Consultancy Agreements: They Have You Covered!!

Hiring a Consultant has many benefits. One of these is the explicit non-permanence of the association between you and the consultant. Hiring consultants lets you avoid the considerable tax and administrative costs that are part and parcel of hiring and maintaining regular employees, while it also gives you access to specialised skills and expertise that may not have been available in your own business organisation.

Unfortunately, there are also drawbacks to hiring consultants. While most consultants are conscientious professionals, there are no guarantees to this effect. To protect yourself and your business interests, you should carefully dot the i's and cross the t's. In other words, you should draw up a consultancy agreement.

The following are specific reasons for using a consultancy agreement in business:

1. Formally establish consultancy relationship
A consultancy agreement formally establishes the relationship between you and the consultant. Thus, there is no room for ambiguity regarding the nature and status of the consultancy relationship; both parties know that the relationship exists and the consultancy agreement makes it formal and legal.

This makes it easier for you to seek restitution later on for any damages that may arise out of your association with the consultant and out of the work that the consultant has done for you. Furthermore, a formal consultancy agreement also makes it easier for you to prove that you hired a consultant, not an employee, and are thus entitled to the tax benefits associated with hiring consultants.

2. Clearly define the consultant's duties and responsibilities
A consultancy agreement defines what is expected from the consultant. While it is more than possible to get satisfactory results even if you have verbal agreement with your consultant, it is better to safeguard your interests in case you don't get the results you expect.

A consultancy agreement gives you legal recourse if the consultant fails to honor your agreement. Aside from giving you legal recourse in case the consultant fails to deliver, a consultancy agreement also serves as a handy guide for the consultant if he needs or wants clarifications about what is expected in his or her capacity as consultant.

3. Define subcontracting responsibilities
While it is true that your control over the consultant you hire mainly lies in the "what" (i.e. the result) and not the "how," you do have some leeway over the consultant's methods of executing his or her duties and responsibilities to you. Specifically, you have control over whether or not your consultant may subcontract the tasks related to your project.

Through a consultancy agreement, you can specify whether or not the consultant is allowed to subcontract his or her tasks to other entities. In case subcontracting is allowed, the consultancy agreement outlines the conditions which have to be met for subcontracting permission to be granted. Finally, a consultancy agreement makes it unquestionably clear that the consultant has complete responsibility for ensuring the quality, compliance and timeliness of the output specified in the agreement.

4. Limit and Define Compensation
A consultancy agreement usually specifies the amount payable to the consultant for his or her services. It also outlines which of the consultants' expenses are covered by the consultancy fees. Typically, the face value of the award is inclusive of the administrative and operational costs involved in the performance of the consultant's duties and responsibilities.

Thus, the consultancy agreement protects you against arbitrary claims made by the consultant that you are responsible for his or her operational costs (e.g. telephone bills, office space rental, office equipment purchase/lease, etc), taxes and other costs. This also protects you in case the consultant belatedly decides that the fees you have agreed to pay are, after all, not enough compensation for services rendered.

5. Know what to expect and when to expect it
The consultancy agreement typically has a schedule enumerating the consultant's responsibilities. It breaks the output required of the consultant into tangible deliverables with definite deadlines.

Through a consultancy agreement, therefore, you know exactly what you can expect from the consultant and when to expect it. This gives you the ability to confidently plan other projects that depend on or complement the project on which your consultant is working.

6. Protect your intellectual property rights
A consultancy agreement also usually specifies who has intellectual property rights over the contract materials (i.e. the output required of the consultant) and the know-how generated in the course of the consultancy relationship. It also states that rights to the materials and know-how that your company brings into the relationship remains yours throughout the duration and after the termination of the agreement.

Thus, a consultancy agreement protects your intellectual property rights. This gives you full legal protection in case the consultant infringes on your rights over the materials and know-how generated by the agreement and the project.

7. Protect yourself against conflicts of interest
A consultancy agreement also indicates that the consultant confirms that no conflict of interest exists at the commencement of the agreement. It also outlines the steps to be followed in case a conflict of interest does arise in the course of the consultant's performance of his or her duties to your company.

This specific clause of a consultancy agreement protects you against actions by the consultant that may be harmful to your business interests. In case the consultant enters the agreement with full knowledge that a conflict of interest exists (or in case the consultant does nothing to inform you of a conflict of interest arising later on when the project is underway), you have legal protection and right to seek legal restitution for the consultant's breach.

8. Ensure confidentiality and non-disclosure
A consultancy agreement also obligates the consultant not to disclose proprietary or sensitive information to which it is given access by your company in the course of the project. Furthermore, in cases where an intellectual property resulting from the project cannot be patented or copyrighted, the consultancy agreement has a clause obligating the consultant to keep such property confidential.

The consultancy agreement therefore protects your primary claim to and ownership of proprietary information and materials even when such falls under the unprotected intellectual property category. The consultancy agreement, moreover, vests in you full ownership and control of sensitive and proprietary information which you have no choice but let the consultant access. As such, a consultancy agreement gives you legal protection in case the consultant fails to keep your intellectual property confidential or is careless enough to disclose proprietary information that has been specifically specified in the non-disclosure clause of the agreement.

9. Indemnity against liability and loss arising from legal action by outside parties. Since you do not have much control over how your consultant accomplishes the specific tasks related to your project, a consultant may conceivably violate the law – even infringe on third-party intellectual property rights – in the course of his or her performance of the duties specified in your contract. For instance, your consultant or his/her subcontractor, in the course of designing proprietary software/systems for your business, may use software to which he or she gained access through another project. In this case, the third party whose intellectual property rights have been violated may file a claim to stop you from using or distributing the output that resulted out of your consultant's infringement of intellectual property rights and may even ask the proper courts to award them damages from the same.

A consultancy agreement gives you protection as it states that the consultant indemnifies you against claims (intellectual property rights violation, loss to life and property, etc) that arise out of the consultant's or his/her subcontractors' illegal actions, omission or negligence.

10. Facilitate dispute resolution and termination of the contract True to any other contract, the consultancy agreement usually has provisions for relationship breakdowns. The consultancy agreement will give you guidance as to what constitutes lawful early termination of the contract, default on the consultant's part and how disputes between you and the consultant may be negotiated and resolved.

Thus, since the consultancy agreement provides you with legitimate, extra judicial means of dispute resolution and contract termination, you can save on legal costs in the event the relationship breaks down.

11. Define the duration of the consultancy
The consultancy agreement has a date of commencement and completion and thus defines the duration of the consultancy.

This grants you all the advantages and protection of the consultancy agreement during the period specified – although some clauses such as non-disclosure and indemnity do outlive this period and protect you after the relationship has ended or has been terminated.

see Consulting Services Agreement

also Company Consultants Agreement