Home Agreements All you need to know about a consulting agreement

All you need to know about a consulting agreement

April 5, 2022

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The article is written by Ansruta Debnath, a law student at National Law University Odisha. This article focuses on consultation agreements, their types and the provisions that must be included in a standard consultation agreement.

It has been published by Rachit Garg.

Table of Contents

Introduction

A consultation agreement is an agreement that is formed between a person who is looking for a particular consultancy service and between firms or persons who offer such services. It involves a client and a consultant. An agreement lays down the details of the service for which consultancy is being done as well as the method through which the consultancy service will be executed.

Consultancy can be done in various aspects like finance, marketing, strategy, environment, governance etc. Consultancy basically involves providing expert opinions on various areas as mentioned before for a fee. This is beneficial because of the increasing diversification of streams and the expected levels of professionalism and specialization in all of them.

The most important clauses of consulting agreement

Consultation agreements are subjective, and they must meet the needs of all parties concerned. However, some provisions must and should be inserted to ensure that the agreement’s fundamentals are not tainted by ambiguity. This will ensure not only an attractive agreement to all parties involved but will also showcase the due diligence capabilities of the party drafting the agreement.

Identification of parties involved

A consultation agreement will involve a consultancy firm or a person providing consultation services and a prospective client. The identifying information about these two parties should be included in the agreement at the very beginning. Identifying information includes a person’s/firm’s name, office or home address, and contact information such as a cell phone number, office number and email address.

Description of work or statement of work or scope of services

From the very beginning, parties must be clear as to the description of the service for which the agreement has been formed and the expectations involved. The contract’s description outlines the project’s scope as well as the contract’s purpose. The description usually answers multiple questions, including what kind of work the consultant will do, what the company wants, and what kind of problem needs to be solved. The consultant’s approach to meeting the company’s needs is also described in this section.

Sometimes, this clause can cover the scope of services and refer to a separate document called the Statement of Work. This works when the consultation will occur for a myriad of work. In that case, the main agreement can be used to outline the scope of the agreement between the involved parties while the Statement of Work would specifically give details of a specific work as and when required. That implies, that multiple Statements might be used with a single consultation agreement, thus, promoting efficiency.

Timeline or timeframe

A consultation agreement must clarify the time frame within which the agreement would be in force. A consulting contract’s timetable section specifies the project deadline as well as any agreed-upon dates for completing deliverables or critical activities. This section also covers the ramifications of the consultant’s late work, as well as when the project will be considered complete and the acceptance criteria for that completion. A pre-established timeline, thus, clarifies whether the consultation services are going to be short-term, long-term, or for a particular or more than one project. Further, the timeline also outlines the expected milestones that will be achieved in the course of the consultation service.

Rights and obligations

The rights and obligations of both parties should be clearly defined so that in cases of dispute, the resolution of the same can occur for maximum efficiency. The rights and obligations in the consultation agreement would be that of an employer-independent contractor relationship.

Ownership or proprietary rights

This clause is extremely important to a consultation agreement. This outlines a specific type of right with respect to the intellectual property that is created during the course of the consultation service. The ownership section specifies whether the client or the consultant will own the rights to the completed work. Generally, any work completed is “work for hire” and wholly owned by the customer in this portion of contracts dealing with various sorts of property, such as creative work, intellectual property, or copyrights.

While the new intellectual properties created during the course of consultancy service are generally the property of the client, the consultant must also have developed certain intellectual properties for providing such services to multiple clients over a period of time. These might include data, processes, models etc. These properties should also be adequately protected for the sake of the consultant through this clause.

Fees, expenses, compensation and payment schedule

The fees of the service and expenses that the consultant might have to undertake should be clearly outlined in this clause so that they can be adequately compensated by the client. Sometimes, certain expenses are considered to be within the fee itself and thus separate compensation by the client is not required. Such details should be articulated beforehand to prevent any ambiguities in the future.

Methods of communication

Clear channels of communication should be established from before. This will prevent unnecessary hassle and will aid in the success of the consultancy service.

Governance model

It is a method through which the people at authoritative positions in the consultation firms would hold themselves accountable to their stakeholders, which in this case, are the clients. Outlining the governance model in the contract itself will assure the client of the quality of service being provided.

Guidelines for escalation

During the course of a project, a variety of issues may develop, and it is highly suggested that every organisation have an escalation process in place. Critical issues include areas and activities that, if not done, will cause a major project milestone to be missed, budget overruns to occur, project delivery to be delayed, and other client obligations to be broken. To ensure that vast repercussions don’t occur, these issues should be escalated by documentation and sent to higher authorities within the governance model.

