The consulting agreement: What each party expects

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After a client accepts a proposal from you, your next step is to develop an agreement that formalizes your relationship with that client. You should never start work for a company without such an agreement in place. First and foremost, the agreement ensures that a business relationship really exists. An agreement can prevent misunderstandings later, and it will significantly increase the likelihood that you will be paid in a timely fashion.

The only substitute for a written agreement that I accept from established companies is a purchase order (PO) issued by the purchasing department. If you go this route, make sure that the document you receive really is a PO and not a purchase request; the latter is only an internal form that precedes the issuing of an actual PO. When working with larger companies, you may wish to go beyond an agreement and PO and request to be listed in the corporate database as a vendor. Find out what is required by the company. Often, the company's accounting department will have more accurate information than your hiring manager.

There are two main scenarios for the agreement itself. In the first, which generally applies to dealings with smaller clients, you will write the agreement. When I'm working with a client who has no standard agreement, I generally offer to develop a simple letter agreement. This consists of a letter to the client describing the work to be done, the deliverables and time frame, the amount I will be paid, the date I will send an invoice, and the length of time after invoicing within which the client must pay me. I send two signed originals with a place for the client to sign indicating agreement to the terms, and ask for one fully executed original to be mailed back to me. I may execute this agreement by fax if I trust the client.

In the more likely scenario, the client will have a standard consulting or contracting agreement. If this is the case, you will generally have little choice but to use this agreement. These are long, comprehensive documents, and you should read them carefully to avoid surprises. The biggest threat is a non-compete clause, as sometimes these are extremely restrictive. I usually negotiate to remove this clause entirely; if I can't do that, at most I agree not to do an identical project for a direct competitor in the course of my relationship with my client and for a six-month period afterwards.

In addition, some companies will require you to have general liability for personal injury and property protection. These policies, as opposed to professional liability policies, are not expensive, and it may be easier to have the coverage than to argue the requirement. The one clause I ask to have added, as it always seems to be missing, is a set time period after my invoice date within which the company needs to pay me. I generally ask for 30 days.

Another important area covered by the agreement is intellectual property. If your work product will consist of intellectual property that you already own or that you would like to use with other clients in the future, make sure the agreement spells out your rights accordingly.

Companies may also require you to sign a nondisclosure agreement. Watch for NDAs that don't expire. Three to five years is the normal term; do you really need an agreement that's in effect for the rest of your life? Make sure that the NDA doesn't apply to things you already know, or that are generally known, about the company.

Sometimes clients will give you the green light on a proposal, then drag their feet on executing an agreement. The best way around this is to promise in your proposal that you will complete your work within a set time frame that begins with the execution of an agreement. Alternatively, you could state in your proposal that you will meet a certain deadline so long as the agreement is executed by a specific date.

Larger consulting firms have their own comprehensive agreements, since they are being sued with increasing frequency. These agreements are designed to limit liability. As an independent operator, I avoid such legalistic terms, as they probably wouldn't protect me in the case of negligence anyway. The best defense is to do a thorough job, to not cut corners, and to be honest. The rest will take care of itself.

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