Your ultimate guide to consultancy agreements (including lawyer-drafted template)

What is a consultancy agreement?

A consultancy agreement is a legally binding contract that sets out the terms and conditions of a specific project and the relationship between a consultant and their client. A consultancy agreement should outline the scope of services, payment terms, project deadlines, and any other important details specific to the project. By recording these details in writing, you can refer back to the contract if any issues arise during the course of the engagement. Additionally, having a written and signed consultancy agreement can protect your rights and help you avoid potential legal headaches later on - we'll delve into this further below.

Why do I need a consultancy agreement?

For businesses engaging consultants or consultants offering their services to clients, having a written consultancy agreement is vital. It lays down a structured framework between a consultant and client, acting as a roadmap for how the relationship will be governed and the services that will be provided by the consultant.

Although you may be keen to commence the consultancy services as soon as possible, a written and signed contract is the best evidence of your agreed terms. Without one, if a dispute arises, it may be difficult to prove the terms of the agreement that was made at the outset of the relationship. A written contract provides clarity and helps to establish the expectations and obligations of both parties involved.

There are several key reasons why having a consultancy agreement is imperative for consultancy engagements, such as:

• Legal protection: Consultancy agreements establish a legal framework that safeguards the rights and interests of both consultants and clients. These contracts clarify key aspects of the consultancy engagement, including the project scope, compensation, deliverables, timelines, confidentiality, intellectual property rights and dispute resolution mechanisms. By documenting these details in a written contract, consultants and clients gain clarity on their respective responsibilities, reducing the likelihood of confusion or conflicts later on.

• Transparency: Consultancy agreements are like a roadmap for a smooth collaboration, setting clear expectations from the outset. They act as a reference guide for both parties in case either party is unclear about any aspect of the services or the other party’s roles and responsibilities.

• Professionalism: As a consultant, you want to set yourself apart from the crowd and let your clients know you take your business seriously. A consultancy agreement not only looks professional, but also demonstrates that you understand your industry, your clients’ needs, and the elements required to create a successful consultancy project.

• Protect intellectual property (IP) and confidential information of both parties: A company’s intellectual property and confidential information is often one of its most valuable assets. When it comes to the creation of IP, in the absence of a contract, any IP created by an individual will be automatically owned by that individual. For this reason, it is paramount for both parties that the consultancy agreement provides clarity on ownership of intellectual property, clearly defining whether the consultant retains rights in the intellectual property created by the consultant as part of the services, or if they will be transferred to the client. By including confidentiality obligations, both parties can rest assured that there is a foundation of trust when it comes to the unauthorised disclosure of the other party's sensitive information. For more information about protecting yourself with your consultancy agreement, review this handy checklist.

• Navigating termination: Although exiting prematurely is never the desired outcome when you first enter into a project with a client, it’s always good to include a termination clause in your consultancy agreement to provide a clear roadmap for both parties in case they need to end the agreement earlier than planned. This makes it easy for both parties to navigate termination, along with the required notice periods to ensure there’s a fair and transparent process. For more guidance on different types of termination clauses, check out these top tips.

To create your own consultancy agreement that is tailored to you and the services you provide, check out Docue's consultancy agreement.

What are the key terms a consultancy agreement should include?

When creating a consultancy agreement, there are several key terms that you should include to protect yourself and ensure a smooth working relationship with your client. These terms include:

Scope of work: Clearly define the scope of work that you will be providing. This includes the specific activities, tasks or deliverables that you will be providing, along with any deadlines, and additional services that may be required. It is important to clarify exactly what tasks you will be carrying out, e.g. providing advice on a particular project, creating a report or specific piece of code for the client, and the deliverables (i.e. materials) that you will deliver (e.g. the advice, report, code, etc.).

