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Site MapA consulting engagement begins with the signing of a written professional services agreement between the client and the consultant. This is a contract explicitly defining the client-consultant relationship, including:
- The nature and scope of services to be performed.
- Responsibilities of both the client and the consultant.
- Methods of invoicing and payment for services performed.
- Terms for cancellation of the agreement.
- Status of consultant as an independent contractor and not as an employee: More info | IRS Guidelines
- Ethical considerations.
- Legal considerations.
Typical provisions of each of these areas are described below; please be aware that the precise wording of the agreement differs from what is written here.
- Nature and Scope of Services
The nature and scope of services to be performed by the consultant is limited and is defined by a proposal or by a statement of work, referred to by the professional services agreement. This statement outlines the scope and objectives of the project, the types of services to be performed, and whether or not they may be assigned to subcontractors. It may also describe specific tasks to be performed, estimates of effort or time required for completion, and/or interim goals or milestones to be accomplished by specified dates. When these are defined in the proposal or work statement referenced by the contract, they are contractually binding on the consultant.
The professional services agreement also states that all software, data, documentation, reports, or any other materials produced by the consultant in performance of these services become the exclusive intellectual property of the client, and copyrights of any these materials belong to the client. The consultant does, however, retain the right to make its own copies of these materials for its own internal and marketing purposes.
- Client and Consultant Responsibilities
The professional services agreement defines the responsibilities of both the client and the consultant regarding the project to be completed. The client's responsibilities may include providing the information and/or facilities needed by the consultant to complete the required work, and following the consultant's recommendations as required for the success of the project. The consultant's responsibilities include completing the tasks and meeting the objectives defined in the proposal or statement of work; and completing the project and/or milestones within the defined budget and schedule.
- Invoicing and Payment
The methods of invoicing and payment for services are also specified in the professional services agreement. In most cases invoicing is done on a periodic time and materials basis with a project ceiling. In other words, the client is billed for the consultant's time either hourly or per diem, plus any expenses incurred by the consultant directly related to the project. An invoice is prepared periodically (usually monthly) for the effort and expenses incurred during that period, and the payment of the invoice is generally due within 30 days.
Often there is also a contractual limit set to the amount to the effort and expenses that can be billed, so the burden of any overruns falls to the consultant and not the client, provided that the client has met its contractual responsibilities in facilitating the consultant's work. This arrangement allows for the most logical and convenient billing arrangement -- time and materials -- while still providing the client with the chief benefit of a fixed bid arrangement -- protection from cost overruns.
- Cancellation of Agreement
The agreement will also spell out the conditions under which the contract may be terminated. The most common arrangement allows either party to terminate the agreement with or without cause as long as written notice is given 30 days earlier, and in such an instance the consultant is paid for the number of hours actually worked; shorter notification periods may be allowed for specific circumstances with cause.
- Independent Contractor Status
The agreement states that the consultant is engaged by the client as an independent contractor and not as an officer or employee. The client is not responsible for withholding federal, state, or local income or payroll taxes, medical, dental, workers compensation or disability insurance coverage, pension or retirement plans, or for providing any other benefits generally afforded to employees. The client agrees to file all the proper forms (including IRS form 1099) as required by any federal, state, or local agencies. The consultant agrees to pay any and all federal, state, and local taxes due in connection with the compensation it receives from the client.
- Ethical Considerations
The professional services agreement also discusses several ethical considerations: the consultant agrees that no actual or potential conflict of interest regarding the services to be performed under the agreement, that performance under the agreement does not require the breach of any agreement or obligation to keep in confidence the proprietary information of another party, that the consultant will not disclose any confidential information about the client except as specifically authorized in writing, and that this last provision survives the expiration, cancellation, or other termination of the agreement.
- Legal Considerations
Lastly, the agreement touches on important legal issues, including indemnification and governing law. Specifically, the consultant agrees to hold the client harmless from any liabilities due to injury to people or property. The consultant's liabilities, in turn, are limited to the performance of work specified under the agreement. Furthermore, the agreement is made by the parties in the state in which it is signed (Oregon or Washington, in the case of Wright Consulting Services, Inc.) and is subject to the laws of that state.
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