Before You Sign that Strategic Alliance Agreement

By Suzanne M. Holl

What risk management steps should your firm consider before signing a "strategic alliance agreement"?

As many small- and mid-sized CPA firms continue to compete in the marketplace, some firms are being approached with opportunities to establish strategic alliances with other service providers that have specialized or technical expertise.

Such alliances may be with other CPA firms or with providers of financial products and services, and they may afford a firm with opportunities to enhance their overall image, reputation and revenues. On the downside, alliances may entail a lot of hidden costs or additional liability risks that could defeat the benefits of such arrangements.

As these agreements are indeed contracts, they typically contain a great deal of legal language and caveats. Before you contractually bind your firm to an arrangement of this significance, it's important to take the time to understand all of the implications of the legalese so that you are comfortable with the agreement and the expectations that will fall on your firm.

For example, many of the service provider alliance agreements attempt to shift liability from the service provider to the CPA firm. Some agreements have clauses under the contract that actually require the firm to add the service provider as an additional insured under the CPA's professional liability policy. Before signing the agreement, you should ensure that your firm has adequately provided for this additional liability risk.

Camico encourages a firm to consider the following risk management steps before entering into a strategic alliance agreement:

• Assess whether or not the culture and values of the service provider are a good match for your firm. We strongly encourage you to not shortchange this first critical step. The last thing a firm would want to do is enter into an alliance arrangement that may negatively impact the fundamental characteristics of the firm.
  
• Consult with a qualified attorney to review the agreement. It's best to use an attorney comfortable with assessing professional liability risks as well as contract terms.
  
• Call your risk advisor regarding the liability risks and coverage implications associated with the agreement. This advice would be supplemental to, but not replace, appropriate legal review by an attorney with the necessary expertise in this area.
  
• Push back! You don't have to accept the terms as they are written in an agreement, preprinted or not.
  
• Develop quality-control measures and loss-prevention strategies to manage the added liability exposures.

CPA firms should carefully consider the potential impacts of an alliance to the clients that may be serviced. When considering issues of independence and objectivity, firms also should be sensitive to the impact of the public's perceptions of CPAs.