’s attorneys, and ask friends in the industry if you need to know why a certain Vendor has an Attorneys’ Fee provision that you are not familiar with.
ARE THER OCCASSIONS WHEN IT IS BETTER TO LEAVE OUT AN ATTORNEYS’ FEE PROVISION? YES There are instances where leaving out an Attorneys’ Fee provision would benefit a hospital. There is a famous case of a small vendor in New York that was notorious for filing small claims against hospitals. Their average claim was for an amount that was less than $1,000.00. The average Attorneys’ Fee that was awarded to the vendor’s attorneys was in excess of $2,500.00. Do the math…. If there are smaller companies that have a reputation of being litigious, consider leaving out an Attorneys’ Fee provision. There may be instances when vendors may have issues with the Standards you are trying to establish, so remember that you may have to be flexible. It would be nice if you could develop Standards that always favored your Hospital, and vendors could or would not object. In reality, unless you are a multi-Billion
HOSPITAL SUPPLY CHAIN:
Attorneys’ Fees in Vendor Contracts
September, 2012 By: Dennis Stewart, Streamline Savings _____________________________________________________________________________
dollar hospital, you will have to be reasonable with your demands/Standards. Conversely, the larger the Vendor, the less likely they will be willing to “bend” as far as their agreeing to your “Standard Terms and Conditions”. Some Vendors are large enough, and therefore have the clout, to actually say “These are OUR Terms and Conditions, we accept NO changes”. Should you still persist with changes that are important to your Hospital? --- of course. Will you always succeed?—of course not, but you should still try. Written By: Dennis Stewart, Streamline Savings, Florida [email protected] Stay tuned for more Articles, and feel free to comment……. If you want to learn about “Evergreen Provisions” in Vendor Agreements, please visit:
http://www.scribd.com/doc/104433553/Hospital-CFO-News-Evergreen-Clauses-in-Vendor-Contracts-Watch-Out For a Complete Set of Hospital Standard Purchase Order Terms and Conditions, please visit:
http://www.scribd.com/doc/108982885/Hospital-Standard-Purchase-Order-Terms-and-Conditions