Payment terms: How much will you be paid and when will you be paid? It sounds obvious, but failing to specify payment terms is one of the biggest causes of contention when it comes to consultancy projects. It’s important to outline the payment terms according to the nature of your work. For example, if you work on a fixed fee basis, then this should be clearly set out in the agreement, along with the exact amount, method of payment, and when payment is due. On the other hand, if you work on an hourly or day rate, then you should include your rate card, along with invoicing intervals in the consultant agreement. It is also important to include any late payment fees or penalties in case the client fails to make timely payments. For more in-depth guidance on navigating payment terms in consultancy agreements, click here.

Intellectual property rights: Specify who will own the intellectual property rights to the work you create. It is common for consultancy agreements to either assign works created for the client or retain ownership of their work and grant the client a licence to use it. Whatever method of IP use is agreed upon, this should be clearly stated in the consultancy agreement. For more information about protecting your IP rights, read this checklist for success when it comes to your consultancy agreements. 

Confidentiality: Confidentiality is key – particularly where the client will be sharing any sensitive or proprietary information with you during the course of the project. Additionally, it is common for consultants to have confidential information that they use as part of the consultancy services that they also wish for the client to keep confidential. For this reason, including a confidentiality clause will ensure both parties have obligations to keep each other’s confidential information a secret.

Term and termination clause: When will you start providing services to the client, how long for and when will it conclude? You need to include these vital components in your consultancy agreement to ensure that you know how much of your valuable time you’ll be committing to this project and how to exit if it doesn’t go to plan. By including a termination clause that outlines the circumstances under which either party can terminate, along with the relevant notice period needed to end the contract, you will know how to end the project prematurely or if you encounter any issues with the client's conduct.

For a deeper dive into what’s important to include in your consultancy agreement, read about each of these points in more detail in our 5-step checklist curated by our legal experts.

Differentiating between a consultancy agreement and a contract of employment

Understanding the distinction between consultancy agreements and employment contracts is crucial for both consultants and employers.

What is the difference between a consultancy agreement and an employment contract?

Consultancy agreements should only be used when the person providing services is genuinely self-employed - as opposed to being an employee or worker in the business of the party receiving the services. In contrast, a contract of employment includes terms that are exclusive to employees, setting working hours at a specific location, with a salary provided via the employer's payroll, and employee benefits (more on this below).

If you’re looking for an employment contract template rather than a consultancy agreement, you can find Docue’s template here, along with this handy guide to creating one in 5 easy steps.

What are the key differences between consultants and employees?

• Employee benefits: Employees receive mandatory benefits from their employer, such as pensions, statutory sick pay, holiday pay, maternity/paternity pay as required by law. In addition to this, employees may also receive non-mandatory benefits from their employers which tend to increase employee engagement and decrease turnover, such as private medical insurance, company cars, additional annual leave above the statutory allowance, etc.. Whereas when you are a consultant, you are self-employed, which means you are not entitled to receive statutory employee benefits, and any expenses for benefits must be paid out of the consultant’s own pocket.

• Tax implications: Employees automatically pay tax through PAYE, so they are not required to do anything in terms of paying employment taxes, as this is the employer's responsibility to deal with. On the other hand, when you’re a consultant, you take full responsibility for paying the right amount of tax on time. For tax guidance as a consultant, check out the government website which contains resources and tools that are invaluable for self-employed consultants. Consultants that get paid by their clients via a limited company may be able to side-step IR35 tax rules depending on certain factors – for more information about the IR35 tax legislation, check out our tip tops.

• Creative freedom: The beauty of being a consultant is that you have full autonomy over how you work, when you work and the tools that you will use to do the work. You also have no requirement to accept any work that is offered to you by a client, giving you full control over your schedule. Alternatively, employees are obliged to offer the work that they are provided with by their employer, using their employer’s tools to do the job, during the working hours that they are contracted to work.

