Overview of Consulting Agreement
An agreement formed between a person who wants consultancy services and the person or organization that offers the service of consultancy is called a Consulting Agreement. Such an agreement is drafted to lay down all the information with regard to the type of consultancy being provided along with the method of execution of such service.
A consultancy service can be provided for various sectors such as environment, governance, strategy formulation, management of finances, marketing plans, etc. Under this contract, a consultant is required to provide his/her expert opinion on the subject matter for a fee as consideration. This is helpful for the people to have an expert opinion to grow and develop the business and earn good profits.
Need for a Consulting Agreement
The parties use a consulting agreement for service whenever they need an expert opinion for a new project or in the development of the already existing work of the organization. There are several instances where consultancy is required. These are as follows:
Important clauses of a consulting agreement
A consulting agreement is of subjective nature, i.e., it can be customized as per the needs of the parties involved. However, there are certain basic and important clauses which should be added to the agreement to avoid any ambiguity with regard to the terms of the agreement. Such clauses must be added to make the agreement attractive and well-structured. It depicts the professionalism and seriousness of the draftsman drafting the agreement in a diligent manner. Corpbiz has a team of highly qualified legal experts who can provide customized consulting agreements as per the requirement of the parties.
The important clauses of a consulting agreement are as follows:
Identification of parties involved
A consulting agreement is entered between a person who wants to take consultancy services and the firm which provides such services. Thus, the personal information of the client who wishes to seek consultancy services and the individual or a consultancy firm must be mentioned at the beginning of the agreement. Personal information includes the name of parties, address, contact details and an email id.
Description of work or statement of work or scope of services
The parties to the agreement must be clear about the type of service which is going to be provided by the consultant. The agreement must contain a detailed description of the service along with valid expectations. Description involves the scope and purpose for which the contract has been drafted.
A person can conclude information such as what sort of work will be done by the consultant, what are the expectations of the company, and on what subject matter the consultation is required in the description section of the agreement. The method by which the consultant will provide his/her service is also stated in this section.
Parties usually prefer to attach a separate document named Statement of work to cover the details of service of the agreement. Such an additional document is preferred when the service being provided is parts. In such a case, the main document containing the agreement will briefly outline the scope of the agreement and the statement of work will contain detailed information about the work.
Timeline or timeframe
Time is the essence in most of contracts. The agreement must mention the exact time period in which the consultancy service must be completed. A timeline section under the consulting agreement must specify the deadline of the project along with the delivery of goods or completion of acts in installments. It also contains the consequences in case the consultant delays the service and the circumstances in which the whole service will be considered complete. Exact time duration and deadline will help the parties to get a clear idea about the project being a short run, long run or appointment of a consultant for more than one project, etc. This section also defines the expectations of the company to be fulfilled by the consultant during the course of service.
Rights and obligations
It is necessary to define all the rights and liabilities of both parties in the agreement. This will help in identifying the party who has violated any terms and conditions of the contract at the time of dispute between the parties. It will enhance the dispute resolution mechanism.
Ownership or proprietary rights
This is an important clause in a consultancy agreement. This clause should clearly mention the name of the party who will receive the ownership of the intellectual property which has been created during the course of service. It will specify whether the client or the consultant will have ownership rights to the property. In most cases, the ownership goes to the client and such completed work is considered to be “work for hire.
Fees, expenses, compensation and payment schedule
This clause must contain the details of required expenses and fees to be paid by the consultant during the performance of his/her services. This clause is inserted so that the consultant can be adequately compensated for the expenses and fees he/she has paid for the service. Such details must be provided by the consultant prior to the agreement to avoid any ambiguity with regard to the agreement in the future.
Methods of communication
The agreement must clearly mention the mode of communication between the parties. This will help the parties to perform their parts hassle-free and increase the efficiency of communication.
There should be a well-defined governance model to make people accountable for the service being provided to the clients. Mentioning a clause for the governance model will depict the professional behavior of the consultancy firm.
Guidelines for escalation
The business sector fluctuates and the organizations suffer various problems during the consultancy service period. To avoid the negative effects of such issues, there should be a proper escalation process. This will help the parties to directly contact the main authoritative person in case of quick decision-making.
