What Should Be In Your Consultancy Contracts?
There are several key elements which you need to include in your consultancy contracts
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I met a consultant once who proudly told me he never signs contracts.
He explained contracts take too much time and money. Instead, he did ‘handshake deals between gentlemen’. That remark isn’t just sexist, it’s stupid. A contract protects you and the other party.
What happens if the person you have a ‘gentlemen’s agreement’ with gets sick, leaves, or gets fired?
Do you think the organisation is going to honour any agreement without a contract?
What if the contact suddenly becomes too busy to respond to your emails making it impossible for you to complete the project?
Heck, what happens if he simply stops responding to your emails and taking your calls for any reason whatsoever?
This is the tip of the iceberg of what can go wrong in verbal agreements.
It’s pretty common during a negotiation process for the scope of work to change and deadlines to be updated. If you don’t have a contract, what happens if you both have a different recollection of what you agreed?
How will you know who is right and who is wrong?
What happens if you have a difference of opinion about whether the work is complete or not? What if your contact feels it’s fair to request dozens of changes over six months before paying you? You either have to do that or risk not being paid.
Contracts protect you and your clients. It’s that simple. A signed contract is the source of truth of what you will do. It supersedes your proposal and any other discussion.
Handshake agreements are for amateurs. Contracts are for professionals. You need to be a professional.
Golden Rule: If it’s not in the contract, it doesn’t count
It’s common to go through several iterations of a proposal with subsequent discussions about what will be done and when it will be done by. This can make it confusing to remember precisely what each side agreed to. Especially when some people might have been present for some meetings but not others.
A contract clarifies these sorts of things. This creates a simple golden rule. If anything isn’t clearly specified in the contract, it doesn’t count. Either of you can still decide to do it for the benefit of the relationship, but you’re not obligated to do it.
You should spend time on each contract to ensure everything is there. This shouldn’t be an antagonistic process. It should be a collaborative process with a client where you send several revisions back and forth to check you’re completely aligned before signing the contract. This should be exhausting and comprehensive of every single action you are expected to do.
What’s In A Contract Exactly?
When we talk about a ‘signed contract’ in the context of a service, we’re usually talking about two distinct documents. These are the MSA (Master services agreement) and the SOW (statement of work).
You should know what each of these are and what their purpose is.
Master Services Agreement (MSA)
An MSA is a contract that establishes the general terms and conditions of an ongoing business relationship between you and your clients. The purpose is to lay the foundation for a business relationship so you can avoid renegotiating the terms and conditions for every project you undertake.
Once you have an agreed MSA in place, it’s easy to create a new SOW (statement of work) any time you work with that client.
The MSA should contain:
The purpose of the agreement and the relationship between the parties.
The scope of services to be provided and any limitations or exclusions.
The payment terms, including fees, payment schedules, and invoicing procedures.
The term of the agreement and any renewal or termination provisions.
Confidentiality and non-disclosure provisions to protect sensitive information.
Limitations of liability and indemnification provisions.
Dispute resolution procedures.
Governing law and jurisdiction.
Statement of Work (SOW)
The SOW describes a specific project (or scope of work). It should define a particular project or engagement's tasks, deliverables, and timelines. The SOW is typically attached to the MSA as an exhibit and provides more detailed information about the specific project or engagement.
An SOW should usually contain
A detailed description of the work to be performed, including deliverables, milestones, and timelines.
The resources required to perform the work include personnel, equipment, and materials.
The payment terms for the specific project, including fees, payment schedules, and invoicing procedures.
Acceptance criteria and any testing or quality assurance requirements.
Change order procedures in case the scope of work changes.
Ownership of IP.
In my experience, industry giants will typically require vendors to sign their MSA - but they are often usually quite flexible on the statement of work. For example, they will attach our statement of work as an exhibit on their MSA.
However, you should have your own templates created for each by a legal professional.
Relationships Require Flexibility, But The Contract Is The Ultimate Source of Truth
In theory, if you have a great relationship with a client you shouldn’t need to resort to a contract. Sources of conflict can be quickly resolved with a little flexibility, collaboration, and a broad assumption of good intent on both parties.
Flexibility is the lubricant which makes a relationship successful. At FeverBee, we endeavour to show extraordinary flexibility to clients - just so long as we feel they have good intentions towards us.
Over the years, I can think of less than three occasions when we really had to resort to a contract to resolve a disagreement. But that’s exactly why it’s there. The contract is the ultimate source of truth when a disagreement can’t be resolved through any other method.