• Payment terms: Managing payment terms is a major distinction between employees and consultants. A key benefit of being a full-time employee is the financial stability that their contract of employment provides. A contracted employee knows exactly how much they will earn and when they will be paid. Conversely, a consultant will not have the same level of stability, as typically a consultant will work on a project basis. As a result, a consultant may not receive the full payment for their services until the project, or a specific milestone is complete. Want to find out more? Our legal experts delve deeper into the different types of payment methods and how to negotiate favourable terms with your clients in this guide.

Tips for protecting yourself with a consultancy agreement 

• Get it in writing: Even if you’ve worked with a client hundreds of times in the past - you always need a written contract. This applies even where you would consider the project to be minor, for a nominal fee. Make sure you get it in writing. A contract provides an assurance to consultants that the client will pay them the agreed amount within the designated time frame. It also ensures that everyone is clear about the expectations for the scope of services, deadlines and ownership rights, so there is no room for misunderstandings.

• Be specific: Precision is key when outlining the terms of your consultancy engagement. Clearly define the scope of work, project deliverables, timelines, and any specific requirements. Being specific when it comes to the details of the consultancy work not only avoids ambiguity but also helps in managing expectations and preventing potential disputes.

• Keep records: Maintaining meticulous records of each consultancy agreement that you enter into is essential. Note down important details, including deadlines and specific obligations that need to be fulfilled within the agreed timeframe. This practice not only promotes strong project management but also serves as a valuable resource in case of any disagreements about the parties’ responsibilities in the future. A great advantage to using Docue to create and e-sign your consultancy agreements is that you can also store the agreement in Docue’s storage vault, Docue Drive, to ensure you always have quick and easy access to your contracts in one place with handy reminders.

To explore more ways to protect yourself with a consultancy agreement, check out our legal experts' 7 top tips.

What other documents are useful for consultancy work?

• Non-disclosure agreements (NDAs): when you’re entering into discussions about a potential consultancy engagement where you’re both scoping out if you’re the right fit for one another; a business may need to share certain confidential information to discover if you’re the ideal consultant to carry out work for them, and vice versa. For this reason, at this stage, it may be best to use an NDA to protect each party’s confidential information. You can find our mutual NDA template here. 

• Proposal: sometimes clients will formally ask consultants to submit a proposal showing how they could carry out work for a specific project before signing a more formal consultancy agreement. The proposal will typically include a summary of the services that you will provide, time scales and the price payable. To create your own proposal, check out our proposal template here.

• Data processing agreement (DPA): If any personal data will be processed under the consultancy agreement (e.g. personal data owned by the client, or any personal data that relates to the client or any of its own clients), a separate data processing agreement must be entered into to comply with data protection laws. Docue’s DPA template contains the mandatory terms required to comply with data protection laws. For more information about DPAs and the key clauses to include, check out his article created by our data privacy experts.

Conclusion

If you provide consultancy services, using a consultancy agreement is crucial for engaging in organised, professional relationships with your clients. They are essential for safeguarding consultants' interests and establishing clear expectations with clients. They outline project scope, payment terms, deadlines, and intellectual property rights, minimise disputes and provide a roadmap to refer back to. For this reason, investing in a comprehensive consultancy agreement is an invaluable tool for demonstrating professionalism and building client relationships, while protecting yourself throughout your consultancy career.

So what are you waiting for? Get a head start using Docue's consultancy agreement template.

Why use Docue’s template consultancy agreement?

One of the main reasons consultants choose to have a consultancy-based career is because they know they have the requisite skillset to head out into the world alone! Traditionally, any time you needed legal documentation, you would have to approach a lawyer – enter Docue. Now, you can manage your own business, provide consultancy services and create your own legal documents that are completely tailored to you - with tiered pricing subscriptions that can best suit your business.

Once you've created your consultancy agreement, you can send it to clients via the platform for electronic signing. Once signed, you can securely store the agreement within Docue's storage vault, Docue Drive, guaranteeing convenient and swift access to all your contracts in a centralised location.

Sign up now and try Docue today!