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When you’re in the consulting game, treat a killer consulting agreement as your trusty co-pilot, who will help you navigate this collaborative adventure.
When a company and a consulting firm (or an individual consultant) decide to team up, they seal the deal with this nifty document called a consulting agreement.
For that matter, all business relationships operate under some fundamental contracts. Nothing exceptional about the world of consulting.
However, the inherent intricacies of consulting services set these agreements apart from other run-of-the-mill service contracts.
Provisions like confidentiality or non-compete clauses explicitly outline the terms of the association and acts like a compass guiding everyone through the consulting expedition, ensuring a smooth sail through stormy seas.
The consulting agreement should be in writing and include several essential elements, such as the nature of the consulting services provided, the fee structure, and the duration of the agreement.
In this guide, we will discuss 12 essential elements that we recommend you to include in your consulting agreement. And remember, when drafting a consulting agreement, it is crucial to seek legal advice to ensure that all essential elements are included.
First, let’s talk about the significance of the agreement while dealing with consultants and the essential components that any effective agreement must contain.
You can alter these components to suit your project better and use them as a model for another Consulting project.
All the topics considered during the RFP process and the talks are formalized in the consulting agreement.
You should go over the contract in detail during the first round of negotiations (and all subsequent ones) and make any necessary adjustments.
Make sure the consultant follows suit as well. You will discover why it is essential to create your consulting agreement.
#1. The 4 Main Dimensions A Sample Consulting Agreement Usually Covers
a. Statement of Work, What Will Be Done During the Project:
The Statement of Work is a document submitted to the client that details what will be done during your project.
It’s crucial for both parties in any given agreement or contract, as it clearly states who does what and when so there are no surprises later down the line with deadlines approaching!
b. Terms and Conditions, What Will Be Paid, and How:
The terms and conditions of this agreement state that all payments will be made in whatever way stated in the agreement.
c. Rules for Delivery, How the Work Will Be Done:
The specific way you want your work done.
d. Deviation Measures, What Will Be Done If There Is an Issue:
In the event of a deviation, corrective and preventive measures must be implemented to mitigate any potential risks.
#2. Statement of Work – Define Your Expectations
Defining the Statement of Work (SOW), or in other words, outlining your expectations for the project, comes first when creating the contract.
The SOW aims to ensure that the consulting providers commit to the outcomes rather than the means. If the performance exceeds your expectations, the contract’s specified elements will serve as your guide.
The statement of work includes typically:
a. SOW Main Points
- Scope of Work and Deliverables,
- Schedule and phasing,
- Governance and Escalation,
- Expected outcome and Metrics.
When working with a frame contract or Master Service Agreement (MSA), the statement of work will serve as a consulting agreement.
It will define the work and the specific terms on the other dimensions. The rest of the terms will be covered in the MSA.
b. Define the Scope of Work
The scope of work will be very close to the project scope defined in the RFP and adjusted along with discussions with the consulting providers.
For example:
“The Company has engaged the consultant to provide services connected with the Company’s Commercial Excellence Program. The consultant will help define the new organization for the Marketing function at the group and business unit levels.”
The expected deliverables associated with the project will be:
- Diagnosis of the existing organization,
- Future Organization recommendation,
- Top-Down Impact Projection,
- Organization Principles for the Marketing Function,
- Future Organization by Business Unit,
- Tailored implementation roadmap per Business Unit.
You can also include the RFP and the proposal in the appendix of the contract to maintain an emphasis on the expected results for the project.
“The Consultant will help to define the new organization for the Marketing function at the group and business unit level as more particularly described in Appendix A (the “Services”).”
#3. Specify the Timeline for the Project
The timeline should clarify and define the different deadlines, including the phasing, the milestones, and the schedule for the deliverables.
Here is a good example:
“The Project will be organized into two phases:
Phase 1: High-Level diagnosis –To be delivered before the end of August 2019
Diagnosis of the existing organization,
Future Organization recommendation,
Top-Down Impact Projection,
Phase 2: Organization Design –to be delivered before the end of November 2019
Organization Principles for the Marketing Function,
Future Organization by Business Unit,
We tailored the implementation roadmap per Business Unit.
At the end of phase 1, the company will decide on the launch and the duration of phase 2.”
You can also add the project schedule in the appendix as you did for the scope of work.” The Services shall perform by the planning described in Appendix B (“The Planning”).”
#4. Establish a Governance Model
In your SOW, you should describe the project’s governance which is very essential to its success.
The Steering Committee, consisting of representatives from the client and the consulting firm, will provide oversight and guidance. The Committee will meet on a regular basis, at least monthly, to review progress and make decisions.
The consulting firm will be responsible for managing the project and ensuring that it meets the agreed upon milestones.
Key metrics will be used to track progress and assess success. These metrics will be closely monitored by the Steering Committee to ensure that the project is on track.
By clearly defining roles and responsibilities, and establishing sufficient oversight, the project can be successfully managed and delivered.
For example:
“When appropriate, the consultant will keep the team’s makeup the same as it was in “The Team Composition” throughout the agreement. Suppose, for any reason.
A project team member is unable to carry out the project’s objectives. In that case, that person will be replaced at no additional cost by another consultant with the same level of skill (added in “Appendix C”).”
#5. Set Escalation Process Guidelines
Every business should have an escalation policy in place since a project might encounter various problems. Here are some suggestions you can use if your company doesn’t already have one.
When should a problem be escalated? Quickly responding is when you observe that essential issues are not being handled and swiftly rectified.
