13 SEPT 2018

What Is a Consultancy Agreement and When Should I Use It?

Are you not generating enough profit? Do you want to improve a weak area of your business, like HR or marketing?

If you answered yes, you might want to look for a consultant. They're easy to find. Just place an ad online and watch the applications roll in.

But what happens after you find the right person? How do you make sure he or she does the work you need? A consultancy agreement can help.

But what is that exactly? What purpose does it serve? What does it cover?

Keep reading to find out everything you need to know about consultancy agreements.

What Is a Consultancy Agreement?

Before we delve into what it does and why you should have one, let's start with what it is.

A consultancy agreement is a contract between two parties: you and the consultant. It falls under the Contract Act of 1950.

There are two types of consultancy agreements. The first type is sometimes known as an independent contractor agreement. This is used where a company engages an individual as an independent contractor to provide services to the company for a fee. The independent contractor can be a consultant, adviser or other expert individual who offers specialized services. This type of agreement is drafted from the perspective of the company.

The second type is used when a consultant agrees to provide its services to a client for a fee, and this type is drafted from the perspective of the consultant.

The contract outlines the rights and responsibilities of both parties. Often these aspects are concise and detailed to avoid disputes.

Think of it as a partnership. You bring business to the consultant. In turn, they help your business grow.

What Should It Cover?

Agreements, as per the law, are a combination of promises, accepted proposals made by one party to another.

Like any contract, a consultancy agreement contains benefits for both parties. To ensure it does, include the following provisions:

  • Persons Involved
  • Their Obligations
  • Contract Duration
  • Confidentiality
  • Remuneration

Now that we've covered the basics let's dig a little deeper.

Persons Involved

It sounds basic, but it matters. The agreement should outline who's subject to it and their roles within it.

Most contracts define these roles as "client" and "consultant." The client accepts services while the consultant renders them.

Their Obligations

Every contract everywhere in the world stipulates rights and responsibilities. It's the common understanding of what each party will do.

You should have an end goal in mind. The contract should also say how you'll achieve that goal.

You might set specific tasks and deliverables. The consultant may also lay out the steps needed to reach the goal. The contract rights give both parties options in the event neither can fulfill the contract.

For instance, the consultant has the right to charge you a partial rate if they render partial services. You also have the right to terminate the contract if the consultant fails to complete a task they've agreed to do.

Both parties would have to agree to these terms and the responsibilities.

Contract Duration

This one's pretty simple. You outline the beginning and end of the contract.

Confidentiality

If you plan to make the consultant privy to sensitive information, such as intellectual property, you need a confidentiality provision. It'll ensure your business secrets stay within the business.

Remuneration

We've saved the most crucial for last. The remuneration section of the agreement shouldn't mince words. It should outline how you calculate payment and how it's paid out.

For example, a consultant might stipulate payment via invoice, performed after they render services. They'll account for what they did and charge based on that account.

If you're hiring a consultant, you might stipulate you'll pay them "x" amount of ringgit per hour or month. Again, as long as both parties agree, the law will enforce it.

What's the Difference Between Hiring a Consultant and Accepting an Offer?

In a word: leverage. Let's say you post an ad to a job board. The person you hire will be subject to your terms. You draw up the contract.

On the other hand, if you find a consultant--either freelance or a firm--via their website, you will be subject to their terms. They'll draw up the contract.

Neither position is inherently better or worse than the other. In both cases, both parties can negotiate terms until they reach an agreement. It all depends if you want to direct or be directed.

What Purpose Does a Consultancy Agreement Serve?

We've thrown a lot of legalese at you. You know what goes into an agreement, but what purpose does it serve?

Well, outside consultants offer an outside perspective. They have greater objectivity and can advise you on your business's next move. They may also have specific knowledge in an area of business, like marketing or expansion.

A consultancy agreement benefits you the most. You're not hiring a new employee. Therefore you don't have to give them any employee perks. It will also only keep them for a fixed period.

You gain flexibility, save money, and your business reaps the rewards. What's not to like?

When Do You Use One?

A consultancy agreement is ever only needed when you need consultation. A quick Google search will point you to consultancy agreement templates you can use. In fact, your consultant may already have one.

The agreement outlines the scope of the engagement. It defines the work, how the consultant will do it, and how you'll pay them. An agreement protects you and the consultant, preventing potential disputes.

Final Thoughts

If you feel your business lags in specific areas, outside help may help it improve. When you find someone, a consultancy agreement can help iron out the details.

It will protect you and the consultant too. It will outline the work and your rights, either for revocation or if the consultant fails to fulfill the contract.

Where can you find this documentation?

Well, we mentioned doing a Google search, but why scour the Internet when you can shake things up? At ShakeUp!, we provide businesses with professional, easy to use and easy on the budget legal document services. Have a look at ShakeUp!’s business document library to see all the legal document templates we offer.

Contact us today and see what we can do for you. We can't wait to help your business grow!

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