Outlining the method of escalation also increases the trust of the client in the consultant.

Confidentiality

The confidentiality provision spells out the conditions under which the consultant must maintain confidentiality. Because consultants may learn a client’s trade secrets while working for the company, this condition is vital. The confidentiality clause usually spells out the legal ramifications for a consultant who divulges any secret information.

Non-compete

After the project is completed, a non-compete clause prevents you from competing with your clients’ firm to offer similar products or services. The non-compete clause may also state whether or not the consultancy firm is permitted to work for the client’s customers or competitors. Sometimes, instead of only a non-compete clause, a separate non-compete agreement may also be drawn and referred to in the consultation agreement as an attachment.

Enforceability

The enforceability clause ensures that the contract’s legal components remain in effect if any part of it is found to be invalid or unlawful. This clause safeguards the parties involved from arbitrary terminations or disputes.

Warranty

It is assumed that a project will be finished with integrity and that the final result would be covered by some form of warranty. Most consultation agreements should include a warranty clause, especially if the client refuses to proceed unless the consultants provide a warranty. Furthermore, violating a warranty will necessitate the payment of damages.

Liability and limitation of liability

The consultants generally take liability for the services they perform. At the same time, they cannot be expected to undertake unlimited liability. For that, the limitation of liability comes into play. Thus, a good consultation agreement always outlines the liabilities and the limitation of liabilities of all the parties involved.

Indemnification

In English law, “indemnity” refers to a commitment to protect someone from the consequences of their actions. The promise to indemnify could be explicit or assumed based on the facts of the case. The “indemnifier” is the person who provides the indemnity, and the “indemnity-holder” or “indemnified” is the person who is protected by it. In most consultation agreements, the clients are the indemnifier and the consultants are the indemnified.

Dispute Resolution

If a dispute arises, a good contract will always include a process for resolving it. While litigation is an age-old tradition, parties are urged to use alternative conflict resolution procedures such as arbitration, negotiation, conciliation, or mediation due to the increasing pressure on the judiciary and the ease with which they can be resolved.

Cancellation

If a project or client relationship doesn’t go as planned, it’s a good idea to have an exit strategy in place. For example, consultation agreements may specify that in case of non-payment of fees or expenses by time, the agreement might be terminated. Prior notice must be given to the other party so that they also have a chance to rectify their mistake. Abrupt termination of service is not recommended at all as that is not the best practice and might lead to the ruining of reputation.

Cancellation terms also help when the clients feel that their objectives are not being adequately fulfilled by the consulting firms. Placing cancellation and termination clauses within the first and original contract itself also extends a sense to the client that the other party is willing to make themselves accountable when they don’t perform up to expectations.

Signature and dateline

Signatures of the parties involved at the end of the agreement convert the latter into a legally binding contract and indicate the formal acceptance of the parties to its terms. The date is also important, which shows the time from when the contract started.

Things to keep in mind while drafting a consulting agreement

Do’s

The following are the do’s while drafting and signing consultation agreements:

The agreement should be comprehensive. If not, then certain fundamental clauses, as mentioned above should be there at the very least.
There should be a meeting of mind before the agreement is signed.
Negotiation should be done as much as possible to ensure that both parties have adequate rights and that no party is exploited.

Don’ts

The following are the don’ts while drafting and signing consultation agreements:

The agreement should not be signed before it has been properly reviewed.
It is advisable to not make any assumptions about terms not explicitly stated.

Pros of consulting agreements

The pros of consultation agreements are as follows:

Helps in clearing ambiguities and outlining expectations for maximum efficiency and quality of work
A set timeline can be determined
Establishment of professional policies
Financial and budget issues can be agreed upon beforehand
There is scope to establish contingencies
Accountability is maximum

Cons of consulting agreements

The cons of consultation agreements are as follows:

Too much of a comprehensive and watertight agreement can create non-flexibility issues in the future. There should always be scope for flexibility.
It is impossible to ascertain accurately the costs that might be incurred in the future and the client may agree to pay more than was necessary.

A sample consulting agreement

Sample consultation agreements are widely available for the benefit of everyone who wants to draft a consultation agreement for an impending consultation project. These samples contain certain provisions which are a must for all consultation agreements. Apart from those, the contracts can be amended and sub-clauses added or removed to cater to individual needs.

