Businesses often make use of outside professionals, also known as consultants, to provide expert advice and opinions to improve a company’s operations. Many consultants are former employees who may prefer a more flexible job description or who may wish to focus on more than a single project. They may also be independent contractors who provide consulting services to a variety of companies. To clearly define the working relationship, a consulting agreement is a standard way to protect the business and the consultant, creating a strong working relationship in the process.
Advantages of a Consulting Agreement
While verbal agreements are not unusual, they are often not specific enough, nor do they detail the key terms of the relationship. By contrast, a consulting agreement outlines critical points of the working relationship in writing, signed by all parties involved, making it legally binding. It helps to minimize disputes by documenting clear expectations for such issues as quality and accountability of work; budget, expenses and reimbursements; and professional procedures and policies.
Important Clauses of a Consulting Agreement
The most effective consulting agreement will include the following important clauses:
- Services description – which details the type of work the consultant will perform;
- Compensation – which details how the company will pay the consultant and the schedule for payment;
- Expenses – which details what exactly the company will reimburse and the schedule for reimbursement; Different from compensation, it addresses job-related expenses such as travel costs and job-related business expenses. It also importantly defines which expenses will not be reimbursed, such as consultant supplies and equipment.
- Independent Contractor Status – which states that, as an independent contractor, the consultant is not an employee of the company; This status means that the company will not withhold taxes or pay benefits as it would for a W-2 employee.
- Confidentiality – which details, usually quite specifically, the information a consultant must keep confidential; information about costs, technical data, marketing, or customer data are just a few areas of concern. Confidentiality usually extends even to those who may be working for the consultant. The confidentiality clause also outlines how information and resources should be returned to the company when the contract ends.
Solid consulting agreements make for a good working relationship since clearly defined expectations help to avoid many commercial disputes. Given the importance of these agreements for all parties, seeking the advice of an experienced business lawyer is a wise choice when creating any business contract, including consulting agreements.
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