Consultancy Agreement-Benefits and Procedure to File

Consultancy Agreement is a contractual document between a consultant/consultancy and a client/company. This contains the terms and conditions under which consultancy will be provided to the other party. It serves as a framework to ensure both parties maintain the rules, obligations, and rights. In today’s dynamic business environment, these are used in various sectors, including manufacturing, law, technology, healthcare, marketing, etc.

It covers scope of work, payment terms confidentiality, obligations, intellectual property rights, liability, and dispute resolving mechanism, etc. This guide explores the key elements, types, benefits, and legal implications.

When is a Consultancy Agreement Required?

A Consultancy Agreement applies whenever a company acquires consultants.

• If any company or firm acquires any work in a domain or field that they are not familiar with. Consultants with knowledge in that domain can help the company in short-term projects.
• This helps the company to sustain the budget. And they can acquire new projects.
• This type of engagement ensures that both party comes to positive terms after negotiation.
• It binds both of the parties via a legal document. This ensures there is no miscommunication or misunderstanding. 

Who is Involved in the Consultancy Agreement?

The agreement is mainly signed between a company or employer and a consultant or any consultancy firm. This Agreement covers various aspects including length of employment, work done, payment, etc. It involves both the employer and the consultant.

Elements of a Consultancy Agreement:

We have discussed some important elements below.

• Scope of Work: They ensure the working process through the statement of work. It defines the work and the specific terms and conditions related to the work. The service agreement must include responsibilities, obligations, operation methods, etc.
• Payment Terms: Negotiate and set a payment term that is compliant with the company policies. Most agreements state the net price over the gross. Mention the time period of the payment and set a deadline. Add the payment timing such as monthly, quarterly, or lump sum, etc. 
• Duration: Clearly mention the timeline for the project. Including the deadline of the phase (phase of the project), payment timings, and deliverables.
• Confidentiality: Consultancy agreement should include a confidentiality clause. Clearly mention any sensitive information. Make sure all the data remains privet or under supervision. This provision ensures that the consultant won’t disclose any confidential data, causing harm to the company.
• Termination: This section describes all the obligations under which the company can terminate the contract. This also mentions the notice period and under which conditions the consultant can leave the project.
• Indemnification: This section provides protection from any legal liabilities that appear from the other party’s mistake.

Benefits of the Consultancy Agreement:

• Clarity of Expectation: This Agreement draws a clear picture of expectations for both parties (the company and the consultancy). This will reduce misunderstandings between them.
• Legal Protection: This is a binding that provides legal assistance, protecting both.
• Professionalism: A Consultancy Agreement showcases professionalism and commitment to the relationship between a company and consultancy firm.
• Confidentiality: This legal agreement protects every sensitive information shared with the consultancy.

What to Consider Before Signing Business Consultancy:

Here are some important factors to consider before signing the contract.

• Ensure the scope of work is clearly mentioned. This will prevent doing additional work or anything that was not agreed upon first.
• Check if the deliverables and deadlines are achievable.
• Review the payment structure, and ensure the payment schedule and taxation details.
• Check if there are any early termination fees and late payment penalty charges.
• Make sure the agreement defines the relationship between the company and the consultant clearly. It will prevent any unnecessary disputes and make the process smoother for both parties.  
• Check if the agreement includes a Non-Discloser Agreement. Ensure the duration of the confidentiality agreement.
• Clarify the final product or the service that the consultant produces during the agreement period belongs to whom.
• Go through the confidentiality clause and make sure the agreement protects the rights of both parties.

Types of Consultants:

In modern business scenario consultancy firms are the most diverse industry. Here are some of the most known consultancy services.