The following is a sample consultation agreement-

Disclaimer: Mentioned below is just a sample consultation agreement. The agreement may differ as per subject-matter and requirements of the clients.

CONSULTING AGREEMENT

This Consulting Agreement, dated effective _____________, 201___ (this “Agreement”), is made and entered into by and among ___________________ [name of the company] (the “Company”) and [name of consultant] (the “Consultant”).

ARTICLE 1: SCOPE OF WORK

1.1 Services.

The Company has engaged a Consultant to provide services in connection with the Company’s [summary of the project or business of the Company]. The consultant will [summary of the services Consultant is to provide], and such other services as described in Exhibit A (collectively, the “consulting services”).

1.2 Time and Availability.

The consultant will devote _______ hours per month in performing the services for the Company as stated herein. Consultant shall have discretion in selecting the dates and times it performs such consulting services throughout the month giving due regard to the needs of the Company’s business. If the Company deems it necessary for the Consultant to provide more than ________ hours in any month, Consultant is not obligated to undertake such work until the Consultant and Company have agreed on a rate of compensation. [The time devoted can be hours per day, per week, or per year. The Company may also elect to pay a flat monthly fee regardless of hours, but the Company should be cautious of this approach.]

1.3 Confidentiality.

In order for the Consultant to perform the consulting services, it may be necessary for the Company to provide the Consultant with Confidential Information (as defined below) regarding the Company’s business and products. The Company will rely heavily upon the Consultant’s integrity and prudent judgment to use this information only in the best interests of the Company.

1.4 Standard of Conduct.

In rendering consulting services under this Agreement, the Consultant shall conform to high professional standards of work and business ethics. Consultant shall not use time, materials, or equipment of the Company without the prior written consent of the Company. In no event shall Consultant take any action or accept any assistance or engage in any activity that would result in any university, governmental body, research institute or another person, entity, or organization acquiring any rights of any nature in the results of work performed by or for the Company.

1.5 Outside Services.

Consultant shall not use the service of any other person, entity, or organization in the performance of Consultant’s duties without the prior written consent of an officer of the Company. Should the Company consent to the use by Consultant of the services of any other person, entity, or organization, no information regarding the services to be performed under this Agreement shall be disclosed to that person, entity, or organization until such person, entity, or organization has executed an agreement to protect the confidentiality of the Company’s Confidential Information (as defined in Article 5) and the Company’s absolute and complete ownership of all right, title, and interest in the work performed under this Agreement.

1.6 Reports.

Consultant shall periodically provide the Company with written reports of his or her observations and conclusions regarding the consulting services. Upon the termination of this Agreement, Consultant shall, upon the request of Company, prepare a final report of Consultant’s activities.

ARTICLE 2: INDEPENDENT CONTRACTOR

2.1 Independent Contractor.

The consultant is an independent contractor and is not an employee, partner, or co-venturer of, or in any other service relationship with, the Company. The manner in which Consultant’s services are rendered shall be within Consultant’s sole control and discretion. The consultant is not authorized to speak for, represent, or obligate the Company in any manner without the prior express written authorization from an officer of the Company.

2.2 Taxes.

Consultant shall be responsible for all taxes arising from compensation and other amounts paid under this Agreement and shall be responsible for all payroll taxes and fringe benefits of Consultant’s employees. Neither federal, state, local income tax, nor payroll tax of any kind, shall be withheld or paid by the Company on behalf of the Consultant or his/her employees. Consultant understands that he/she is responsible to pay, according to law, Consultant’s taxes and Consultant shall, when requested by the Company, properly document to the Company that any and all federal and state taxes have been paid.

2.3 Benefits.

Consultant and Consultant’s employees will not be eligible for, and shall not participate in, any employee pension, health, welfare, or other fringe benefit plan of the Company. No workers’ compensation insurance shall be obtained by Company covering Consultant or Consultant’s employees.

ARTICLE 3: COMPENSATION FOR CONSULTING SERVICES

3.1 Compensation.

The Company shall pay to Consultant _________ per month for services rendered to the Company under this Agreement. The monthly compensation shall be paid on the first of the month following the month the services were provided. The monthly compensation shall be paid regardless of the number of consulting hours provided by the Consultant in a particular month. [Another option is to pay hourly and require monthly time documentation. The monthly compensation would be reduced by the hourly rate for the number of hours less than the devoted hours.]

