10/25/2021 | Press release | Distributed by Public on 10/25/2021 05:23

Consulting Agreements: What They Are & How They Work

Consulting is never structured arbitrarily. You don't see many clients give their consultants carte blanche, a blank check, no timeline, vague goals, and the flexibility to spill company secrets to whoever they feel like.

So while some clients might take a more hands-off approach towards their relationships with consultants, they almost always set some terms that shape how those contractors operate - and those terms are typically set in what's known as a consulting agreement.

Here, we'll take a look at what a consulting agreement is, look at some of the key components you'll typically find in one, and see an example of what one might look like. Let's jump in.

Virtually every project a company brings a consultant on for should be shaped and guided by a thorough consulting agreement. It establishes clear expectations that can minimize the risk of lapses in understanding and communication between clients and consultants.

A consulting relationship is essentially a time-bound partnership, and like any other kind of business partnership, it needs to be as airtight as possible. Clients and consultants can't work on different wavelengths.

If you - as a client - don't set clear terms for a consulting engagement, your consultant could wind up working with muddled objectives, operating on the wrong timeline, or carrying out any other activities that might undermine your goals or principles.

Here's a look at the bases a consulting agreement needs to cover to prevent that kind of confusion.

1. Names of Parties Involved in the Contract

This one is pretty self-explanatory. You need to clarify who, exactly, is signing the consulting agreement.

2. Names of Businesses and Contact Information

Consulting agreements also typically include the names of the businesses involved in the contract and some contact information - specifically business addresses.

3. Scope of Work

The term "scope of work" refers to a detailed description of the exact services the consultant will be expected to provide. It's a protective measure that holds consultants accountable for their performance and whether they've held up their side of the deal when the term covered by the agreement ends.

Though the nature of this section might evolve as the professional relationship between a consultant and their client progresses, both parties need to set clear initial expectations to guide specific actions, avoid miscommunication and confusion, and ultimately make the engagement more efficient and effective.

4. Confidentiality Agreement

A consulting agreement should also include an agreement that clarifies that the consultant involved must keep any of their client's company or product information confidential. That can include designs, financial information, insight on how the company is performing, trade secrets, or any other information that could serve one of the client's competitor's interests.

5. Term

Consulting agreements also typically include expectations about the length of the engagement between both parties. In a similar vein to establishing the scope of work, setting firm time constraints holds consultants accountable for their responsibilities and helps guide more efficient, effective work. In most cases, this section will be set in either months or years.

6. Termination Terms

The purpose of the section is generally twofold. For one, it can establish a timeframe for when a party must provide written notice for terminating the contract and the consequences of that kind of action.

Secondly, it sets the terms for what constitutes a terminatable breach of contract - that include breaches of confidentiality, violation of non-solicitation provisions, or illegal activity that might adversely impact the consultant's performance or company's reputation,

7. Compensation

This section clarifies how much the client is expected to pay the consultant, the consultant's fee structure, and the schedule that dictates how and when that compensation will be doled out.

This section might also include information about whether a consultant will be expected to submit invoices. It can also address certain overhead costs for which the consultant expects to be reimbursed.

8. Clarification About Independent Contractor Status

For legal purposes, a consulting agreement should clarify that the consultant involved will be operating as an independent contractor. This section is key for framing how the parties will pay taxes and distancing the client from any liability for the actions carried out by the consultant during the parties' engagement.

9. Clarification About Who Will Own Any Property or IP Created by the Consultant (Rights and Data)

This section addresses how any IP that stems from the consultant's work can be used and who is allowed to use it. Sometimes, a consultant will deliver an entire product for a client. In that case, this section clarifies which of the parties gets to retain that product's copyright.

10. The State That Will Govern Any Services Rendered

Another key legal element of any consulting agreement is establishing where the contract applies. Every state has its own laws that can frame how this kind of contract should be written and enforced, so an agreement needs to clarify which state government will set those terms.

11. Clarification That the Terms of the Contract Supercede Oral Agreements

Consulting agreements can also include a section clarifying that any agreements can only be enforced if they're agreed to in writing or already clarified in the contract itself.

12. Conflict of Interest Terms

Some consulting agreements include non-compete or non-solicitation clauses that keep a consultant from engaging with other companies in the client's market or soliciting the client's company's employees, respectively, during the term of the agreement.

13. Dispute Resolution Terms

A consulting agreement might also include clear terms that dictate how disputes between the parties will be resolved.

Simple Consulting Agreement

A simple consulting agreement - one that covers the bare minimum number of bases to still being legally sound - will typically only include the following:

• The names of all parties involved
• The names of the businesses involved
• The scope of work
• The time frame covered by the agreement
• Compensation terms
• Clarification about the consultant's role as an independent contractor
• A confidentiality agreement

Here's a look at what a simple consulting agreement might look like.

Sample Consulting Agreement

No matter where you stand in the client-consultant dynamic, you need to have a grasp of what a consulting agreement includes and entails. Without one, you're leaving your professional relationship vulnerable to unnecessary hitches, inefficiency, and potential legal ramifications.

Originally published Oct 25, 2021 7:00:00 AM, updated October 25 2021

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