• Strategy Consultant: strategy consultant focuses on strategic topics such as corporate strategy, economic policy, functional strategy, etc. their expertise lies on quantitative skills and giving advice rather than implementation.
• IT Consultant: IT consultants are mostly hired by business to help them out with internal networking, tech support, and software and web development.
• Operational Consultant: Operational or Operation consultant focus on manufacturing, supply chain, Update or improve storage, maintain delivery, and response to the business needs.
• Financial Advisory Consultant: Financial consultants analyze financial documents, reduce costs, increase profit, and create investment plans for the client’s company to safeguard and grow the financial health of that business.
• Human Resource Consultant: The HR consultant ensures that the company meets their legal obligations, and manages the onboarding system by hiring and firing employee for the company.
• Management Consultant: management consultant or business consultant or organizational advisors focuses on all types of organizational concerns within management. Management consulting is a collective form of strategy, operational, HR consulting.  
• Legal Consultant: Legal consultant helps the company by advising them on legal factors and protect the liabilities and provide legal perspective on the business.
• Compliance Consultant: Compliance Consultants provide consultancy to the companies related to their knowledge in the industry regulation and standards to maintain company operation according to standards.

How to Use Consultancy Agreement:

Here we have provide guidance on how to use a Consultancy Agreement.

• The consultant and the client both need to understand the purpose of the agreement.
• The agreement should consist of the consultant and the client’s information.
• This contract builds a relationship between the client and the consultant.
• Highlight the duration of payment and mention the payment methods.
• Make sure the agreement caters to each specific project, not any general template. Mention the scope of work, payment terms, duration, etc.
• Carefully read and understand every clause and negotiate any unfair terms.
• The parties should agree upon a non-compete clause and non-solicitation clause.
• The parties have to add arbitration, or mediation to resolve any dispute.

How to Draft a Consultancy Agreement:

The format suggests an agreement between two parties, an individual consultant and the client or company. We have formed a draft view of consultancy agreement below.

This Consulting agreement (The Agreement) is entered into this (Date) day of (Month), (Year) by and between (Name of the Consultant) and (Name of the client).

WHEREAS, the client is need of assistance in (The service); and

WHEREAS, Consultant has agreed to perform consulting work for the company in providing support and consulting services and other related activities as directed by the client.

NOW, THEREFORE, the parties hereby agree as follows:

Consultant shall be available and shall provide to the client consulting services in the area of (The service) as requested.

In consideration for the Consulting services to be performed by Consultant under this Agreement, the client will pay Consultant at the rate of (Charges as per negotiation) for time spent on consulting services. Consultant shall submit written, signed reports of the time spent performing consulting services, itemizing in reasonable detail the dates on which the services were performed, the number of hours spent on such dates and a brief description of the services rendered. The Client shall pay the Consultant the amounts due pursuant to submitted reports within (Duration of the project) days after a report is received by the Client.

Additionally, the Client will pay Consultant for the following expenses incurred while the Agreement between Consultant and the Company exists:

All travel expense to and from all works sites;

Meal expenses;

Administrative expense;

Lodging expense if work demands;

Miscellaneous travel related expenses. (Parking, Tolls)

Consultant shall submit written documentation and receipts where available itemizing the dates on which expenses were incurred. The Client shall pay Consultant the amounts due pursuant to submitted reports within (Duration) days after a report is received by the client.

Nothing herein shall be constructed to create an employer-employee relationship between the Client and the Consultant. Consultant is an independent contractor and not an employee of the Client’s company or any subsidiaries or affiliates. The consideration set forth shall be the sole consideration due Consultant for the services rendered hereunder. It is understood that the Client will not withhold any amounts for payment of taxes from the compensation of Consultant hereunder. Consultant will not represent to be or hold herself out as an employee of the Client’s Company.

In the course of performing Consulting services, the parties recognize that Consultant may come in contact with or become familiar with information which the Client or its subsidiaries or affiliates may consider confidential. This Information may include, but is not limited to, information pertaining to the Client’s system, which information may be value to competitor. Consultant agrees to keep all such information confidential and not to discuss it to anyone other than appropriate personal.

This agreement shall commence (Duration) days before the beginning of each project, and shall terminate on the delivery of the (The service), unless earlier terminated by either party hereto. Either party may terminate this Agreement upon (Time period) day prior written notice.