3.2 Reimbursement.

The Company agrees to reimburse the Consultant for all actual reasonable and necessary expenditures, which are directly related to the consulting services. These expenditures include, but are not limited to, expenses related to travel (i.e., airfare, hotel, temporary housing, meals, parking, taxis, mileage, etc.), telephone calls, and postal expenditures. Expenses incurred by the Consultant will be reimbursed by the Company within 15 days of the Consultant’s proper written request for reimbursement.

ARTICLE 4: TERM AND TERMINATION

4.1 Term.

This Agreement shall be effective as of _________, 201__, and shall continue in full force and effect for ____ consecutive months. The Company and Consultant may negotiate to extend the term of this Agreement and the terms and conditions under which the relationship shall continue.

4.2 Termination.

The Company may terminate this Agreement for “Cause,” after giving the Consultant written notice of the reason. Cause means: (1) Consultant has breached the provisions of Article 5 or 7 of this Agreement in any respect or materially breached any other provision of this Agreement and the breach continues for 30 days following receipt of a notice from the Company; (2) Consultant has committed fraud, misappropriation, or embezzlement in connection with the Company’s business; (3) Consultant has been convicted of a felony; or (4) Consultant’s use of narcotics, liquor or illicit drugs has a detrimental effect on the performance of his or her employment responsibilities, as determined by the Company.

4.3 Responsibility upon Termination.

Any equipment provided by the Company to the Consultant in connection with or furtherance of Consultant’s services under this Agreement, including, but not limited to, computers, laptops, and personal management tools, shall, immediately upon the termination of this Agreement, be returned to the Company.

4.4 Survival.

The provisions of Articles 5, 6, 7, and 8 of this Agreement shall survive the termination of this Agreement and remain in full force and effect thereafter.

ARTICLE 5: CONFIDENTIAL INFORMATION

5.1 Obligation of Confidentiality.

In performing consulting services under this Agreement, Consultant may be exposed to and will be required to use certain “Confidential Information” (as hereinafter defined) of the Company. Consultant agrees that Consultant will not and Consultant’s employees, agents, or representatives will not use, directly or indirectly, such Confidential Information for the benefit of any person, entity, or organization other than the Company, or disclose such Confidential Information without the written authorization of the President of the Company, either during or after the term of this Agreement, for as long as such information retains the characteristics of Confidential Information.

5.2 Definition.

“Confidential Information” means information not generally known and proprietary to the Company or to a third party for whom the Company is performing work, including, without limitation, information concerning any patents or trade secrets, confidential or secret designs, processes, formulae, source codes, plans, devices or material, research and development, proprietary software, analysis, techniques, materials, or designs (whether or not patented or patentable), directly or indirectly useful in any aspect of the business of the Company, any vendor names, customer and supplier lists, databases, management systems and sales and marketing plans of the Company, any confidential secret development or research work of the Company, or any other confidential information or proprietary aspects of the business of the Company. All information which Consultant acquires or becomes acquainted with during the period of this Agreement, whether developed by Consultant or by others, which Consultant has a reasonable basis to believe to be Confidential Information, or which is treated by the Company as being Confidential Information, shall be presumed to be Confidential Information.

5.3 Property of the Company.

Consultant agrees that all plans, manuals, and specific materials developed by the Consultant on behalf of the Company in connection with services rendered under this Agreement, are and shall remain the exclusive property of the Company. Promptly upon the expiration or termination of this Agreement, or upon the request of the Company, Consultant shall return to the Company all documents and tangible items, including samples, provided to Consultant or created by Consultant for use in connection with services to be rendered hereunder, including, without limitation, all Confidential Information, together with all copies and abstracts thereof.

ARTICLE 6: RIGHTS AND DATA

All drawings, models, designs, formulas, methods, documents, and tangible items prepared for and submitted to the Company by Consultant in connection with the services rendered under this Agreement shall belong exclusively to the Company and shall be deemed to be works made for hire (the “Deliverable Items”). To the extent that any of the Deliverable Items may not, by operation of law, be works made for hire, Consultant hereby assigns to the Company the ownership of copyright or mask work in the Deliverable Items, and the Company shall have the right to obtain and hold in its own name any trademark, copyright, or mask work registration, and any other registrations and similar protection which may be available in the Deliverable Items. Consultant agrees to give the Company or its designees all assistance reasonably required to perfect such rights.

