4 Reasons You Need a Consulting Agreement

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By: Dorcia Carrillo

In this new economy, workers no longer expect to retire from the company at which they started their careers. Instead, people are moving from employer to employer and often participating in the gig economy. The gig economy, as defined by ​Investopedia.com, is characterized by temporary flexible jobs performed by independent contractors, freelancers, or consultants. Independent contractor, freelancer, and consultant differ slightly, but for the sake of ease, I will use consultant to collectively refer to all three.

Consulting is by no means new, but it is becoming much more widespread than it was a few decades ago. In the early 2000s, the only people I knew who survived as freelancers or consultants were writers and IT professionals. Now people with other creative and technical skills are building entrepreneurial brands across industries.

I think entrepreneurship is great and I recommend that entrepreneurs create and use a template consulting agreement for their professional services. A standard agreement can be a competitive advantage and is an important tool for managing a consulting business. Of course, not every consultant needs to have a written agreement in place for every project. Furthermore, consulting agreements will vary across services and sectors. My purpose here is just to highlight some, not all, of the key provisions that a consultant should consider including in her template consulting agreement.

1. Define the Scope of Work

First, any consulting agreement should clearly state the services the consultant will provide. It is critical to identify what services are included in the scope of work. For example, a web developer should identify what if any maintenance, technical support, or upgrade services will be provided. It is also a good idea to note what services will not be performed. A well written scope of work, or statement of work as it is sometimes called, is the best way to avoid or alleviate confusion about performance. As a drafting tip, I recommend that on-going or complex project work be detailed in a separate attachment referenced in the consulting agreement rather than detailed in the main document.

2. Set the Payment Terms

Second and equally as important as the scope of work, are the payment terms. I know that negotiating a price for services is often the most difficult aspect of reaching an agreement. For this reason, it is imperative to precisely document the agreed upon pricing terms. A template consulting agreement should have a provision to note payment amount, frequency, and schedule. Additionally, the consultant must ensure that invoices are consistent with the terms of the agreement. If the agreement provides for an hourly rate, related invoices should be billed by the hour. As with work scope, the actual payment terms may be a referenced attachment to the agreement if the terms have to be explained in more than a few sentences.

3. Protect Intellectual Property

A provision for intellectual property is another clause that some professionals, namely those who create or develop copyrightable works or licensable technologies, need in their consulting agreements. The Legal Information Institute defines intellectual property as any product of the human intellect that the law protects from unauthorized use by others. Importantly, a consulting agreement can identify whether the consultant or client has rights to relevant intellectual property and what those rights are. All sorts of arrangements can be made for consultants and their clients to use, share, buy, sell, license, and reproduce the relevant intellectual property.

4. Define the Business Relationship

Last but certainly not least, a consulting agreement should state the relationship between the parties. It may seem obvious that a consultant is just that, but it is absolutely worth noting. More clearly, a consultant is not an agent or employee of the client and a consultant typically acts under her own discretion. These points are important because they may affect how a consultant operates. For example, a consultant is not paid as an employee and, therefore, may be subject to self-employment tax. Moreover, if the consultant is operating as an incorporated entity, the corporation rather than the individual will be signing and acting under the agreement.

A template consulting agreement does not have to be a long, complicated document. As stated, it should address the scope of work, payment terms, intellectual property rights, and consultant-client relationship. Other clauses that may need to be included relate to term and termination, indemnification, assignment and transferability, governing law, and the dispute resolution forum. Please seek the advice of a knowledgeable attorney who can draft a workable template to meet specific consulting needs. Alternatively, consultants can use an automated service like Rocket Lawyer to get started with a basic contract. At the very least, I encourage consultants to carefully review and understand the terms before entering into any consulting agreement.

Happy consulting!

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Dorcia Carrillo is the managing attorney at the Law Office of Dorcia Carrillo PLLC. She advises business clients on a variety of matters, including consulting relationships, software licensing, and export transactions.

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