Any notice or communication permitted or require by this agreement shall be deemed effective when personally delivered or deposited, postage prepaid, in the mail of (Name of the state). At the address set forth below:

(Address of the Consultant).

(Address of the Client)

Entire Agreement and Amendments. This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and replaces all other agreements or understandings, whether written or oral. No amendment or extension of the Agreement shall be binding unless in writing and signed by both parties.

Binding Effect, Assignment. This Assignment shall be binding upon and shall inure to the benefit of Consultant and the Client. Nothing in this Agreement shall be constructed to permit the assignment by Consultant of any of its rights or obligations hereunder, and such assignment is expressly prohibited without the prior written consent of the client.

Governing law, Severability. This agreement shall be governed by the Ministry of Labor and Employment. The invalidity or unenforceability of any provision of the agreement shall not affect the validity or enforceability of any other provision.

WHEREFORE, the parties have executed this Agreement as of the date first written above.

Name of the client:

Date:

Signature:

Name of the Consultant:

Date:

Signature:

View a sample of the agreement

Various Important Clauses of the Consultancy Agreement:

Statement of Work: The clause makes sure that the consultant provides the scope of the consultant’s duties. It will define what falls under the scope and what does not. The service agreement must include responsibilities, obligations, operation methods, and other wide range of topics, including an annexure with the agreement to explain the services in detail.

Agreement Renewal and Extension: Any ongoing project between two parties (The consultancy and the employer should have to mention the prospect of a contract extension and renewal terms. The employer will decide whether to extend or renew the contract on the basis of the progress. 

Payment Terms: This clause outlines the payment terms, whether will be a lump sum, quarterly, or any series of payments. Here are some requirements we have discussed.

• The consultancy has to submit all the information on sales or services that they produce.
• The company has to set a time period to make the payments.
• Add information on the consultant account.

Duration: Clearly mention the timeline for the project. Including the deadline of the phase (phase of the project), payment timings, and deliverables.

Confidentiality: Consultancy agreement should include a confidentiality clause. Clearly mention any sensitive information. Make sure all the data remains privet or under supervision. This provision ensures that the consultant won’t disclose any confidential data, causing harm to the company.

Termination: This section describes all the obligations under which the company can terminate the contract. This also mentions the notice period and under which conditions the consultant can leave the project.

Point Of Contact: This clause mentions the name or title of a representative to whom the consultancy should recommend.

Non-Solicitation: This clause defines that the consultancy is not allowed to contact other companies.

Obligation of the Consultant:

We have discussed some common obligations of consultants/consultancies.

• The consultant must maintain professionalism, work standards, and methodologies, and also restrict them from engaging in any illegal or unethical activity.
• The consultant cannot demand any commission beyond the payment mentioned in the agreement.
• The consultant has to keep all the records of the service in compliance with GAAP, Indian accounting standards, and other accounting principles.
• Make sure the client representative has access to confirm and check out the consultant’s services.

Obligation of the Client:  

Here are some common obligations of a client/company.

• The company/client must obliged to the payment schedule mentioned in the agreement.
• This is important to understand that whatever the consultant produces to provide services under the agreement, belongs exclusively to the clients as per the legal agreement.
• The consultant has to have quick access to various important data.

Termination of Agreement: This clause specifies the circumstances in which the client's right to cancel the contract. On the other hand, this provides a chance for the consultant to leave the project under specific terms and conditions mentioned in the agreement.

In conclusion, the Consultancy Agreement is a pivotal document for both the company and the consultant. This enhances professionalism, legal security, and clarity of the project. It protects the interest of both parties, sets expectations clearly, and mitigates any risk involved. This article describes all you need to know about consultancy agreements. Learn the benefits, important clauses, and how to draft one through this article. To start your journey as a businessman or a consultant you need to incorporate your business, acquire a trademark, and corporate registration. To prepare a consultancy agreement, contact Online Legal India.