A Consulting Agreement is a type of a written service agreement that exists between a client and the consultancy service provider. It comprehensively defines the terms expected to govern the relationship between the client and the consultant over the agreed-upon period. It outlines the responsibilities of each party, the time frame, compensation, payment terms, intellectual property rights, and other factors that are crucial for the execution of the agreement.
The agreement is legally binding, therefore protecting either party in case of a dispute. It is a standard requirement whenever services are being outsourced either for personal reasons or reasons relating to business operation. It must be signed by both parties as an indication that the consultant and client have an understanding of what the agreement requires from them.
Alternate names for a consulting agreement
A Consulting Agreement can alternatively be referred to as a:
- Consulting Contract
- Freelance Agreement
- Business Consulting Agreement
- Independent Contractor Agreement
Importance of a Consulting Agreement
The agreement is important to the consultant and the client in the following ways;
Description of the scope of work
The agreement’s primary role is the definition of roles to be undertaken by the client and the consultant such as the timeframe and means of service delivery. The consultant is then bound to provide as per the client’s specifications by referring to the agreement.
Safeguarding of intellectual property
The agreement clearly outlines the patents, trade secrets, copyrights, and trademarks that are necessary for the execution and completion of the sought-out services. It outlines the intellectual properties that can be accessed by either the client or the consultant.
A consultant service agreement leads to the development of a client-consultant relationship by documenting individual roles that help in determining the success of the set goals.
The terms of payment should be discussed and determined before the commencement of service delivery, and be written in the consultant service agreement to avoid payment disputes. The specific amount to be paid, payment intervals, and means of payment should be well defined.
Creation of new opportunities
After the completion of the contract, the consultant service agreement can be used as a marketing tool by consultants as a reference of their experience in providing consultancy service.
The Components of a Consulting Agreement
The following details are included in the Consulting Agreement;
Customer and consultant information
The agreement contains basic and contacts information such as the client and service provider’s name, telephone numbers, and physical addresses.
Terms of service
This involves a comprehensive description of the services that the consultant shall provide, as well as the time required to offer the services. Factors such as working from the client’s premises and working remotely maybe include. In case the client resolves into altering the scope of work, the agreement can be modified to accommodate the changes.
The agreement contains the payment terms that stipulate the amount the client is obligated to pay the consultant for the services provided, and the time, either hourly, weekly, or monthly, that the consultant is supposed to invoice the client for payment. Discount arrangements should be discussed. Clarification should also be made regarding compensation in case the work involves the consultant incurring extra expenses.
Confidentiality, non-solicitation, and non-competition
The agreement contains clear guidelines that prohibit the consultant from breaching the confidentiality clause by disclosing the client’s sensitive information which includes financial information and any other agreed-upon information. Consultants are also prohibited by the agreement from soliciting the clients for work or engaging in a biased competition.
Materials and intellectual property rights
Both the client and the consultant are bound by the agreement not to misuse intellectual property belonging to the other party. Data, methods, processes, and research methods of either party should be protected as stipulated by the agreement. The stipulations should set out protection measures to the pre-existing and current intellectual property involved before and during the working period respectively.
Governing law on dispute resolution
Despite the effort by the client and the consultant to avoid or decrease the chances of disputes erupting by clearly outlining the responsibilities of each party in the agreement, disputes are still bound to happen. It is, therefore, necessary to include a clause that stipulates the preliminary actions by both parties before considering legal action. The parties can engage in negotiations, or even mediation in case the negotiation process fails. The venue of the mediation process and the mediator should be indicated in the agreement.
The agreement contains a clause in favor of the consultant particularly when the nature of work is actuarial. The reason behind such a clause is because the client may not be pleased by the conclusions derived from the whole process, and may result in withholding the consultant’s payment.
Use of contractors
In case the consultant requires to subcontract work, the Consulting Agreement must clearly state that the consultant should provide liability insurance, particularly if the subcontractors will work from the client’s premises.
When the client enters into an agreement with the consultant, it is expected that the contract will cover the entire agreed-upon time frame. However, one party may wish to withdraw or resign from the contract, and it is, therefore, necessary to provide guidelines on whether either party is allowed to terminate the contract, the notice period required, the role of each party after the termination, and payment of services provided up until the termination.