This is one of the important clauses in a consulting agreement. A confidentiality clause in the agreement contains conditions in which the consultant is required to maintain confidentiality to the data and information provided by the client. Inserting such a clause will prevent the consultant from sharing the trade secrets of the client which he got to know during the process of consultancy service. It also mentions the consequences in case the consultant breaches the confidentiality clause of the agreement.
A non-compete clause prevents the consultant from offering similar nature goods or services which are being provided by the client for a valid and reasonable time period. A client can also mention whether the consultant is allowed to work for the client’s other competitors in the market or its customers or not. Parties sometimes prefer to form a separate non-compete agreement and attach it to the main consulting agreement.
If any of the clauses of the agreement is found to be invalid or illegal, the enforceability clause will help to enforce the other valid part of the agreement. In such a case, the legal components remain in effect. This helps the parties to avoid any arbitrary actions or disputes.
Liability and limitation of liability
In general, the consultants are held liable for the service they provide under the agreement. Also, they are not under an obligation to take unlimited liability. Therefore, the need for liability clauses arises. A well-structured consulting agreement must have a limitation clause in it. The clause should mention the amount and limitation of liability of both parties to the agreement.
Indemnification means – to make good the loss. It refers to the promise made by a person to protect the other from any negative consequences of their actions which can create loss to the other. Such a promise can be implied promise or expressed depending on the facts and circumstances of each case. The party who promises to provide indemnity is called an “indemnifier” and the person to whom such promise of protection is made is called an “indemnity-holder” or “indemnified”. In the case of the consulting agreement, the consultant is indemnified and the client is the indemnifier.
A well-structured contract must always contain a dispute resolution clause to resolve any disputes between the parties to the agreement. Parties now prefer to use alternative dispute resolution techniques such as arbitration, conciliation, mediation, etc in spite of approaching traditional courts for the resolution of the dispute between them. As the Indian courts are already burdened with a number of cases, using alternate methods will help to fasten the dispute resolution process.
There must be a termination clause in every agreement if the legal relationship between the parties doesn’t go as per the decided plan. Therefore, a good agreement must always have a sound termination clause. For example: A cancellation clause can specify – In case of non-payment of the prescribed fee on the decided time, the consultant has the right to terminate the agreement. Prior notice with regard to such willingness to terminate the contract must be given to the client so that he/she can try to rectify the error and save the agreement from being cancelled. A professional consultant is not expected to abruptly terminate the agreement without giving prior notice of the same.
A cancellation clause can also be used by the client if he/she finds that the consultant is not able to fulfill the desired objective of the client. Mentioning of cancellation clause in the consulting agreement also depicts the seriousness of the work and the willingness of parties to make them accountable whenever they are unable to perform as per the expectations of the other.
Signature and dateline
To make the contract legally binding for both parties, it is important for both of them to sign the agreement at the end of the document. By signing the document, parties form a binding contract. It is also important to mention the date and time on which the agreement was signed by both parties.
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Do’s and Don’ts while drafting a consulting agreement
Following are the do’s and don’ts while drafting a consulting agreement:
There are certain things which a draftsman needs to keep in mind while drafting the consulting agreement. These are as follows:
There are certain don’ts that parties should keep in mind before signing and drafting the agreement. These are as follows:
Frequently Asked Questions
The consultancy industry includes all types of consultants providing a number of consultancy services in India. The demand varies from time to time depending on the prevailing market conditions in a specific area. The consultants which are in demand on a frequent basis are:
- Operations consultants
- Financial consultants
- HR consultants
- Risk and compliance consultants
- Business strategy consultants
There are several advantages to parties who enter into a consulting agreement. These are as follows:
- It protects the rights and liabilities of both parties.
- It is legal proof.
- It enhances the scope of confidentiality of secret business information.
- It provides detailed information about the duties to be performed by the consultant during the period of the agreement.
A standard consultancy agreement must include:
- Personal details such as name and contact details of parties,
- The date on which the contract is been formed and signed by parties,
- The duration of the contract
- Cost of service to the organization as consideration,
- The nature of work involved.
- Other requirements.
- A confidentiality clause, if required,
- A clause for the resolution of the dispute, and
- Other necessary terms and conditions.