Often, businesses seek services from people with specialized knowledge in a particular field. Depending on the nature and scope of the requirement, it may be advisable for the business to hire an individual with specialized knowledge as a consultant rather than a full time employee.
Such an arrangement has a few benefits. For the business, it reduces employee count, and employee benefit payments, while allowing them to have access to a part time or full time resource with specialized knowledge. For the consultant, there are significant tax benefits, and the ability to explore other opportunities outside of the engagement with the business.
A consultancy agreement is a legal document that sets out the terms and conditions under which the business and the consultant choose to engage with one another. This agreement is drafted and executed when a consultant is hired to provide his duties to a business or individual.
Consultancy Agreements have to be drafted keeping in mind the requirements and obligations of both parties. These agreements also seek to protect the parties from unwanted financial losses, feelings of resentment, damaged business relationships, and even lawsuits!
Why is a consultancy agreement necessary?
A verbal discussion for any deal might sound easy and hassle-free but, as easy as it sounds, a verbal deal has its complications. We also do not recommend verbal agreements in general - since these are extremely difficult to enforce.
A written consulting agreement, on the other hand, clearly establishes the roles and responsibilities of both, the business and the consultant in the course of their professional engagement, and protects each party from any undue harm caused by the actions of the other.
Among other things, a Consulting Agreement lays down:
a. The Scope of work;
b. Payment Terms;
c. Term and Termination;
d. Responsibilities and Liabilities of each party;
e. Confidentiality, Intellectual Property and Indemnity Clauses
f. The relationship between the parties; and
g. Instructions on interpretation and execution.
These agreements are also legally binding, and can be enforced in a court of law. In the case of any adverse events or disagreements, the court will rule on the responsibility and liability of the Parties on the basis of the terms contained in the consulting agreement, and applicable law.
How to draft a consulting agreement?
Though consultancy agreements are highly customizable, there is no one right or wrong way to draft these agreements. However, as a matter of prudence, any person or business drafting or executing a consulting agreement should keep a few clauses in mind, which must be included to adhere to industry standard practices when drafting a consulting agreement:
a. Introduction Clause: The name, designation, address of the parties involved must be clearly mentioned, allowing the parties to be identified.
b. Scope of Work: The scope of work clearly lays down the purpose for which the consultant is being hired, and the deliverables expected from the consultant as part of his/ her engagement. The scope of work must also define any tiebourn activities, deliverables, or milestones that the consultant is expected to comply with.
c. Term & Termination: This clause defines the period for which the consultant will be engaged to provide services under the agreement. The term can be definite or indefinite.
d. Payment Details: The terms of the payment agreed to between the Client and the Consultant, in exchange for the Services to be provided by the Consultant. The consultant may be paid monthly, quarterly, annually, on the completion of specific deliverables or at specific milestones, based on the agreement between the business and the Consultant.
e. Termination and Consequences: How this agreement can be cancelled or terminated, and the consequences of such cancellation or termination after the agreement is executed.
f. Intellectual Property: This clause specifies how the intellectual property (copyrights, trademarks, patents, designs etc) created under this agreement be dealt with, and who will be considered the owner of this Intellectual Property.
g. Confidentiality: Specifies whether the parties to this agreement are bound to keep the details of this engagement, and any information shared hereunder confidential or not.
h. Force Majeure: Ensures that neither party is unfairly penalized if the circumstances surrounding their failure to comply with their obligations under this agreement are attributable to an act of god.
It is apparent that the consultancy agreement ensures the benefit of both, the client and the consultant.
However, to ensure that there are no flaws in the agreement, it is recommended that one takes the assistance of a professional attorney who has experience drafting all types of agreements.
Legal Djinn works with attorneys who have spearheaded and executed multi-million dollar transactions to create draft agreements and legal document templates that are legally sound, and protect the rights and interests of all parties to a transaction. These legal agreements, documents and letters are templatised and made available on our website (www.legaldjinn.com) at a fraction of the cost that would be charged by a lawyer, while retaining an extraordinarily high quality of drafting.