By Karan Shukla, Flywork.io Team, Flywork.io.
Consultancy Agreement is one of the most widely used agreements by businesses and organisations, read on to find out how to effectively draft a consultancy agreement.
What is Consultancy?
Consultancy, if put in layman's terms, is providing professional advice on an issue and lending expertise, in exchange for a fee. The consultant could be of any field or sector. To further explain consultancy one can take a look at this example-
A is a call centre professional and works night shifts. However, he wants to open a cab business after seeing the demand for cabs in his office. He thinks he has a business idea and could also arrange for the capital. The only problem is that he does not know how to plan a business. This is where a consultancy steps in.
What is a consultancy agreement?
A consultancy agreement can be defined as-
“ A set of rules, regulations, and conditions, framed as per the needs of both the consultancy/consultant and the service recipient/client, which define the term, extent and manner of the operations between both the parties.”
Depending upon the nature of agreement between the two parties, the consultancy could be holding various positions of the extent of their services. It could be an advisory position or an operational position or any position as the client may deem fit. Like all other transactions, the nature of consultancy services also requires an agreement between the two parties. This agreement has slowly evolved in form and now has a basic structure or ‘essentials’ which have to be included into the agreement.
Essentials of a consultancy agreement
These are some of the essential points which need to be included in an agreement of consultancy-
· Term of work
The agreement must clearly define the term in which the parties will work together. The term of work must be clearly stated and ambiguous time periods as it could pose problems for the future. It is better to use an exact expression of a time period such as ‘5 months’ or ‘6 weeks’ instead of ‘till the construction is complete’.
· Nature of work
A consultancy agreement’s main job is always to facilitate the working of the client with the help of expert opinion or operations. However, due to the intricate nature of the line of work, there could be disagreements about the nature of work and therefore the nature of work must be clearly defined in the agreement. The nature of the work could be advisory, operational, decisive or observational to suit the needs of the client and the field of the consultancy.
· Establishment of relationship
A consultancy agreement is a set of rules, regulations, and conditions for the parties to operate within a framework. But only ‘on a profession to profession tag’ does not define the establishment of a relationship between two parties. It could be much more than that. There is an exchange of experience, advice, and connections between the two parties. Further, an agreement serves many other purposes. For example, the agreement could be used for tax purposes to establish that the consultant is an independent contractor and not an employee of the client.
· Intellectual property (Confidentiality clause, Non-competition clause, non-solicitation clause)
Due to the intertwining of the work between the consultant and the client, the misuse of shared resources is a very common dispute in a consultancy agreement. The clauses of confidentiality, non-competition and no solicitation in an agreement makes sure that both the parties respect the Intellectual Property rights of the other party and deters the parties to use the shared resources for their own benefits or for the benefits of a third party.
· Payment clause (Compensation clause)
All business transactions have a consideration amount, which is to be paid in exchange for the services being offered. The consultancy agreement too must clearly define the terms of compensation to either of the two parties so as to minimise the chances of a dispute. The agreement should mention how much the consultant is paid, how often the consultant is paid and how will the consultant charge for their services to the client.
· Legally binding (Indemnifies the contracting parties)
An agreement legally binds the contracting parties into a set of rules and regulations, mutually discussed and agreed upon by both parties. This legal binding indemnifies the parties to each other, i.e the parties would have to compensate each other for losses if any one of them fails to meet the conditions expressed in the agreement. If a failure regarding the same happens, the parties are free to file indemnifying suits to claim damages.
· Alternate Dispute Resolution methods
In the modern world of expensive litigation, most contracting parties pitch in an ‘alternate dispute resolution clause’ in their agreements so as to provide for alternate methods of dispute resolutions, in case one arises. The ADR clause must include the seat of arbitration and the laws which will be applicable in case the parties route for the same.
· Non Modification clause
This clause acts as a safeguard to the intentional changing of the terms of a contract. The consultancy agreement and the terms it defines should be non modifiable. If any case arises and it is unavoidable to modify the terms of work, it should be by the consent of both parties and must not be unilateral.
At the end of the agreement, both parties must sign and write down the date the agreement was signed. This completes the document and conducts legal verification. This clause confirms that both parties have understood the agreement and the terms contained therein. Therefore, after the parties sign, the parties cannot refuse to comply with the rules stipulated therein.