A consultancy agreement governs the relationship between a client and a consultant. It defines the consultant’s scope of work and other terms and conditions related to their service.
Client is someone who appoints an external consultant for their services. A client can be an individual or a company.
Consultant is the external expert appointed by the client for their services.
Essentials of a consultancy agreement
A consultancy agreement should clearly identify the client and the consultant. It should also include the exact business both of you are engaged in and the business relationship between the two of you.
Scope of work and liabilities
It should list the services to be undertaken by the consultant. It should also specify the liabilities of each party in case of failure to comply with the terms of this agreement.
Term and termination
It should call out the duration of the consultancy. It should also provide a mechanism for termination of the agreement, if and when required by either party.
It should clearly mention the compensation to be paid to the consultant, the payment structure, mode of payment, time of scheduled payment, etc.
Confidentiality and IP protection
It should assign clear confidentiality obligations to the recipient of sensitive information. In most consultancies, the intellectual property rests with the client as “work of hire”. The agreement should explicitly clarify who retains what intellectual property.
Dispute resolution and governing laws
It should explicitly mention the State, the jurisdiction of courts, and applicable laws in case of any dispute arising out of this agreement. Preferably it should be as per your place of residence. You can also include an option for arbitration to amicably settle any disputes without having to go for litigation.
Why do you need a consultancy agreement?
It helps in a clear expectation setting. It defines exactly what the consultant has been appointed for, what are their responsibilities, and what is the payment structure. It helps avoid any confusion or misunderstanding during the course of service.
- Defined business relationship
A consultant is often appointed as an external expert and is not treated as a full-time employee. This means that their engagement with the client in terms of payment, responsibilities, accountability, etc. is very different from that of an employee. Consultancy agreement helps clarify these details and thus ensures a smooth relationship.
- Can be an enforceable legal document
A well-drafted consultancy agreement can be legally binding. This means that both client and consultant are required to follow the terms of this agreement and fulfill their duties and responsibilities. This brings in much-needed accountability for both parties.
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Are you one of these?
- An entrepreneur looking for external support
- A company hiring an expert consultant
- A business owner looking to hire a consultant instead of a full-time employee
- An independent contractor
- A freelancer
Do you relate to any of these statements?
- As a business owner, I have a unique business model
- My consultancy requirements are peculiar to my business
- I wish to protect my trade secrets
- As a consultant, I wish to have clear expectation setting and regular payments
- I want to avoid future losses and liabilities