The agreement stipulates that signatures and initials of the client and the consultant must be present for the contract to be binding. It should include statements such as “IN WITNESS WHEREOF, the parties have indicated their acceptance….”
Independent Contractor Agreement vs. Service Agreement
Here is how an independent contractor agreement differs from service contract agreement;
Independent contractor agreement
An Independent Contractor Agreement refers to a written contract that comprehensively expounds the terms that govern the client and consultant’s working agreement, and it includes the specification of the provided services, timeframe and terms of the service, compensation details, and confidentiality, non-solicitation, and non-competition.
Service contract agreement
A Service Agreement is a verbal or written agreement that is generated when the service provider wants to provide services to the client, and concurrently, the client requires the services. More complex needs can only be solved by first getting into a written agreement as opposed to a verbal agreement.
Do’s and Don’ts
There are a few do’s and dont’s that must be kept in consideration during the process of preparing and utilising a consultant service agreement.
- It is crucial for the client to first establish why they need consultancy services and the specific tasks that the consultant shall work on. Are there alternative means to carry out the task, such as the client’s employees? If the appropriate workforce is available at the workplace but the client still wants to outsource the services, the reasons should be clearly defined.
- A decision must be made on whether the consultancy services shall be outsourced exclusively, or the client shall be involved in its implementation.
- Verifying the nature of the work as either one-off or recurrent shall help in determining the scope of work to be covered. One-off contracts are more convenient because employees can undertake comprehensive training at a go.
- Engaging in a Consultant Agreement means the client has accepted to hand over their, or the organization’s sensitive data and other resources. It is, therefore, crucial to deeply think about it before committing.
- The client is obligated to read and understand the contents of the Consultancy Agreement and confirm that they are satisfied with its contents. Discussions with the consultant should be undertaken regarding the provisions of the agreement.
- The consultant should prepare and submit an invoice to the client. The client should evaluate the consultant’s proposal before the commencement of the contract, which should be written and signed by both parties.
- The client should avoid imitating the competitors by focusing on the requirements of their organization instead of trying to match with the competitors. If no identified need warrants consultancy services, there is no need of committing.
- It is necessary to halt any contract signing before having thorough discussions with the stakeholders. In case there is resistance from the stakeholders or CEOs, the client should not proceed without resolving the matter. Valid evidence should be provided to warrant the resistance.
- The client should avoid committing to expensive contracts when the resources available cannot be sufficient to cater to the associated costs.
- Any verbal feedback from the consultant should be accompanied by a progress report. The client should not rely on verbal feedback only. Constant feedback bout the milestone should be provided.
Free Agreement Templates
When the need ever arises and you, a consultant or a client, need a Consultancy Agreement to facilitate service provision or hiring consultancy services respectively, you can download Consultant Agreement templates. The templates are comprehensive to ensure that all areas concerning rules that govern the consultancy agreement are well covered for you as a consultant as well as a client. Our templates can also be customized to meet your needs.
Frequently Asked Questions
What is the difference between an employee and an independent contractor
An employee works for their employer on a full-time basis, and their work, hours, as well as the location of their workplace, is dictated by the employer. On the contrary, an independent contractor is not restricted to one client, meaning multiple clients can be engaged at the same time. Payment is usually made after the independent contractor invoices the client for payment of the services offered. They also use their working tools.
Is this a Master Service Agreement
Yes, a Master Services Agreement is also known as a Consulting Agreement, a Master Consulting Agreement, a Service Agreement, or a Client Contract.
The business relationship between a consultant and a client must be governed by a standard document to ensure fairness and accountability from both parties. The Agreement helps in managing the consultant-client relationship by clearly stipulating individual roles, work specifications, payment methods, intellectual property rights, dispute resolution, compensation, governing laws, and terms of service among other contents of the contract agreement. It is important to note what the consultant or client should and should not do by reading the Do’s and Don’ts segment. Download the Consulting Agreement Template below to enjoy our well-formulated template.