Critical issues involve tasks and activities that, if left unfinished, might postpone a significant project milestone, cause budget overruns, risk the anticipated delivery date, and violate contractual agreements with clients, among other things.
It is your duty as the project manager to eliminate any barriers that can cause teams to run behind schedule or provide subpar deliverables.
An escalation process, or documentation of the concerns, should take place before they are sent to the responsible manager, the project sponsor, and senior management for resolution.
Escalation is a healthy element of the project’s existence and typically benefits all the partners, even if there are often difficult decisions.
#6. Clarify How the Performance Will Be Measured
As we discussed above, the SOW (Scope of Work) needs to specify the metrics to evaluate the project’s success. For intangible services like consulting, you can define SMART objectives that serve as a guideline to ensure delivery quality.
For instance:
“The Consultant and the Company agree to meet regularly to assess the performance on the project. The expected results for the project are 20% savings on the Marketing expenses.”
#7. Define the Commercial Terms and Arrange for Agreement Renewal and Extension
Mentioning the prospect of a contract extension could be helpful when the work’s scope is still unclear.
Similarly, if the project is ongoing or has many phases, you may put the renewal terms in the project. The consumer should decide whether to extend or renew the contract in all scenarios.
Once you have defined what the consulting firm was supposed to do, you can move on to how they will get paid.
The agreement needs to articulate how the Consultants will get paid, the amounts, and the conditions linked to the payments and as is conditions to get paid (milestones, deliverables, etc)
For hourly fees, include the exact amounts for each type of consultant, the kind of cap, if any (hard or soft), and the number of hours to reach the cap.
For a risk-sharing model, clearly define the variable compensation, the metrics on which the variable payment is based, and how they will be measured.
For Flat fees, define the scope of the project, the expected deliverables, or other factors on which the price may be depended.
#8. Set the Payment Terms and the Applicable Taxes
All consulting agreements naturally define payment terms. Make sure to negotiate terms that are compliant with your company policy. The contract usually states the net price (before sales tax).
Set up a time limit on when payments are due. Standard terms are usually applied 30 to 60 days after the invoice is issued.
Define the timing of the payment, i.e., weekly, monthly, phase-based, or lump sum. For substantial projects, you should consider a monthly schedule.
For instance:
“The Company will pay a fee of $250,000, excluding expenses and VAT, in 5 installments of $50,000.
Travel and other Expenses will be approved in advance by the company, charged at cost in the limits of $37,500 (15% of the fees).”
You can also add the description of the fees in the appendix.
“The Services will be performed for the fees described in Appendix D (“The Fees and Expenses”). Prices will be held firm for the duration of the project.”
The Consulting provider could negotiate to establish a penalty for late payment. If you accept penalties for late payment, add an incentive for a yearly fee.
When you have a time-sensitive project, you can introduce an incentive for early delivery and a penalty for late delivery.
When you have a risk-sharing model, take the time to detail the schedule of payments, the amounts, and the associated metrics.
#9. Secure Confidentiality
Any consulting agreement must include a language requiring confidentiality. You wouldn’t want the consultant to spread the word about the work you did on a project.
Write it in the contract in clear English if you are concerned about a particular type of sensitive information.
Furthermore, be sure you comprehend confidentiality agreement restrictions, primarily if you work internationally. Each culture or nation has its view of secrecy (as well as a unique set of regulations).
Furthermore, secrecy needs to be restricted in both time and place. Additionally, you must agree on the Use of a Third-Party in the project.
The majority of consulting companies use partners and subcontractors. If a third party is involved in the project, you can request to be notified.
You can choose to require them to sign a specific NDA or rely on the consultant to ensure that their subcontractor abides by the NDA you both agreed to sign.
#10. Protect Your Intellectual Property
Another critical topic is intellectual property. The customer owns the project-related documents (presentations, reports, etc.).
The methodology and tools the consulting business uses, nevertheless, may be based on pre-existing Intellectual Capital that the firm has amassed over the years.
In that situation, the consulting company will retain intellectual property ownership, and the customer should negotiate the freedom to utilize the outcomes.
The information obtained on your behalf during the project, including models created for the project, interview transcripts, etc., is your property.
#11. Implement the Client Policies
You presumably have stringent security standards if you work with sensitive data, and you might wish to incorporate these provisions in the contract.
More specifically:
- Handling data and information (Information Security policies)
- Onboarding and vetting any consultant present on your premises and working on your data (Vendor Onboarding and Vetting requirements)
- Making sure the consultants are safe on your premises (Health and Safety policies)
#12. Eliminate Conflict of Interest and Set a Non-Compete Clause
If the consulting provider is already collaborating with the rival or a customer on a compassionate project, there may be a conflict of interest. Although exclusivity is negotiable, it sometimes entails higher costs.
A list of individual businesses or a more general description of your rivals might be included in your contract. You must add a non-compete provision if the consulting firm doesn’t want to work with your competitors AFTER the project is completed.
You must specify a suitable time and scope restrictions for both clauses. Since they are challenging to enforce, they need only be utilized in unique circumstances.
Summing It Up – Your Pathway to A Killer Consulting Agreement
To conclude, let me emphasize that when you weave these essential threads into the fabric of your consulting agreement, you’re crafting a solid roadmap that paves the way for a successful partnership.
As you place your signature beneath the dotted line, you’re not merely inscribing your name, you are undertaking a journey, where both parties are deeply committed to maximize value creation.
So, go ahead, ink that deal by integrating these 12 elements, and embark on your consulting adventure with confidence and a clear path ahead.
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