Understanding Your Consulting Agreement: Guide, FAQ's and Free Sample Template
8 Nov 2024
7 Nov 2024
min read
Consulting Agreement is a legally binding agreement that client uses to hire a consultant and formalize the terms of service agreed between the parties.
Clients set goals, guidelines for deliverables, specifications, payment terms, work product ownership and timelines for the Consultants to provide the services. Often, the fee structure may vary from being commission based to hourly or a fixed fee. Most importantly, consultants operate as independent contractor and the consulting agreement is important to expressly define the independent contractor relationship between the parties.
Hence, each consulting engagement comes with its unique requirements which must be recorded in a written contract to make it binding on the parties involved and prevent disputes in future.
This article explores the scope and key clauses of a consulting agreement:
Table of Contents
- What is a Consulting Agreement?
- Why do you need a Consulting Agreement?
- Key elements of a Consulting Agreements
- People also Ask
What is a Consulting Agreement?
A service agreement for consulting work is a formal and legally binding document that a business uses to hire a consultant to provide professional services, advice or knowledge for a fee.
Why Do You Need a Consulting Agreement?
A consulting agreement forms the foundation of the relationship between the consultant and the client. It is important for various reasons:
(a) consulting agreement defines that the consultant is an independent contractor and not the employee of the company
(c) it is an excellent way to clear expectations upfront, secure their rights and interests, as well as prevent any future disputes or misunderstandings. The more well-written a consulting agreement is, the less likely that disputes will arise between the parties.
(d) written agreement will override all prior oral agreements between the parties.
(e) Since a client-consultant relationship is a time-bound partnership, it has to be airtight. If a client does not set out clear terms for the consultant’s services or advice, he or she could end up working on muddled objectives, operating on the wrong timeline or carrying out any other activities that contradict the company’s goals and principles.
Key Elements of a Consulting Agreement
What is included in a consulting agreement? A well-drafted consulting agreement should be (i) precise, (ii) detailed, (iii) comprehensive and (iv) objective. Here at DocPro, we provide tailor-made document templates to cater to your business needs.
DocPro's Consulting Agreement (Client Version) allows you to include:
- the specifications for deliverables,
- set timelines and
- compensation clauses choose from the various fee structures: hourly fee, fixed fee or commission-based fee.
- consultant's Obligations
- indemnity, intellectual property, confidentiality obligations and termination rights etc. We got you covered!
DocPro's consulting agreement template includes all the essential components you need to draft a comprehensive document that protects your client-consultant relationship as well as your company’s interests and rights.
Common Clauses in a Consulting Agreement
Party Names: A consulting agreement must outline the name and business address of the consultant and the client to establish the identity of the parties involved.
Consultant’s Obligations: As a client, you have every right to protect your company’s interests. A section should therefore be included to list out the consultant’s obligations to your company and the team. Our template contains detailed provisions and clauses on the consultant’s professional and contractual obligations. For example:
- Compliance with Instructions or Variations – Making sure that the consultant complies with any instructions or variations given by you and your company is important in ensuring the efficiency of your business. It also reduces potential conflicts or disputes. This can be illustrated by one of our template clauses:
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2.2 The Consultant shall also comply with any instructions or variations issued by the Client (or any authorised representative of the Client) in relation to the Work |
- Appoint a Competent Representative– A consultant will always ensure a competent individual is always available to manage the Work and be the primary contact person for the Client. Therefore, a clause like below is necessary:
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2.3 The Consultant shall at all times appoint a competent person in charge and any instructions given to him by the Client shall be deemed to have been issued to the Consultant. |
Completion of Work: Every business project follows a tight working timeline. To facilitate smooth incorporation of the consultant’s services and advice to your company’s ongoing project, a section in the agreement should precisely set out:
(a) the completion date of the consultant’s duties,
(b) the specific requirements for the completion of such duties and
(c) the consequences of non-completion of Work
Non-Compete Clause: Andrew Graves, an attorney and the founder of Graves Law in the United States, advises that both parties should agree to a non-complete that is limited to parties involved in the contract or otherwise disclosed in the contract. This can allow both your company, i.e. the client and the consultant some protection and freedom, especially in relation to future jobs and contracts.
Liability of the Consultant: To protect your company’s rights and interests, a section in the consulting agreement should state clearly the liability of the consultant. Consultant's liability may include consequences in the failure of performing the agreed-upon work or deliverables, or restraint from certain activities such as recruiting any employee from the company or inducing any employee to quit the company.
Compensation: The client-consultant relationship is established on payment in return for the consultant’s professional expertise. The payment for the consultant can be calculated on an hourly basis, on a deliverable basis or as mutually agreed in the agreement.