ARTICLE 7: CONFLICT OF INTEREST AND NON-SOLICITATION

7.1 Conflict of Interest.

Consultant covenants and agrees not to consult or provide any services in any manner or capacity to a direct competitor of the Company during the duration of this Agreement unless express written authorization to do so is given by the Company’s President. A direct competitor of the Company for purposes of this Agreement is defined as any individual, partnership, corporation, and/or other business entity that engages in the business of [define business – substantially similar to what is provided in Section 1.1] within _____ miles of the [facility, headquarters, etc.].

7.2 Non-Solicitation.

Consultant covenants and agrees that during the term of this Agreement, Consultant will not, directly or indirectly, through an existing corporation, unincorporated business, affiliated party, successor employer, or otherwise, solicit, hire for employment or work with, on a part-time, consulting, advising, or any other basis, other than on behalf of the Company any employee or the independent contractor employed by the Company while Consultant is performing services for the Company.

ARTICLE 8: RIGHT TO INJUNCTIVE RELIEF

Consultant acknowledges that the terms of Articles 5, 6, and 7 of this Agreement are reasonably necessary to protect the legitimate interests of the Company, are reasonable in scope and duration, and are not unduly restrictive. Consultant further acknowledges that a breach of any of the terms of Articles 5, 6, or 7 of this Agreement will render irreparable harm to the Company, and that a remedy at law for breach of the Agreement is inadequate, and that the Company shall therefore be entitled to seek any and all equitable relief, including, but not limited to, injunctive relief, and to any other remedy that may be available under any applicable law or agreement between the parties. Consultant acknowledges that an award of damages to the Company does not preclude a court from ordering injunctive relief. Both damages and injunctive relief shall be proper modes of relief and are not to be considered as alternative remedies.

ARTICLE 9: GENERAL PROVISIONS

9.1 Construction of Terms.

If any provision of this Agreement is held unenforceable by a court of competent jurisdiction, that provision shall be severed and shall not affect the validity or enforceability of the remaining provisions.

9.2 Governing Law.

This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws of conflicts) of the State of [governing law].

9.3 Complete Agreement.

This Agreement constitutes the complete agreement and sets forth the entire understanding and agreement of the parties as to the subject matter of this Agreement and supersedes all prior discussions and understandings in respect to the subject of this Agreement, whether written or oral.

9.4 Dispute Resolution.

If there is any dispute or controversy between the parties arising out of or relating to this Agreement, the parties agree that such dispute or controversy will be arbitrated in accordance with proceedings under American Arbitration Association rules, any such arbitration will be the exclusive dispute resolution method under this Agreement. The decision and award determined by such arbitration will be final and binding upon both parties. All costs and expenses, including reasonable attorney’s fees and expert’s fees, of all parties incurred in any dispute that is determined and/or settled by arbitration pursuant to this Agreement, will be borne by the party determined to be liable in respect of such dispute; provided, however, that if complete liability is not assessed against only one party, the parties will share the total costs in proportion to their respective amounts of liability so determined. Except where clearly prevented by the area in dispute, both parties agree to continue performing their respective obligations under this Agreement until the dispute is resolved.

9.5 Modification.

No modification, termination, or attempted waiver of this Agreement, or any provision thereof, shall be valid unless in writing signed by the party against whom the same is sought to be enforced.

9.6 Waiver of Breach.

The waiver by a party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other or subsequent breach by the party in breach.

9.7 Successors and Assigns.

This Agreement may not be assigned by either party without the prior written consent of the other party; provided, however, that the Agreement shall be assignable by the Company without Consultant’s consent in the event the Company is acquired by or merged into another corporation or business entity. The benefits and obligations of this Agreement shall be binding upon and inure to the parties hereto, their successors and assigns.

9.8 No Conflict.

Consultant warrants that Consultant has not previously assumed any obligations inconsistent with those undertaken by Consultant under this Agreement.

IN WITNESS WHEREOF, this Agreement is executed as of the date set forth above.

Signed and delivered for and on behalf of

(Place for signature)

Client Name:

Address: ______________________

Signed and delivered for and on behalf of

(Place for signature)

Consultation Firm Name:

Director Name or Authorised person Name ______________________

Designation ______________________

Address ______________________

Conclusion

It can be concluded that it is extremely beneficial for clients and consultants to establish rights and responsibilities in a consultation agreement prior to the start of a consulting project. With the shifting landscape and dynamics of the consulting sector, there is a clear need to move away from rigid agreements and toward agreements that are considerably more flexible. Simultaneously, a balance must be struck to ensure that both sides profit fairly from the agreement.

References

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