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PART IV: University Faculties and Expert Consultants (cont'd)

 

Fiduciary Duties of Expert Consultants

As discussed in previous articles in this series, consultants may be servants, independent contracting agents or (rarely) nonagents, depending upon their relationship with the entity purchasing their services. Whether a consultant is a servant or an independent contractor depends on the criteria discussed in Part III of this series. Ordinarily, it is in the buyer's interest to avoid the master-servant relation because he thereby avoids liability for the consultant's negligent acts in the performance of the work. (However, the buyer also loses the protection of worker's compensation statutes which limit a master's liability to his servants.) The independent contracting consultant, on the other hand, loses protections afforded servants because of their role as obedient employees, and may be the sole defendant if he injures a third party.

Expert consulting agreements are more limited in their characterizations and generally result in the expert acting as the agent of the client. This occurs because expert consultants are hired because of their specialized knowledge, rather than their ability to deliver a specific product to a buyer. In many cases, the result to be achieved cannot be fully described before the work is begun. Even where a specific result can be identified in advance, the time and cost required to achieve it is generally unknown because expert consulting jobs seldom use off-the-shelf information or prepackaged services or products.

This uncertainty as to time, cost, and outcome requires that the buyer retain at least financial control over the work as it is being performed by the consultant. The buyer will commonly review the design and implementation of the work to assure that it meets his criteria. Accordingly, most consultants are agents who consent to act on behalf of the buyer to provide them with information or a customized service or product subject to some control by the buyer. This is in contrast to the hiring of an independent contractor who agrees to provide a given product without the interim supervision of the client.

For example, a consultant could be hired as an independent contractor to invent a widget for a set price of $100,000, just as a builder could be hired to build a home for $100,000. The duties of such a consultant would be limited to delivering the widget, just as the duties of the building contractor are limited to delivering the house for the agreed price and design specifications. Neither the widget designer or the building contractor would be acting as the agent of the client.

The problem with this example is that no one hires an expert to practice his skill without relying on him to act on behalf of the buyer in using that skill. The very commodity that consultants offer for sale creates reliance in the mind of a reasonable buyer. If the buyer did not need to rely on the consultant to act in his (the buyer's) behalf in connection with the information or service offered, the buyer wouldn't need the consultant in the first place.

Another problem with the example is that expert consultants who do not deal in off-the-shelf information are not in a position to contract to create something new for a set price. If they could, there would be no need to consult; they would manufacture the item and sell it. If a computer scientist contracts to create a parallel processing protein chip for $1 million and fails, the buyer would be entitled to sue the computer scientist for the additional costs of hiring a molecular biologist to complete the work. (If the work proved to be impossible, the buyer would at least be entitled to a return of the $1 million.) On the other hand, if a consultant contracts to develop the chip for an hourly fee, the buyer would reasonably rely on the consultant to act in the buyer's behalf by diligently working on the chip and not on projects for other clients.

Thus, the more valuable or complex the information and services provided by a consultant, the more likely it is that a court will find that it is reasonable for the employer to rely on the consultant as a fiduciary. Accordingly, most successful expert consultants will be found to be fiduciaries. This is especially true when the consulting arrangements involve the application of the consultant's skills to solve the buyer's business problems. In order to do this, the consultant must understand confidential information about the buyer's business and, if he is successful in achieving the result for which he was employed, he also knows how the problem was solved.

In these situations the buyer will usually demand a specific nondisclosure agreement to protect his confidential proprietary information that must be disclosed to, or will otherwise be learned by the consultant. Since the buyer is obviously relying on the consultant to act in his behalf through nondisclosure, the inclusion of nondisclosure agreements in consulting contracts will always create a fiduciary duty on the part of the consultant.

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