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This article is written by Gauri Atreja who is pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.

Introduction

Imagine you’re busy with your work life and suddenly you receive a notice stating you need to be present in court with numerous explanations as your earlier client who thought to be your close acquaintance has filed a case against you and when you recall everything you realise that you ignored the need of entering into a consultancy contract. In this article we shall understand why you should always enter into a consultancy agreement and examine the essential clauses that should form a part of your agreement to make it more useful.

Once you finally get a client and are ready to get started on a project, it’s tempting to take it further on just a handshake but it’s worthwhile to take out time for putting it down on a paper in a form of written contract. The written contract is not only binding on the parties but it potentially helps to eliminate misunderstandings or confusions. 

Without consulting contract or agreement, both parties poses themselves to the of risk financial losses, feelings of resentment, damaged relationships, and sometimes lawsuits.

Having clients sign a consulting agreement can potentially help to avoid litigation since both sides have a written document that they can reference. In any unlikely event that a client decides to sue your consulting business, the agreement can help you and your lawyer prove that you fulfilled your obligations and should not be held liable for any damages, on the other hand client can sue the consultant in case he fails to provide all the services stipulated in the Agreement. This makes it very important to include all the terms of the services into the consultancy agreement.

What is a Consultancy Agreement?

Consultancy agreement in general sense refers to the terms of services between the consultant and the client. This agreement is drawn when a consultant is hired or called to provide his services to any individual or business organisation. It states the demands and needs of both the parties to the agreement, that helps in protecting the interest of parties and ensuring that all the terms of the agreement are complied with.

What are the essential clauses of a consultancy agreement?

The consultancy agency being diverse in nature attracts the different clients with different needs therefore it is wise to say that every consultancy agreement is designed as per the need of the client, and hence there is no fixed template for such agreement. However, the following clauses can make your consultancy agreement more useful and comprehensive.

  • Party’s clause: first and foremost clause should be the party’s clause, the agreement should clearly state the parties on whom this agreement will be binding, ie the consultant and the client. This clause also specify the exact business the two parties are engaged in.
  • Scope of services: Your consultancy agreement should provide detailed description of the services being provided to the client. The more detailed the scope of services the better it is to avoid any added liabilities and confusion.

This part of the consultancy agreement is particularly very important. It proves to be your saviour when any dispute related to the services arise. If a client lays a finger on you whether you completed the services that were promised or not, you could refer to the scope of services in consultancy contract as the evidence that everything the contract mentions is done.

While it is important to set out what you are providing, it is also important to narrow down the services you are not providing to the client.

  • Term clause: This clause clearly specifies the duration of the agreement i.e. the start date and the finish date. In other words it defines the shelf life of the agreement during which it shall be binding on both the parties. It is further suggested to always include the deadlines so that all your crucial work is completed in the frame of your agreement term. Term clause thereby helps to plan and measure your progress in an efficient manner.
  • Compensation clause: Compensation clause is relatively important for both the parties i.e. the consultant and the client. This clause states the amount to be paid by the client for hiring the services of consultant. It is advisable to pay the compensation in tranches in other words on the basis of completion of particular tasks or deadlines, this assures the effective completion of the work.
  • Confidentiality, Non-competition and Non solicitation clause: The Lawyer of the client should alwayshave an eagle’s eye on these clause as it can be said the lack in the details of this clause might cause the huge losses to the client. It should be made sure that consultancy firm agrees to these clauses. This should be made sure that the consultant shall maintain secrecy and high levels of confidential information that parties may have access under a contract, for the benefit of the client. 

On the other hand to protect the goodwill or the value of the business it’s equally important to enter non-compete and non-solicitation clauses in the consultancy agreement. This protect the client from any future risks.

In case of any breach to above clauses is made, the client can straight away seek legal remedy in the court of law for safeguarding its interests and getting compensated for the losses occurred to him

  • Indemnity: This clause is incorporated in the agreement with the aim of protection of one of the party from other’s negligence. This means that if any harm or liability is done to one party because of the other party, the former will compensate the latter in a manner that is prescribed in agreement entered between the parties. This protects the unforeseen potential financial burdens caused due to negligence of other party.
  • Dispute Resolution: Dispute is the most inevitable event that can be occurred during the course of the agreement. In the absence of such clause a party may think how to deal if any dispute arises? This particular problem is dealt with the clause called dispute resolution. It explains the modus operandi in which the party resolves the dispute i.e. mediation or arbitration.
  • Signature of Parties: In the end of the agreement, both parties must sign and write the date on which the agreement was signed. This completes the document and gives it’s the legal validation. This clause asserts that both the parties have understood the agreement and the terms contained in it. Therefore once the parties sign, the parties later cannot refuse to abide by the rules laid under it.

What types of services are provided by the consultant?

Type of consultancy services cannot be narrowed down to a particular aspect in fact the consultancy agency tends to be the most diverse market amongst the professional services industry, one of the reason to say so is because of the availability of wide range of consultants in industry, being a ‘consultant’ is not a protected professional title like most other professions, and, as such, anyone can title themselves strategy, management, business, finance, HR or IT consultant therefore broadening this industry gradually. However different consultants have different specialisations and one can avail their services as per the requirements.

What is the Liability of the Consultant to its Client?

Practically speaking this question often arises into the mind of Client because he might be investing his resources on basis of consultant’s advice or recommendation. Client often wants to safe side and protect himself in case of any downfall.

However in so providing the services to the client, the consultant cannot be held liable to the client or its creditors for errors of judgement or any other cause except wilful malfeasance, bad faith or reckless disregard of its obligations and the terms of the agreement entered between them.

Generally speaking, consultants often take up the professional liability insurance to protect themselves from the errors and omissions that might occur while working with the client. Without this type of insurance, the assets of the consulting firm and the consultant themselves can be at risk. In a case any of your clients file a case against you or hold you guilty for negligence of services, you can approach professional liability insurance company who would cover the costs of legal suits and compensation that you might need to pay to the other company.

Conclusion

It’s clear that from the perspective of the parties involved, as well as on a project level, contracts are a smart move. Consultancy agreement gives everyone a clear picture of what’s happening, when, how and why it is happening and what to do if a deliverable is not met, or one of the parties breach on a promise. It is advisable when recruiting consultants, drawing up a proper legal contract is not merely another waste of paper and time, and it can have a huge impact on the success or failure of the project at hand.

References

  1. https://www.upcounsel.com/consulting-services-agreement
  2. https://www.consulting.com/consulting-agreement-template

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