GUIDELINES FOR CONCLUDING CONSULTING AGREEMENTS
UNIVERSAL TRADING & INVESTMENT CO., INC.
A Massachusetts corporation, incorporated on February 11, 1993.
(Adopted by the ad hoc Executive Committee for review of guidelines)
Consulting firms (CFs) sell services on a project basis to many clients and must therefore continuously tender for new contracts. This is true for UTICo as well.
Many companies use consulting firms for a variety of projects and tasks. Consultants may be teams from the larger consulting companies all the way to individuals working as single-person consultants. The consulting work may be done on the premises or off site at the consultants’ offices or a combination of the two approaches. While consultants play vital roles for many companies, traditionally they do pose their own set of unique issues and challenges for the finance, legal and human resources departments as explained below. Taking advantage of some of the new contract lifecycle management technologies would help alleviate many of these issues.
Written agreements for your consulting business do more than just help you avoid shady deals and misunderstandings. One of the first rules of great client management is to clearly define expectations. A well-written consulting agreement does just that: clearly lay out how the relationship will be launched and managed. It also ensures that in the eyes of the government you are considered an independent contractor and not a de-facto employee. Finally, getting payment terms in writing is one of the best ways to make sure that you get paid for your work and have good legal recourses if the client threatens to not pay you.
By using one of the available consulting agreement templates as are starting point you’re mostly done with the writing involved. The first step is to decide whether you will be billing on a retainer basis or in arrears. The answer to that question will determine whether you need a Retained Services Agreement (or RSA) versus a Master Services Agreement (or MSA).
Professionals such as high-powered lawyers, accountants, as well as marketing agencies, usually work on retainer agreements. The idea is that the client is reserving a block of your time during the upcoming month, so they go ahead and pay for it up front — every month. The important part about working on retainer is that you don’t have to worry about collecting payment. Sometimes you don’t even have to provide itemized breakdowns of hours. The downside is that you have to be confident about keeping the client happy.
MSA contracts are the preferred form of agreement when contracting out project teams with defined deliverables. The “master” agreement covers the overall terms of the relationship so that they only have to be negotiated once, at the beginning of the client relationship. Specific phases of the project, or its deliverables, are detailed out in simple addendums to the master agreement, called Statements of Work (or SOWs for short). An SOW document can have very specific project requirements for payment, or it can simply quote cost and payment terms along with a basic scope and schedule statement.
Here are the minimum ten main elements that must be included in consulting agreements:
1. What will be done (the statement of work which may/may not include the method for how it will be done).
2. When it will be recognized as having been done (the success measures or deliverables agreed to).
3. The timelines agreed to for starting and finishing the work and completing key tasks or deliverables (these are the milestones, due dates, and the tangible form the work will take. For example – 6 coaching sessions booked in a 90 day period or a functional web site with x, y, z elements)
4. The consideration and payment terms (how much, when payment is due, who covers expenses and how will they be invoiced/approved, what form payment will be in, what must exist as proof payment is due, and any associated restrictions or penalties).
5. Ownership and accountability (ownership of problems and issues and their escalation, of resources, access and tools needed, of status reporting and communication, of the completed work)
6. Disclaimers and provisions for errors and omissions.
7. Cancellation terms and notice required
8. Names of the authorized parties representing both sides of the contract, and contact information
9. Date of contract.
10. The procedure to have the contract amended, rescinded, extended, and deem executed.
A typical consulting agreement should cover at least the following:
1. Term. How long will the relationship last? Will it end at the end of the term or will it automatically renew?
2. Duties. What will the consultant be doing for you? Who will he or she report to at your company? What is the expectation of time to be devoted by the consultant? There should also be the boilerplate provision about the consultant being a contractor, responsible for paying its own taxes, etc.
3. Compensation. How does the consultant get paid and when? Will the consultant be entitled to reimbursement of his or her expenses?
4. Termination. During the term, how and when can the parties terminate the contract? Can one or either party terminate on notice to the other and, if so, how much notice? In the alternative, how and when can a party terminate for cause and how do you define cause? Also, you will need to state what happens on termination. Who gets what, and the parties continuing obligations, if any, afterwards?
5. Indemnification. Will one party be required to indemnify the other and, if so, under what circumstances?
6. Intellectual Property. Who will own the consultant’s work product? In the absence of a writing to the contrary, it is the consultant who owns the IP. Consider continuing obligations on the part of the consultant to assign IP, cooperate in filings and to maintain company’s confidential and proprietary information.
7. Restrictive Covenants. Subject to applicable law, may the consultant work for competitors while working for you? Will the consultant be restricted from competing after the engagement or from soliciting your employees, customers or suppliers?
There are many nuances and permutations to each of these and you should consult with a corporate counsel to assist in the drafting of any such agreement.