7 top tips for creating a consultancy contract that protects your interests

Whether you are a seasoned consultant or just starting out, having a well-crafted consultancy contract ensures that both you and your clients have a mutual understanding of the project’s scope, payment terms, deadlines, intellectual property rights, confidentiality, and termination procedures. These are our top tips for creating your own consultancy contract. Let's dive in!

Tip 1. Outline the scope of services with precision

The foundation of any well-crafted consultancy contract lies in clearly defining the scope of services. Outline the tasks, deliverables, responsibilities and obligations that will be carried by each party. This step sets expectations of what will happen throughout the project and ensures both parties are on the same page from the start.

This section should succinctly define the tasks you will undertake and your responsibilities whilst carrying out the services. It is also important to set out what may not be included in the scope. By doing so, you can set clear expectations for both parties and prevent the scope of services from over-inflating beyond the initial interpretations of each party.

Tip 2. Specify payment terms and methods

It’s important to clearly define your payment terms by establishing a transparent payment schedule.

Payment terms in a consultancy contract can be broken down into 4 categories:

- Fees

Clearly define the agreed-upon fee structure, whether it's a fixed amount, milestone-based payments, or time and materials basis. For milestone-based payments, outline the completion criteria for each milestone. This ensures transparency and clarity regarding financial obligations throughout the project.

- Invoice timing and payment methods

Specify when you will issue an invoice, your preferred payment method(s), along with the timeframe for payment. For example, you may issue an invoice on completion of the services, or you may prefer to have regular invoice dates, such as invoicing at the beginning or end of the month. Additionally, consider outlining any preferences for payment methods, such as bank transfers or online payment platforms, to streamline the payment process.

- Deposits

To enhance cash flow, it is common for consultants to request that a deposit is made upfront for a portion of the overall fee, and the remainder is paid upon the completion of the project.

- Consequences for late payment

Chasing late payments can be draining, yet it's essential for cash flow and business continuity. The Late Payment of Commercial Debt (Interest) Act (1988) allows consultants to charge fixed late payment penalties and statutory interest of 8%, plus the Bank of England base rate. Although consultants are legally entitled to 8%, many opt for a lesser amount such as 2% or 4% to demonstrate fairness with clients. Please note in the absence of an interest clause varying the statutory interest rate for late payments from 8% to something else, the 8% interest rate can still be applied to late payments. If you are a company engaging a consultant, be sure to look out for this in your consultant contracts.

Clarity on these payment terms in your consultancy contract helps build trust and prevents misunderstandings down the line. For more guidance on payment terms, check out this guide.

Tip 3. Set definitive deadlines or milestones

It’s crucial to map out any specific project deadlines and/or milestones to ensure the project stays on track and both parties have a clear understanding of the timeline. Establishing concrete deadlines helps in managing expectations and provides a structured approach to project management. Define key milestones that mark significant stages of the project. These milestones act as checkpoints, allowing both the consultant and the client to review progress and make necessary adjustments. Additionally, including deadlines and milestones in your consultancy contract helps to mitigate risks associated with delays and provides a clear framework for accountability. This structured timeline not only enhances project efficiency but also fosters a collaborative environment where both parties can work towards common goals with a shared understanding of the project's trajectory.

Tip 4. Clarify intellectual property ownership and rights

Adequately dealing with, and protecting each party's intellectual property is vital in any consultancy contract. Clearly defining who owns the rights to the work produced is essential to avoid misunderstandings and potential legal disputes.

It's important to specify whether the consultant retains the intellectual property rights or if these rights are transferred to the client upon project completion. This clarification should include all aspects of the work, such as drafts, final deliverables, methodologies, and any proprietary processes or tools used to create the deliverables. Additionally, outline any licensing terms if the consultant retains ownership but grants usage rights to the client.

Addressing these details upfront ensures that both parties understand their rights and obligations, safeguarding the consultant's creative assets while providing the client with the necessary permissions to use the work as intended. This step not only prevents future conflicts but also cultivates a transparent relationship, where intellectual property rights are clearly defined in writing.

For more information about ensuring your IP clause aligns with your intentions, read this checklist.

Tip 5. Include robust confidentiality terms

Many consultancy projects involve handling sensitive and proprietary information, making it essential to protect both parties through robust confidentiality terms. Clearly outline what specific information is considered confidential, such as business plans, financial data, client lists, and proprietary processes, and define the obligations of each party regarding the protection of this information, including the methods for safeguarding data and restrictions on its use and disclosure. Specify the duration of the confidentiality obligations, detailing how long the information must be kept confidential even after the project or contract ends. Additionally, include provisions for the return or destruction of confidential materials upon termination of the contract, and address any exceptions to confidentiality, such as information that is already public knowledge or required to be disclosed by law.

By including comprehensive confidentiality terms, you create an environment of trust and mutual respect, ensuring that both parties are committed to protecting each other's sensitive information. This not only safeguards your proprietary data but also sets the tone for a professional and confidential consultancy relationship.

Tip 6. If you are operating outside of IR35, incorporate terms that demonstrate this

IR35 only applies to consultants and independent contractors who provide their services via an intermediary, such as a personal service company (PSC).

The IR35 rules will generally apply where the individual providing services through the PSC would be considered an employee for tax purposes if they were engaged directly by the client. The key factor is the nature of the working arrangement. If they operate and act in the same way as an employee rather than being genuinely self-employed, this is known as being “inside IR35”.

Your consultancy contract terms can contribute to demonstrating that you are operating outside of IR35. For example, if a consultant has control over their work schedule, can use their own equipment, can substitute the role, isn't obliged to accept ongoing work offered by the client and is responsible for financial risks related to the provided services, they will likely be categorised as independent contractors, falling outside IR35. It's important that the terms supporting that you are operating outside of the IR35 rules in your consultancy contract also reflect what happens in reality, e.g. if your contract states that you can use a substitute, then this must be the case in reality.

Bonus tip: Check out Docue's sample consultancy contract which includes guidance notes that provide insights into particular terms that can help to demonstrate that you are operating outside of IR35.

For more information about IR35, check out these FAQs that are useful for consultants and freelancers.

Tip 7. Detail termination procedures

Sometimes, despite the parties' best efforts, consultancy collaborations may need to end prematurely. You can define the conditions and relevant procedures that must be followed for termination in your consultancy contract.

The contract must also specify the applicable notice period required for terminating the contract and detail the payment procedures for work that has been partially completed.

The consultancy contract can include these two types of termination:

1. Termination without cause: also known as termination for convenience, this gives one or both of the parties to the consultancy contract the right to terminate at any time, even if there has not been a breach of the contract. This type of termination is not always included in a consultancy contract.

2. Termination with cause: this category of termination is typically included in consultancy contracts and applies when a party breaches the contract. For example, if the consultant fails to meet deadlines consistently then this type of termination clause may allow the client to terminate if the consultant does not remedy the breach within a specified period after being notified of the breach. Termination with cause is typically immediate in its effect.

Once you have included termination rights within your consultancy contract, it's important to set out any termination processes that will follow, e.g., returning the other party's materials or confidential information, etc.

Conclusion

These key steps—defining the scope of work, clarifying payment terms, setting deadlines, specifying intellectual property ownership, including confidentiality terms, and addressing termination—are the building blocks of a robust and effective consultancy agreement. By incorporating these elements, you not only protect your rights but also establish clear expectations, setting the scene for a harmonious consultant-client relationship.

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