Consulting Agreements - Key Provisions

Consulting agreements are commonly used by businesses today. Consulting agreements can range from one page to 20 or more pages depending on the subject matter of the agreement and whether other agreements between the parties are included or are incorporated by reference. This summary will discuss in more detail the terms of the Sample Consulting Agreement form and the legal rights and obligations created under the agreement, as well as provisions that could be adapted to specific circumstances and arrangements.

Provisions of the Agreement and Duties and Obligations Created

The consulting agreement is an agreement between a consultant and a client that wishes to retain certain specified services of the consultant for a specified time at a specified rate of compensation. As indicated previously, the terms of the agreement can be quite simple or very complex. Below is a discussion of the more important issues to be considered in every consulting agreement.

Scope of Work; Time; Compensation

It is important that the agreement for consulting services outline the specific services to be provided. Often a consulting agreement will contain an exhibit that lists the services expected of the consultant. This list can then be amended if necessary without the need to amend the entire agreement.

The time period in which the consultant is expected to complete his or her task should also be included in the agreement if applicable. Depending on the situation, the consultant may be expected to devote a specific number of hours per week or per month to the project, or may charge a flat fee when the services are more specific in nature. The hiring company may wish to include a "hold-back" provision alerting the consultant that a certain amount of the compensation will be withheld until the consultant has completed the task. Obviously, the inclusion of a hold-back provision and the amount that is "held-back" are often points of contention and should be negotiated.

Term and Termination

The term of the agreement is typically quantified in months or years. Most likely it will coincide with the compensation schedule. The client should also protect its interests by allowing it to terminate the agreement under certain conditions. Typically these conditions are (1) breach of confidentiality or non-solicitation provisions of the agreement, or (2) illegal activities that affect consultant's performance under the agreement. Without this right to terminate the agreement, the client is obligating itself to the consultant even if the consultant has taken actions contrary to the client.

Copyrights and Data

The consulting agreement should address the use of the consultant's work. Some agreements allow the client complete use of the physical product delivered by the consultant and may not include an assignment of copyright on the assumption that the consultant will want to retain the copyright. The best position for the client is to get complete ownership of not only the tangible documents that the consultant prepares, but also the copyrights to those documents. However, the consultant may demand considerable more compensation to assign this right making it impractical. It is very important, however, for the parties to clearly understand their respective rights relating to not only the physical documents but the copyrights as well.

Conflict of Interest; Non-Solicitation

Clients should consider including a non-competition clause in the agreement, at least for the term of the agreement and within the market area of the client. Any non-competition clause must be reasonable to be enforceable. Most consulting agreements also include a statement that the consultant will not solicit the client's employees for at least the term of the agreement.

Miscellaneous Provisions

After spending considerable time negotiating the services to be performed, the compensation, the ownership rights to the work product, etc. it is often easy for parties to neglect the miscellaneous provisions that one typically finds at the end of the agreement. The parties should always pay careful attention to what law will govern the agreement, how disputes will be resolved, and, probably most importantly, the assignability of the rights and obligations under the agreement. Typically, the rights and obligations are not assignable since the client is hiring the consultant because of the consultant's specific expertise and the consultant is agreeing to perform the services only for the client. There may be situations, however, where an assignment may be necessary, i.e. the client merges with or into another entity.

Summary

Consulting agreements are frequently used in today's business world and vary in complexity from simple, one-page documents to very complex, 20+ page documents. The terms detailed above, however, should be considered as basic requirements for any consulting agreement. With the key terms detailed in a written agreement, the parties will have reasonable expectations about services to be performed under the agreement and the consequences if those expectations are not met.