consultancy agreement

A consultancy agreement is an agreement where a person or company (the consultant) agrees to provide services to another person, which is not an employment contract. An employment contract on the other hand is one where a person obtains a series of benefits in exchange for duties of good faith, loyalty and fidelity.

Consultancy agreements are flexible contracts which are the standard form of engagement for supply and delivery of services.

Not all consultancy agreements are equal and not all consultancy contracts suited to provide for any particular of service. Standard consultancy templates should be adapted to suit the requirements of the deal which has been reached. The reasons for this include the degree of cooperation which is usually required for services to be performed, designating the precise tasks which are to be performed. More on this below.

Scope of Consultancy

There is no limit to the type of services which can be provided under contract, other than those restricted by the general law (ie illegality) and by statute.

Examples of the types of services which could be provided under a consultancy agreement include:

1. transportation;
2. logistics;
3. strategy advice;
4. IT services, such as those associated with SaaS agreements and PaaS agreements;
5. stockbroking;
6. information procurement;
7. civil engineering; and
8. software development services,

to name a few.

Common Terms of Consultancy Agreements

In order to properly cover matters which should be provided for, a consultancy agreement should state:

1. the parties to the contract, and if a company the registered address of the company, and the registered company number. These extra steps prevent any ambiguity to the parties to the contract. The service provider should do a company search of corporate parties prior to signing contracts to ensure that they are properly identified in the contract and still exist as companies.

Start Date

2. when the contract commences, if it is not to start on the date that it is signed.

Duration

3. the time which the contract will remain in force for. This might be a date, a time period (eg 12 months), or until a condition or series of conditions is satisfied. This is known as the “term” of the contract.
   If this is not stated in the contract, it will be assumed that the services were to be provided within a reasonable time, having regard for all of the circumstances leading up to the signing of the services agreement.

What is the Consultancy for?

4. the services to be provided. It is all important that the contract actually states what the contractor is meant to do, including the deliverable and any standards performance. This is a frequent area of deficiency in contractor arrangements.
   If the services to be supplied are not described, the contractor will have difficulty showing when the work or services which are to be supplied is complete, and thereby justifying payment for the services.

Fees and Payment

5. the consultancy fee, either as stated sums or as a calculated value by reference to stated formula, and whether expenses may also be claimed.
   Also the time for payment of invoices should be stated, which is usually monthly for contracts which provide for services over an extended period of time.

Substitution

6. When a consultant is an individual or a company, the supplier will probably want to be able to substitute others to perform the contracted services on their behalf, firstly to satisfy IR35, and secondly to for flexibility. 

Intellectual Property

7. the owner of the intellectual property rights created during the consultancy. If the contract does not state that the customer owns the intellectual property rights, the starting point is that the consultant does.

Self-employed

8. state that the consultant is self-employed and probably contain a tax indemnity, so that at least on paper, the customer can recover tax payments from the consultant if the service provider does not satisfy its tax obligations.

Exclusions of Liability

9. provide for exclusions and limitations of liability, which are common features to commercial agreements. These provisions restrict the amount that can be recovered for breach of contract, and exclude events which would give rise to liability, even what would otherwise be a breach of contract.

Insurance

10. Increasingly, providers of professional services are required to take out insurance to cover poor or defective performance of services. These , accompanied

Confidentiality

11. The agreement should impose a duty of confidentiality on the consultant so that he/she cannot disclose confidential information relating to your business to any third party; 

Termination

12. standard clauses entitling either party to terminate the contract for breach of contract and non-payment of invoices.

Non-Competition clauses

13. Most business want to protect their labour force from being poached by other businesses its deals with. Non-compete clauses can be used to prevent solicitors of staff.

Is it a Consultancy Agreement?

Whether a contract is a consultancy agreement or an employment contract can have important consequences for each party. For instance:

1. The employer is liable for PAYE tax and national insurance under contracts of employment;
2. An employee owes a series of duties to an employer. These duties are not implied in consultancy agreements;
3.  An employee is entitled to statutory sick leave, maternity leave and other benefits as a result of being an employee. Contractors receive no such benefits.