An agreement refers to any understanding or arrangement reached between two or more parties. It is a document that provides a written authentication and demonstration of a relationship that forms a pivotal part of the association between the parties between which it is being made.
An apt description of the above can be summed in the excerpt following the Catechism of the Catholic Church – The seventh commandment”. Vatican.va. Retrieved 2015-02-25,”Promises must be kept and contracts strictly observed to the extent that the commitments made in them are morally just. A significant part of economic and social life depends on the honoring of contracts between physical or moral persons – commercial contracts of purchase or sale, rental or labor contracts. All contracts must be agreed to and executed in good faith. Contracts are subject to commutative justice which regulates exchanges between persons and between institutions in accordance with a strict respect for their rights. Commutative justice obliges strictly; it requires safeguarding property rights, paying debts, and fulfilling obligations freely contracted. Without commutative justice, no other form of justice is possible.”
A consultant aids the business organisations to evaluate and gauge the strengths and weaknesses of the same and provides it with an opportunity to evaluate, rethink, and evolve themselves from their current position. The consultants with their vast experience and specialisation in particular fields provide the companies with an external, unbiased perspective on the companies’ working with their areas encompassing human resources, value creation, customer relationships, marketing, risk minimisation, informational technology and business strategy.
Given their expertise and area specific knowledge coupled with their non usual employee status and short association to the companies that they aid, a legally binding document penning the details and specifications of the association is required. This is what introduces the idea of consultancy agreements into being.
A consultancy agreement often referred to as the contractor agreement is an agreement which is used to establish service relationships between a company and an individual or another company. It lays down the type, terms and conditions of the association for both the parties involved.
A Consulting Agreement describes the nature of the services that would be provided by the consultant and the character and of the association and expectations from the parties involved in relation to the arrangement.
They form integral and imperative parts of agreements as these legally binding documents tell a client what the consultant’s employment in the company entails, what job he/she will perform, how long the parties expect the project to take, what compensation the consultant expects.
They are important to be undertaken as in their absence, both parties risk financial losses, feelings of resentment, damaged relationships, and sometimes lawsuits.
The following are the advantages of entering into a consultancy agreement before entering into an association of consultant and organisation or consultant and individual:
- These agreements help alleviate confusion about performance
- Reduces risk
- They help avoid litigation
- They aid in defining the business relationship
- Preventing misinterpretation of communications and agreements
- Protecting intellectual property, real property, and asset values
- Better management of commercial relationships
- They set the payment terms
- It helps protect intellectual property
- They help define the scope of work
Contents of Consultancy Agreements
Drafting a consultancy agreement can be intimidating and confusing. Contrary to the same, following a few steps and heading, one can easily and successfully draft the consultancy agreement. The following are the imperatives that one should include in the agreement:
- Full names and titles of the people with whom you’re doing business.
- Project objectives that lay down the project goals and figure out when the job is done and you can stop.
- A thorough description of the project that specifies every aspect of the task you’ve been asked to do.
- Deliverables, the manner and method of producing the work that is monitored by the Client and the Consultant
- Obligations and warranties of consultant, list of responsibilities which entails a record of what the parties will be expected to do or the major steps involved to complete the project successfully.
- Compensation, mention of the agreed-on fee with the inclusion of a payment structure.
- Materials, all necessary materials needed to complete the work described.
- Ownership of the work involved.
- Confidentiality of the job, documents involved and company secrets.
- Non- disclosure and Protection which entails the parties not disclosing or being the cause to be disclosed, publish, disseminate or otherwise make available or use
- Confidential Information
- Limitation of Liability, the liability of either party and the compensation for the same is discussed here
- The exclusivity or non exclusivity of the association is decided and forms a vital part of the agreement.
- Governing Law and Dispute Resolution in case any dispute arises is also included in the agreement.
- Force majeure clause
- Timeline that specifies the start and end date of the project, and indicates any pertinent dates in between (including those dates on which the client signs off on work in progress and/or payment dates).
Given the importance of these agreements, the below mentioned pointers provide some suggestions to draft a good consultancy agreement:
- It’s important to check the names of the parties are correct and spelled correctly.
- It is imperative to define important terms that would be utilised in the agreement later.
- Try to be clear and avoid using too cluttered statements that make the agreement ambiguous.
- Writing a global description that specifies every aspect of the task the client expects from the consultant is advantageous.
- The template of a consulting agreement is not necessarily supposed to be a long complicated document understandable to the parties themselves. It should address the scope of work, payment terms, intellectual property rights, and consultant-client relationship but in a simple, easily comprehensible manner.
- Avoid over –explanation and be concise and to the point.
- Double check and label each page is order to avoid adding pages to the contract that not everyone has agreed upon.
- Inclusion of conflict resolution measures will help aid the association in cases of conflict and coming to an amicable resolution of the same.
Engaging in the services of an outside contractor can be extremely beneficial to one’s business. It results in bringing about a breath of fresh air and increased flexibility in gaining an outsider’s perspective/work for a short period of time in their area of specialisation. As can be inferred from the above, a lot of risk of confidential information and lack of specifications of the job surround the appointment thus requiring the consultancy agreements to be drafted with much care and diligence.
With the importance of the data involved , using the aforementioned pointers in the draft would ensure making a well drafted, clear and effective agreement.
Frequently Asked Questions (FAQs)
- When does one use a consultancy agreement?
As has been mentioned in the aforementioned article, a consultancy agreement is used when a business or a client is taking assistance of a consultant who is to be hired for a short amount of time to assist with the working of the organisation.
- What is a sub consultancy agreement?
A sub consultancy agreement is an agreement involving the sub-consultant, the client and the consultant .A Sub-consultant in the case refers to any person or entity to which the Consultant subcontracts any part of the Services entrusted with the consultant.
- What is the relation between intellectual property and a consultancy agreement?
One of the major and foremost benefits of entering into a consultancy contract is the security of the intellectual property that the consultant will be privy and has access to while in the employment of the business organisation. With the consultant being employed for a short period with the organisation, these agreements thus have a non-disclosure and include restrictive covenants in order to avoid the breach of their intellectual property.
- What is the difference between a service agreement and a consultancy agreement?
A services agreement as can be inferred from the name itself presents the consequent rights and obligations of two parties who are either involved in reception of the services or providing the performance of the services. These are thus commonly used between an employer and an independent contractor. The services included in the agreement are composed of delivery and transportation, accounting, cleaning, data analysis, consultancy, construction, advertising and insurance.
A consultancy agreement on the other hand is a type of services agreement, that is expressly bespoke for agreements between an outside consultant who provides business strategy advice to a client and the business organisations.
- What do restrictive covenants mean in consultancy agreement?
A restrictive covenant generally speaking is a clause in a contract that is added to the same with the intention to avert the parties entering the agreement/contract from assuming and engaging in certain commercial activities which she/he would otherwise be free to undertake. They help in preserving the composition and secrets of the concerned parties in the consultancy agreement.
The contracting parties would be subject to the following restrictions;
- Restrictions on participating in a competing company
- Restrictions on soliciting or dealing with customers / clients
- Restrictions on poaching staff
- Restrictions on interfering in relationships with suppliers