The 12 Essential Elements Every Solid Agreement Should Cover- Part2
Simplification goes a long way when drafting a Consulting agreement as well. However, you need to always consult with your Legal team first and foremost when drafting your agreement, but here are some great recommendations. In this article (“Part 2”) about the Top 12 essential elements of the agreement, we will continue with the remaining points.
The 12 Essential Elements Every Solid Agreement Should Cover -Part 2
(on Payment Terms, Ground Rules, Renewal, Extensions)
1. Clarify How the Performance will be measured-
As we discussed previously, the SOW (Scope of Work) needs to specify the metrics to evaluate the success of the project. For intangible services like consulting, you can define SMART objectives that serve as a guideline to make sure the quality of delivery is there. For instance:
“The Consultant and the Company agree to meet on a regular basis to assess the performance on the project.
The expected results for the project are 20% savings on the Marketing expenses.”
“Great leaders are almost always great simplifiers, who can cut through argument, debate, and doubt, to offer a solution everybody can understand.” – Colin Powell
” The Agreement formalizes in writing all the aspects discussed during the RFP process and the negotiations. “
2. Define the Commercial Terms-
Once you have defined what the Consulting firm was supposed to do, you can move to how they will get paid.
The agreement needs to state very clearly how the Consultants will be paid, the amounts, and the conditions linked to the payments.
For hourly fees, include the detailed amounts for each type of Consultant, the kind of cap, if any (hard or soft), and the number of hours to reach the cap.
For a risk-sharing model, clearly define the variable compensation, the metrics on which the variable compensation is based, and how they will be measured.
3. Set the Payment Terms and the Applicable Taxes-
All Consulting agreements naturally define payment terms. Make sure to negotiate terms that are compliant with your company policy. The contract usually states the net price (before sales tax).
Set up a time limit on when payments are due. Standard terms are usually applied between 30 to 60 days after the invoice is issued.
Define the timing of the payment, i.e., weekly, monthly, phase-based, or lump sum. For very large projects, you should consider a monthly schedule.
“The Company will pay a fee of $250,000, excluding expenses and VAT in 5 installments of $50,000 paid monthly.
Travel and other Expenses will be approved in advance by the Company, and charged at cost in the limits of $37,500 (15% of the fees).”
You can also add the description of the fees in the appendix.
“The Services will be performed for the fees described in Appendix D (“The Fees and Expenses”). Prices will be held firm for the duration of the project.”
The Consulting provider could negotiate to establish a penalty for late payment. If you decide to accept penalties for late payment, then add an incentive for early payment.
When you have a time-sensitive project, you can introduce an incentive for early delivery and/or a penalty for late delivery.
When you have a risk-sharing model, take the time to detail the schedule of payments, the amounts, and the associated metrics.
4. Arrange for Agreement Renewal and Extension-
It can be useful when the scope of work is still unclear, to include the potential of extension of the contract. Likewise, for a recurring project, or a project with several phases, you can add the conditions of renewal in the projects. In both cases, the client should be the one deciding to extend or renew the contract.
5. Secure Confidentiality-
Confidentiality is a crucial clause in any Consulting agreement. You would not want the Consultant to go around and tell about the project done with you. If a certain kind of confidential information concerns you, write it in plain English in the contract. Also, make sure you understand the limitations of confidentiality agreements, in particular, when you work globally. Each culture or country has its own approach (and set of laws) to confidentiality. Besides, confidentiality should be limited in time and space. And you also need to:
Agree on the Use of a Third-Party in the Project.
Most Consulting firms work with partners and subcontractors. You can ask to be informed if a third-party works on the project. You can decide between having them sign a specific NDA or to trust the Consultant to assure their subcontractor complies with the NDA signed with you.
Protect Your Intellectual Property.
Intellectual Property is another critical subject. The materials developed during the project (presentations, reports, …) belong to the client. However, the methodologies and tools used by the Consulting firm might be based on pre-existing Intellectual Capital developed by the firm over the years. In that case, the Consulting provider will keep the property of the IP, and the client should negotiate the right to use the results freely. The data gathered on your behalf during the project: models developed for the project, transcript of the interviews, etc. belongs to you.
6. Implement the Client Policies –
If you work with sensitive information, you probably have strict security requirements, and you might want to include these elements in the contract.
Handling data and information (Information Security policies)
Onboarding and vetting any consultant present on your premises and/or working on your data (Vendor Onboarding and/or Vetting requirements)
Making sure the consultants are safe on your premises (Health and Safety policies).
7. Eliminate Conflict of Interest and Set a Non-Compete Clause –
On certain sensitive projects, the Consulting provider might have a conflict of interest if they are already working with a competitor or a client of yours. You can negotiate an exclusivity, but it often comes with additional fees.
You can include in your contract a list of specific companies or a broader definition of your competitors. If you don’t want the Consulting firm to work with your Competitors AFTER the project is over, you need to include a non-compete clause in your contract. For both clauses, you have to give reasonable time and scope limits. Be aware that they are difficult to enforce, so these should be used only in special cases.
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