Consulting Agreement

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What Is a Consulting Agreement?

A consulting agreement is a contractual document that describes a working relationship between a business and a consultant providing that company with their services. Other terms that are used to refer to a consulting agreement include:

  • Business consulting agreement
  • Independent contractor agreement
  • Freelance agreement
  • Consulting contract

The consulting agreement explains the terms of the professional relationship as a method for keeping both parties accountable when it comes to the type of work and compensation expected. Having a consulting agreement when contracting the services of an outside advisor or specialist is a standard part of running a business and helps protect your company from possible disputes.

Types of Consultants

A consultant is an outside professional who provides expertise and advice to improve a business's operations in some way. They analyze current business behavior, identify areas for improvement, and develop a plan for improving that aspect of the company. Consultants may also train other staff members and oversee the implementation of new business tactics, evaluating the outcome and making adjustments as needed.

Consultants often specialize in a niche area of their market, using each business opportunity to build their expertise and apply it to improve best practices. Some of the different types of consultants you can hire to work for your business are:

  • IT consultant: Businesses hire IT consultants to help optimize their tech support, internal networking, software, and web development.
  • Operations consultant: These specialists focus on your company's manufacturing and supply chain efficiency, finding ways to improve storage, delivery, and response times.
  • HR consultant: As small companies grow, they rely on HR consultants to ensure that they are meeting their legal obligations as an employer while also developing a convenient and consistent onboarding system.
  • Financial consultant: Consultants can also analyze company finances and find ways to pay down debt, cut costs, increase profits, and make investment plans for the long-term growth and financial health of the company.
  • Leadership consultant: Career coaches and leadership consultants identify talented potential leaders with a focus on improving teamwork and coaching executives for leading high-performance projects.
  • Legal consultant: Hiring a legal expert to consult on contracts and other legal situations helps protect your business from liability and gives you a technical perspective on your business.
  • Compliance consultant: Compliance specialists have extensive knowledge of industry regulations and standards, which they use to assess company operations and recommend ways to meet those specifications.

Even within a certain field, consultants can specialize even further. For example, a digital marketing consulting firm could have consultants specializing in SEO coordination, social media advertising, affiliate marketing, and more.

When To Use a Consulting Agreement

Any time you're paying an outside candidate to work for your business, draw up a consulting agreement. While some people are used to verbal contracts, having a written record of the agreement keeps both parties accountable and ensures that an untrustworthy person doesn't accept payment without delivering their services appropriately.

Have your consultant sign a consulting agreement prior to hiring them for the job so that you can start off your professional relationship on the right foot. If problems arise later on, you can reference the consulting agreement for guidance.

Benefits of Using a Consulting Agreement

Using a consulting agreement has several key benefits for businesses:

  • Setting clear expectations for quality
  • Determining a timeline
  • Establishing professional policies
  • Holding contractors accountable
  • Agreeing on a specific budget
  • Documenting your business relationships and expenses

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Are Consulting Agreements Legally Binding?

Consulting agreements are binding contracts that can have legal consequences. The terms of a consulting agreement often have clauses that explain what to do if a dispute occurs and what actions the offended party could take. If you paid a consultant for work they didn't deliver, you could use the contract as evidence in small claims court to recover the money you lost.

If your contract violates local law, then you won't be able to enforce its terms, so it is smart to have a contract lawyer review any contract you give to a potential consultant or consulting firm. To give your consulting agreement additional legitimacy, have it notarized by a witness. This decreases the chance that the consultant could dispute the terms of the contract.

Parts of a Consulting Agreement

A standard consulting agreement will have several different clauses that summarize a range of contract details, including:

  • Start date and end date
  • Services being provided
  • Contact information for the consultant
  • Contact information for the business
  • Ownership of intellectual property
  • Compensation and fees
  • Termination procedures
  • Process for handling disputes
  • Expected communication channels
  • Confidentiality information
  • Liability
  • Noncompetition agreements
  • Indemnification
  • Reimbursement policies
  • Terms for enforcing the agreement legally
  • Signatures and initials acknowledging the agreement

Not all consulting agreements need all of these sections, but they provide a solid overview of the type of information that goes into securing a contract with a consultant. The more specific the contract is, the more guidance both the consultant and the company have when collaborating.

Image via Flickr by Government of Alberta

How To Create a Consulting Agreement

Some consultants may present you with a consulting contract first, especially if they are part of a consulting firm that takes on a high volume of clients. However, you may want or need to create a consulting agreement from scratch to suit the needs of your company.

1. Use a Template

You can find a standard legal boilerplate online to start as a base for your consulting agreement. If you choose to use a template, make sure you understand what each clause means so that you don't inadvertently agree to unfavorable contract terms. Consider adjusting an existing template to create a custom form that you can use for future consulting needs. You can also hire an expert to draft a custom legal contract for you.

2. Decide on a Project Timeline

Agreeing on deadlines is one of the key functions of a consulting agreement, so it is important to set a reasonable start date, check-in dates, and project completion dates before reaching out to consultants. Look at past projects to make an informed estimate of how long the project should take.

3. Set Your Essential Terms

Your business might be flexible on some parts of the consulting relationship, but it is important to know ahead of time what requirements you will not budge on. Make a list of the most important contract clauses for protecting your business while moving forward with a project. Examples include:

  • Company ownership of any materials created during the consultation process
  • Weekly payment frequency
  • Contract nullification after a period of no contact
  • Minimum and maximum contract length
  • Number of deliverables needed
  • Equipment and materials provided for the consultant

4. Research Terminology

As you fill out each section of the consulting agreement, look up any legal terms that you are unsure about or do not recognize. If necessary, ask for legal advice to ensure that you know what the jargon in your contract means.

Documents To Use Alongside a Consulting Agreement

More complex business relationships could require more than just a consulting contract. You can supplement the consulting agreement by having the consultant sign one of these documents in conjunction with their primary contract:

  • Receipt of employee handbook: An employee handbook can outline behavioral expectations and HR procedures in more detail. Have contractors sign an acknowledgement that they will abide by workplace policies and expectations.
  • Non-solicitation agreement: This contract restricts the consultant from working for your competitors or poaching your clients, customers, and staff for their own business.

Having a consulting agreement with each independent contractor can give you peace of mind that your company will run smoothly and according to plan. It keeps your outside employment organized and sets up consultants for success and seamless collaboration.

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