Payment Record – To facilitate smooth payment, it is necessary to state how the consultant’s fee shall be recorded. This usually involves an invoice listing out the consulting services and expenses incurred during the business project. A clause from our template illustrating this point is:
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7.1 The Client will be invoiced for the consulting services and expenses in accordance with Schedule 2. Invoices will be sent to the address below. |
Note that Schedule 2 of our template provides a chart for users to record items of work/services provided by the consultant, including the number of hours he or she spent on the work and the fee payable. Another relevant clause in our template is:
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7.2 The Consultant agrees to keep an exact record of any and all expenses acquired while performing the Services. The Consultant will submit an invoiced itemizing each expense, along with proof of purchase and receipt upon completion of such Services. |
This clause ensures that the responsibility of invoicing and keeping track of expenses incurred during the consultant’s performance of the contract goes to the consultant himself or herself, which can ensure the accuracy and indisputability of any fee payable.
Payment Date and Time – Another important aspect related to payment is date and time. In the consulting agreement, it is a must to state the payment period to avoid any future disputes or conflicts. One of our clauses serves this purpose:
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7.5 Terms of payment for each invoice are due within ( ) days upon receipt by the Client of a proper invoice… |
Confidentiality: Confidentiality clauses are needed to protect your company’s interests. In our template consulting agreement, we offer exactly what you need. A confidentiality caluse can be unilateral ie. requiring the consultant to ensure confidentiality of the information shared by the client or it can be mutual where both parties agree to keep the information shared confidential.
Independant Contractor Relationship: The contract must expressly state that the consulting is operating as in independant contractor and not as an employee of the company for the following reasons:
(a) this clarifies the tax responsibilities of the client and consultant and avoid potential issues with tax authorities if misclassified as an employer-employee relationship.
(b) to ensure consultant is not eligibile for any employee benefits such as health insurance, paid leave etc which the employees are generally entitled to under an employer-employee relationship
(c) to ensure client doesn't have to comply with any legal obligations under labour laws applicable to employers such as laws relating to terminations, overtime etc.
Ownership of Work Product and Intellectual Property Rights – While the consultant may produce products or work subject to intellectual property, it is necessary for you and your company to retain the ownership of any relevant intellectual property rights, so that you can use the products or work produced for business purposes free from intellectual property restraints. A clause providing for this cause from our template is:
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8.1 The Parties acknowledge and agree that the Client will hold all intellectual property rights in any work product resulting from the Work, including, but not limited to, copyright, moral rights, goodwill, trade secrets, applications for registrations or relevant registration, rights to any trademark, patent, copyright, trade name, and industrial design and trademark rights (“Intellectual Property”). |
At the same time, our Confidentiality section strives to ensure the safety of your company’s important business information, by outlining the consultant’s obligations regarding the client’s confidential information, emphasising restrictions on disclosure and use. The relevant clause is:
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9.1 The Consultant shall not disclose to any third party any details regarding the Client’s business, including, without limitation any information regarding any of the Client’s customer information, business plans, or price points (the “Confidential Information”)… |
Governing Law and Jurisdiction: In case disputes or conflicts arise out of the consulting agreement, dispute resolution methods have to be pre-determined to handle such situations. The preferred governing law and jurisdiction should be clearly stated in this section so that both parties have a consensus on how and where to solve the disputes.
Schedules: Schedules are a common feature of consulting agreements. They contain detailed descriptions of each work, project or deliverable that the consultant has to provide or be a part of.
According to Michael Hurckes, a seasoned contract attorney at MAH Advising PLLC, it is paramount for the scope of work to be defined as specifically as possible. Ambiguity can lead to disputes down the line. For example, in drafting agreements for clients in the tech industry, parties have to pay particular attention in delineating expected deliverables and timelines. Such precision can prevent any misunderstanding or future conflicts.
On top of that, schedules may be used to record the fee(s) payable to the consultant for the work he or she has completed. According to Michael, this ensures that the consultant is fairly compensated for their work, which is fundamental for a successful partnership between the client and the consultant.
People Also Ask
Q: What is the scope of consulting agreement?
A consulting agreement should precisely define the consultant and client, as well as provide precise details about the areas of the client’s company that will be the focus of consultation. It should also be precise and detailed on the services or advice that the consultant is obliged to provide and paid for.
Q: How do you negotiate a consulting agreement?
Before looking for a consultant, you should have a clear idea on what you are looking for from the consultation. Identify the specific services and advice that you and your company want the consultant to provide. You should clearly mention them when interviewing any consultant candidate. Once a consultant has been chosen, consensus should be reached on the specific tasks and obligations you and your company want him or her to perform. Such details, and any other terms that you and your company deem appropriate and necessary, should be considered to be included in the eventual consulting agreement.
Before finalising and signing the consulting agreement, it is important for all parties involved to review the contract clearly and make sure it reflects both parties’ objectives and intentions. Once the agreement has been signed, any disputes arising from it will have to be resolved according to the dispute resolution methods agreed upon and under the chosen governing law or jurisdiction.
Q: What is the difference between advisory and consulting agreements?
Advisory relationships can be long-term or short-term, depending on the company’s needs and objectives, as well as the nature of advice required. On the other hand, consultancy engagements are typically project-based and time-bound, meaning that they usually come with a specific start and end date.
Another difference is that advisors typically adopt a hands-off approach in offering advice and recommendations. They may not be directly involved in the project implementation process. On the other hand, consultants are more likely to be actively involved in the execution of their recommendations, while working closing with the company’s team to ensure success of the project.
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