What is a Consulting Agreement?
Contacts are an essential part of any consulting business . In the most simple terms, a consulting agreement identifies involved parties, how the contract will be carried out, and that you both agree to the terms contained within the document. However, there are additional sections and clauses that you will want to add to protect your business while providing guarantees that clients need.
Without a consulting contract in place, both sides are at risk of significant financial losses that can affect individuals personally and the company’s profitability. These agreements also describe how you will handle the resolution of a conflict, including litigation avoidance.
A consulting agreement will help your attorney establish that you fulfilled your contractual obligations if your client initiates a civil dispute. Always seek legal advice from a contract lawyer if you have questions about drafting and executing a consulting contract.
What should you include in a consulting contract?
Recitals and Background
The recital clause is the opening section of the consulting agreement. This section is sometimes called a “whereas clause.” It precedes the main body and recites critical information about the contract’s general purpose.
You should incorporate the following information into your recital clause:
- Name and contact information of the consultant
- Name and contact information of the business
- Start and end date of the contract
- Acknowledgment of entering into an agreement
It is essential to include recitals since they provide clarity and may deter disagreements regarding the contract’s legality in the future. Recitals alone do not create a formal agreement. Instead, they exist to explain the reason for the consulting agreement.
Scope of Services
The primary objective of a consulting agreement is to describe what services you will provide to the business. At a minimum, it should reference the scope and breadth of your services from a general standpoint. However, it is wise to include as much detail as possible, which means that you may want to add a more comprehensive description of your services as an attachment.
Ownership of Intellectual Property
Intellectual property (IP) is a valuable asset for any business. The ownership of the intellectual property section of your consulting agreement will set forth the terms and conditions of the rights to these assets. If your services provide creative works as a deliverable, you will describe IP transferability and any exceptions in this section.
Compensation, Expenses, and Schedules
This section of the consulting agreement outlines your consulting fees and includes all information related to payments, such as when and how you expect the business to pay you. In short, this section addresses how much do consultants charge in your company and how they will charge for it.
Ensure that you detail each of the following elements:
- The type of fee structure you are using
- Forms of payment you accept
- Budgetary restrictions
- How you will handle reimbursement
Payment disputes are a typical source of conflict between consultants and their clients. Spend time on this section of your consulting contract and make it as comprehensive as reasonably possible. Different types of consultants have different needs, which means that you should draft the agreement to your specific situation.
It unlikely that you will need to resolve a dispute with your client involving legal action. However, it is best to have protective measures added to your consulting agreement.
Consider the types of problems that could occur and how you will address them, including:
- Non-payment of services
- Breach of contract
Depending upon your consulting business, you may want to discuss dispute resolution options with a contract lawyer. He or she will offer you the insight and guidance that is most appropriate for your situation.
Termination of Services
No matter how specific you get with your independent contractor agreement for consulting services, every project does not always go according to plan. In the termination of services clause, layout the terms and conditions related to suspending or concluding work. For instance, specify whether the contract can be ended at any time or if advance notice is required.
Methods of Communication
If either party wishes to terminate or amend the existing contract, the methods of communication section describes how you want to handle these notices, including the form of media. While email is sufficient for most intents and purposes, you may wish to request a letter mailed to your business address for complex or high-value projects.
The confidentiality clause establishes the confidentiality the consultant and business must uphold. As a consultant, you may learn your clients’ trade secrets over the course of the project. This section will reassure your client by agreeing to face legal action if you disclose confidential company information and vice versa.
The indemnification clause is complicated since it can be utilized in many ways, but its primary purpose is to protect you from third-parties. For many consultants, you may hire third-parties that provide work to you that you then pass along to your client. Use the indemnification clause to protect you from potential contract breach actions sought by your client because of services a third-party provided.
Limitation of Liability
Although you take on responsibility for the services you provide, it is vital to shelter your business from frivolous lawsuits. The limitation of liability clause will place restrictions on client claims stemming from a breach of contract .
Exclude actions outside of your control, including:
- Your client’s negligent actions
- Third-party actions
- Client profit loss
This clause is vital since it may curb any damages your consulting business suffers from a client dispute. A contractual attorney can provide you with legal advice if you have questions about your situation specifically.
A non-compete clause prohibits you from competing with your clients’ company to offer similar products or services after completing the project. Your non-compete may also include whether you can work for your client’s customers or competitors. Some businesses will ask you not to solicit or poach employees, as well.
If any part of the contract is invalid or unlawful, the enforceability clause keeps the contract’s legal aspects in place. This provision protects you and your client from baseless terminations or disputes.
Signatures and Dateline
For your contract to be lawful and enforceable, it must also include a signature and date line signed by both parties. Your signatures indicate that you both agree to the terms and conditions contained therein.
For all signing parties, include the following items in the signature block:
- Blank signature line
- A dateline for each signature
- The name of the signer
- His or her title
- His or her initials at the bottom of each page (optional)
You do not need to sign your consulting agreement in front of a notary public or witnesses. Notary publics only verify that the identity of the person signing the document, and witnesses are not required for enforceability.
Working With A Consulting Agreement Lawyer
Several provisions and items go into a rock-solid consulting contract. While these elements broadly create a contract together, every consulting agreement is unique for all types of consultants. Ensure that you have the sections, articles, and attachments you need to protect yourself and build client trust while mitigating the potential for dispute by hiring an independent contracts lawyer to provide guidance.