No company can do it all. As a founder, you might have to consult from time to time. Consultants provide specialized expert advice that helps clients significantly improve their businesses.
Consultants are often freelancers, meaning that they are not your employees, which makes it very important that you have a special contract to govern the business relationship. A common agreement used for this is called a consulting agreement, and this brief article discusses what that agreement entails as well as important clauses.
A consulting agreement is a contract between a company and a consulting third-party to carry out services for a particular period of time. Without a consulting agreement, both parties risk financial losses, damaged relationships, and lawsuits.
The consulting agreement also helps to ensure that both parties are on the same page with respect to their obligations, remuneration, and timeframe. This would help in the event that either of the party decides to sue.
A consulting agreement usually includes the following:
- The Scope of Work: A consulting contract should offer a detailed description of the duties you will perform and the deliverables you promise the client.
That is the service the consultant/third party would be offering. This covers a detailed description of the responsibilities of the advisor. It may also include the members of the company as well as their roles. - Payment and Invoicing: A consulting agreement should specify your hourly rate or how much you will charge to complete a project. This includes the payment plan as well as the amount to be paid and when payment would be made. Accepted methods of payment should also be included.
- Term of Service & Termination: The agreement should also provide the timeframe in which the consultant is to carry out its obligations as well as consequences for non-performance. A clear start and end date for the agreement should be included as as the time of agreement renewal, revision provisions, and conditions of termination of the agreement.
- Contractual Relationship: The agreement usually contains clauses which specify the kind of relationship that exists between the company and the consultant/third party. Most advisors work as independent contractors, with a non-exclusive relationship with the parties.
- Expenses: This clause makes provision for expenses which the company might reimburse, as well as the process of reimbursement and exceptions.
- Intellectual Property: It is also important to provide and identify who holds ownership of intellectual property rights. Since both parties would be working together, ownership of any data, tools, or assets is usually held by the company. Additionally, any licensing agreements should be discussed and detailed in the advisory agreement so that intellectual property rights can be protected.
- Termination Clauses: It is advisable to have an exit strategy in place if a project or client relationship doesn’t go according to plan. For instance, your business’s consulting agreement might state that you will suspend work if you are not paid on time. If a client is dissatisfied with your services, you could stipulate that they give you two weeks’ notice before terminating your contract. Or you might state that either party can end the relationship at any time for any reason.
- Limitations: These agreements usually contain limitation clauses. These clauses restrict the consultant’s ability to work with certain companies or undertake some projects for a specified period of time. This is to prevent a conflict of interest. Companies may also provide for non-solicitation clauses that prevent advisors from poaching company talent, clients, and contacts for a period of time.
- Dispute Resolution: In the event of any dispute, claim, or controversy arising out of, relating to, or in connection with this agreement, it is important to provide a clause which states how such a dispute would be resolved. It could provide the procedure method of the dispute resolution, timeline as well as jurisdiction.
A consulting agreement is usually designed to protect both parties’ rights for a duration of the contract term. It also helps safeguard your business interests and protect you from any financial loss. The agreement is enforceable by law, so it is best you hire an attorney to draft it.