Imagine you’re a general counsel at a multinational company. Because your organization is expanding into a new region, you hire a consultant to assist with regulatory compliance and risk assessment for pending acquisitions in your target region.

But the consultant, somehow, interprets this as a purely advisory role and delivers a detailed report on industry trends and best practices.

What do you think will happen?

We’re looking at project delays, payment disputes, a strained relationship, and a legal battle in extreme cases.

Situations like this are what make consulting agreements mission-critical. They’re not just there to make you look professional but to make sure everyone is on the same page about everything, from project scope and compensation to liabilities and intellectual property rights.

In this guide, we’ll not only explain everything you should know about consulting agreements but also arm you with a free template you can customize for your business.

TLDR:

• A consulting agreement is a contract that defines how a client and a consultant work together, including the scope of work, payment terms, and other rules of engagement for a productive relationship.
• A consulting agreement is important for legal protection, preventing scope creep, and maintaining the confidentiality of sensitive information.
• If you’re often engaging in consulting arrangements, it’s smart to have a consulting agreement template. That way, you won’t have to start from scratch every time.
• To build a template, start by identifying your most recurring sections, lay them out with a standardized language, incorporate placeholders for customizable areas, and review regularly for changes.
• Download our consulting agreement template for free (it’s at the end of the guide).

What is a consulting agreement?

A consulting agreement is a written contract that spells out the terms, scope of services, individual responsibilities, and other “rules of engagement” to help consultants and their clients have a productive working relationship.

A client, in this case, can be a large company, government agency, small business, or an individual. On the other hand, the consultant may be an individual professional or a member of a larger consulting company.

Source: Neville Chamberlain via LinkedIn

Download our free consulting agreement template

“The absence of contract templates leads to non-standardization and makes contracts prone to errors. The legal team, therefore, is required to delve deep into contracts and proofread all clauses with a fine-tooth comb to identify and rectify the simplest of human errors.”

~ Igor Poroger, Director of Legal, EMEA, Vectra AI‍
How CLMs Empower Legal Teams in B2B SaaS Companies

We’ve done the heavy lifting for you by drafting a robust consulting agreement template that you can use with minimal adjustments.

Every business is unique. So, make sure you tailor it to fit perfectly with your needs.

Importance of a consulting agreement

Whether you’re a client or a consultant, working with a consulting agreement just makes good business sense. Without it, you’re leaving yourself open to avoidable risks and basically running your business on blind trust.

Here’s how a consulting agreement can benefit you:

#1 Legal protection

”You can either be part of the cleanup crew or do stuff to avoid that cleanup situation altogether."

~Gitanjali Pinto Faleiro, General Counsel, Company Secretary & CCO at Greenhill & Co.
Navigating the C-Suite as a GC

If something goes wrong with the project, a consultancy contract makes sure you have sufficient legal protection.

Let’s say you paid a consulting firm an agreed-upon advance fee, and they end up not showing up as planned, putting your business at risk of losing an upcoming deal. The consulting agreement gives you the legal right to make demands and enforce penalties.

Nobody likes to be caught in the mess of legal action, and that’s exactly why a contract works as a powerful deterrent. When both parties know the terms are legally binding, they’re more likely to follow through.

Source: Guy Milhalter via LinkedIn

#2 Confidentiality of sensitive information

A consulting arrangement often involves sharing sensitive business information. Whether it’s customer information, trade secrets, or financial data, having an agreement in place makes sure what’s discussed doesn’t echo elsewhere.

#3 Roadmap for dispute resolution

Business relationships don’t always go as planned. Sometimes, contracting parties might disagree over scope, project timelines, performance standards, and even compensation.

Without a plan for dispute resolution, a simple disagreement can escalate into a full-blown legal battle. A consulting agreement makes sure the two parties are prepared for situations like this. So, if it ever comes, there’s a roadmap to follow for a peaceful resolution.

#4 Show of professionalism

A consulting agreement doesn’t just formalize your business engagement. It also portrays you as a true professional. Companies respect consultants who have a structure for their processes. With a contract in place, you can rest assured your clients will take you more seriously.

#5 Protection from scope creep

Imagine agreeing to do one thing and suddenly finding yourself doing ten other things for free. That’s scope creep, and it is a common problem in consulting engagements. A written agreement defines exactly what the consultant's services will be and ensures that any extra work comes with extra pay.

Source: Margeaux Thomas via Linkedin

Key elements of a consulting agreement

A consulting agreement is only as strong as the building blocks that form it. Without the right elements, it’ll be prone to misunderstanding, failed obligations, and disputes.

So, what exactly should your consulting agreement contain?

#1 Contact information

The document must contain the full legal names of the client and the consultant. If either party exists under a business name, include that as well. This makes it clear who should be held accountable in case anything comes up.

It should specify where both businesses are located. Include their mailing addresses, phone numbers, and any other means of reaching them.

#2 Scope of work

The scope of work is where you detail what’s on the table and what's not. What services will the consultant provide? Are there deadlines and milestones to take note of? Are there any limitations on what’s expected of the consultant?

Also read: Transforming Contract Management With AI-Powered Consulting Services

#3 Compensation and payment terms

How much will the client pay for services rendered? Is it a fixed amount, an hourly rate, or tied to project milestones? When is payment due, and how will it be made? What happens if the client pays late? And if there are extra expenses incurred, does the client cover them?

This section provides answers to all these questions.

