Consultants perform a number of services for people or organizations that hire them. Before a consultant is hired, they often create and execute a consulting contract, which lays out the duties of all the parties involved. In order to create an effective consulting contract, you will have to understand your state's contract law, contemplate the contract, write the contract, then execute the contract. Follow the steps in this article and adapt where necessary in order to create the best consulting contract possible.
EditSteps
EditSample Contracts
EditContemplating your Consulting Contract
- Determine whether you have the need for a consulting contract. A contract is a legally enforceable agreement.[1] You will write a consulting contract if you are looking to hire a consultant or if you are a consultant looking to be hired. A consultant is someone who provides professional or expert advice.[2]
- Determine whether you have the ability to enter into a consulting contract. You will need to decide if you have the legal capacity to enter into a valid contract, which involves knowing what you are getting yourself into by entering into the agreement.[3] Also, you will want to know what is needed to create a legally binding contract. Those requirements include:
- An offer;
- Acceptance;
- Valid consideration;
- Mutual assent; and
- A legal purpose.[4]
- Ensure the terms and provisions you want to put in your contract comply with your state's laws. Contract law is always going to be state law, so you will need to make sure you meet your state's requirements.
- For example, some states have strict laws regarding liquidated damage provisions while other states allow them more freely.[5]
EditWriting the Consulting Contract
- Start with your basic information. This will include the title of your contract and the parties making the agreement. When writing this section, be sure to include detailed descriptions of the parties.
- For example, if the parties are people, you will include first and last names. If a party is a company, you will want to provide the company's name, address, and tax identification number if possible. Be sure to clearly indicate how each party to your contract will be referred to in the rest of your contract as well (e.g., "hereinafter referred to as consultant").
- Commonly, a consultant will be an individual entering into a contract with a company looking for the consultant's services. For instance, a law firm may hire an individual consultant who has expertise in hiring and firing practices.
- Detail the consideration each party is providing. In short, clear, readable paragraphs, explain what each party is providing under your contract. At this point, there is no need to get incredibly detailed. Most of the time you only have to state that one party is providing consulting services and the other party is providing compensation.
- For example, an acceptable provision may state: "The customer is of the opinion that the consultant has the necessary qualifications, experiences and abilities to provide services to the customer. The consultant is agreeable to providing such services to the customer on the terms and conditions set out in this agreement. In consideration of the matters described above..."[6] This type of language is used to ensure that the requirement for valid consideration is met.
- Define the consulting services to be performed. Specify exactly what the consultant will be required to do under your contract. Be detailed in your specifications and include as much information as possible.
- This section may start with something like this: "The customer hereby agrees to engage the consultant to provide the customer with services consisting of (x, y, and z). The services will also include any other tasks the parties may agree on. The consultant hereby agrees to provide such services to the customer."[7]
- Common services include litigation support, asset management, process improvement, and second opinions.[8]
- Include a compensation provision. You must decide how the consultant will get paid. Some contracts may require periodic payments while others may require one lump sum payment at the end of the consulting. Whatever you choose, make sure it is detailed clearly in your contract.
- If paying periodically, think about including something like this: "For the services rendered by the consultant as required by this agreement, the customer will provide compensation to the consultant of $XX.XX per hour."[9]
- If paying in one lump sum, try something like this: "The compensation will be payable upon completion of the services."[10]
- Decide whether the consultant will be an employee or independent contractor. This distinction is important and you should spell out how the consultant will be treated in your contract. Most of the time a consultant will be an independent contractor. If you are making the consultant an independent contractor, make that relationship clear by spelling out how and why the consultant will keep his or her independent status. Include language that the consultant will waive his or her right to regular employee benefits such as sick leave, vacation time, health benefits, and anything else you can think of that a full-time employee would receive.
- Consultants are most often going to be categorized as independent contractors. This ensures that the company or the individual hiring the consultant has a minimum level of responsibility over the consultant. This can be a good thing and it often means there will be less hoops to jump through in order to start and maintain the contractual relationship (i.e., less tax and reporting responsibilities). For instance, if you characterize the consultant as an independent contractor, the independent contractor may not have to report their income, up to a certain amount, to the IRS for tax purposes.
- Define the length of the contractual agreement. Here you will include a section defining when the consulting services will begin and when they will end.
- An acceptable provision may state: "The term of this agreement will begin on the date of this agreement and will remain in full force and effect until the completion of the services, subject to earlier termination as provided in this agreement. The term of this agreement may be extended by mutual written agreement of the parties."[11]
- Write a termination provision. This section will provide information on how you can terminate the agreement before the total completion of services. Include how much notice will have to be given and how termination will affect compensation.
- For example, your provision may end up looking like this: "This Agreement may be terminated by either party, with or without cause, upon thirty (30) days prior written notice to the other; provided that if consultant terminates this agreement, consultant shall, in accordance with the terms and conditions hereof, nevertheless wind up in an orderly fashion assignments for the customer which consultant began prior to the date of notice of termination hereunder. Upon termination of this agreement for any reason, consultant shall be entitled to receive such compensation and reimbursement, if any, accrued under the terms of this agreement, but unpaid, as of the date consultant ceases work under this agreement. In addition, consultant shall be reimbursed for any non-cancellable obligations, any cancellation penalties, and, unless consultant terminates the agreement without cause, any expenditures reasonably made in order to perform the services that were to occur had cancellation not occurred."[12]
- Include any miscellaneous information and boilerplate provisions. Towards the end of your contract you will include any standard provisions that are usually found in contracts. Most of these provisions you can simply take from a form contract you find, but make sure you read over them and ensure they say what you want them to. Some of these provisions may include:
- Severability provisions
- Modification provisions
- Indemnification provisions
- Choice of law provisions
- Entire agreement provisions
- Make an area for signatures. At the very end of the contract you will make space for all parties to sign the contract. This area should have spaces for your signatures and dates.
EditExecuting the Consulting Contract
- Offer your contract to the other party. Once you have written your consulting contract you will offer it to the other party. The other party will then have a number of options:
- The other party may accept the offer in full. In this instance, you will then sign the contract and start performing.
- The other party could reject the offer in full. If this is the case, you will have to write a more acceptable contract to the other party or find someone else to try to contract with.
- The other party might try to negotiate some of the terms of your contract. If this happens, you will negotiate with the other party until you both reach an acceptable agreement.
- Negotiate any differences about the terms of your contract. When you negotiate over the terms of your consulting contract, it will most likely be over payment for services and/or the types of services the consultant is going to perform. These will be common areas of tension because they are the main parts of your contract.
- Sign your contract and begin performing. When you and the other party are satisfied with the document, you will both sign it and begin performance in the manner you both agreed upon.
EditTips
- You should always try to find a form contract then tailor it to your needs. You can usually find a form contract on the internet that generally fits your needs. This will cut down on your writing and formatting time.
EditWarnings
- You should generally consult an attorney before signing any contract because it is likely to affect your legal rights or obligations.
- Remember that contract law is governed by state law and you should always make sure your contract conforms to all state law requirements.
EditSources and Citations
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Source: http://www.wikihow.com/Write-a-Consulting-Contract