#4 Term and termination

This section talks about when the contract kicks off and how long such consulting service is expected to last. If either party decides to end it early, should they provide a written notice? and if so, how many days' notice is required?

It also clarifies if there are fees and penalties associated with early termination.

#5 Legal provisions

Legal provisions cover IP ownership, dispute resolution, liability and indemnification, and declaration of contractor status. Incorporating these clauses into your consultancy agreement prevents misunderstanding and ensures you can legally enforce penalties if the other party fails to deliver on their obligation.

Common clauses in a consulting service agreement

We briefly touched on legal provisions in the previous section. But here, we’ll go into more detail on some of the most common clauses you’ll find in a consulting service agreement.

#1 Intellectual Property (IP) rights

The IP rights clause settles the question of ownership rights. A consulting business may result in the generation of reports, marketing materials, and even software. When this happens, who owns the rights to these IPs? If the client's business owns the IP rights, the agreement can also specify if the consultant may use a part of the IP for other projects.

Source: Anthony Butler via LinkedIn

#2 Confidentiality clause

In consulting arrangements, the consultant normally gets access to confidential information from the business they’re working with. This confidentiality and non-disclosure section prohibits the consultant from sharing or using such information somewhere else without prior written consent from the other party.

#3 Declaration of independent contractor status

This part makes it clear that the consultant is not the client's employee. It exempts them from various employee benefits throughout the duration of their engagement. As an independent contractor, the consultant agrees to handle their own taxes, health insurance, and business expenses

#4 Dispute resolution

Dispute resolution provides a course of action for when disagreements occur. It often specifies a dispute resolution method as well as the governing law for legal proceedings.

Source: Fabiana Muniz Lima via LinkedIn

#5 Liability and indemnification

If the client implements the consultant’s advice and ends up losing money or getting into legal trouble, will the consultant be held liable? Or will the business be solely responsible in such situations?

All that is clarified in this section.

#6 Entire agreement

This clause consolidates everything that's been discussed between the client and the consultant. It emphasizes that everything included in this document represents the entire agreement and supersedes every other discussion held prior to or after the agreement. So, if it's not on paper, it's not legally binding.

Source: Clive Rich via LinkedIn

#7 Non-compete clause

The non-compete clause clarifies the consultant’s agreement to desist from working with the client’s competitors or companies in the same industry for a specific duration after the  conclusion of the business arrangement.

#8 Amendments and modifications

This clause details how changes can be made to a contract. It often stipulates that every change must be made in writing and signed by all relevant parties to be considered legally binding.

#9 Warranties and representation

This clause lists all the guarantees the consultant is making, such as the quality of their work and their legal right to render consulting services.

#10 Severability

The severability clause clarifies that if a part of the contract becomes nullified, it doesn’t affect the rest of the contract except specified. This means that every section of the contract exists independently and remains enforceable on its own.

Drafting a consulting agreement template

A consulting contract template comes with predefined provisions you can repurpose for every new contract. This makes it easier to get the ball rolling every time a new consulting project comes up.

Here’s how to create a template that sufficiently caters to your needs:

Also read: Guide to Implementing a Productive Consulting Agreement Playbook

#1 Identify your most recurring provisions

Start by listing those important clauses that always appear in your consulting agreements. In most cases, these may include your liability clause, dispute resolution policy, confidentiality agreement, independent contractor statement, and amendment provisions.

#2 Use a standardized language

Since this is a template, you’ll want to use a broad yet legally sound language that works for different consulting scenarios. This is why step 1 is important. Knowing those recurring provisions makes it easier to create standardized content that can be used across different scenarios with little to no adjustments.

For other clauses, carefully structure them in such a way that only minor details (like project timelines and payment amounts) need to be modified.

#3 Integrate placeholders for customizable areas

For every contract, there are sections that can’t be templatized. The client’s name and address, the specific services required, project timeframe, payment terms, and any special terms unique to the engagement must be factored in when creating a template.

You can account for these by using placeholders throughout the template.

That way, all you need to do is plug in the details for each agreement.

#4 Review and optimize

“If you think that you're doing everything perfectly, you're not going to grow. There's always an opportunity for improvement.”

~Doug Luftman, Chief Legal Officer, Trust & Will
‍‍The Key to Success as an In-House Legal Counsel & Leader

Review the template to make sure you’re not missing an important guardrail. Cross-reference past contracts and identify all sections the template is catering to. This will help you make sure the template is sufficient for a wide variety of scenarios.

AI-powered tools like VerifAI can make this review process easy. It’s designed to work with you on your MS-word interface, identifying loopholes and even answering open-ended questions related to your consulting agreement.

To keep the template relevant for a long time, ensure you have a schedule for reviewing the template to reflect current changes in the business.

Also read: How to Review Consulting Agreements

#5 Store it for easy access

“The importance of simply being able to locate all of the company's contracts and relevant amendments in one place without significant effort cannot be minimized."

‍~Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
‍‍‍Ten Things: Minimizing Risks in Commercial Contracts

Once finalized, keep your consulting agreement template readily available. This should be in a secure, searchable repository like SpotDraft.

That way, when a new consulting project shows up, you can easily retrieve your template and get the deal up and running in no time.

Also read: Tips to Store Your Contracts Effectively

Wrapping up

Setting up a consulting agreement doesn’t have to feel like backbreaking work. With the template we’ve provided, you already have a strong foundation to build on.

But if you’re looking for a better way to manage your contracts from end to end, SpotDraft CLM has everything you need.

Want to check it out? Click here to grab a free personalized demo!