How to Draft a Consulting Contract

Determine if you need a service contract. A contract is a legally binding agreement. You should draft a service contract if you wish to hire a consultant or if you are a consultant seeking to be hired. A consultant is someone who provides expert advice in a particular field.

Determine if you have the legal capacity to establish a consulting contract. You need to assess whether you have the legal authority to create a valid contract, which includes being aware of the civil transaction you enter into when signing the agreement. At the same time, you will want to understand the essential elements that constitute a legally binding contract. These elements include:

• Offer to enter into a contract;
• Acceptance of the offer to enter into a contract;
• Valid consideration;
• Mutual consent; and
• Legal purpose.

Ensure that the terms you wish to include in the contract comply with the contract laws in your jurisdiction. In the United States, contract law is always governed by state law, so you must ensure you meet the requirements of the relevant state.

• For example, some states in the U.S. have very strict regulations regarding liquidated damages, while others are more lenient on this clause.

Start with the basic information. This includes the name of the contract and the parties involved in the agreement. When drafting this section, ensure you provide detailed descriptions of the parties.

• For instance, if the parties are individuals, you need to specify their full names. If one party is a company, provide the company's name, address, and tax identification number, if possible. Be sure to specify how each party will be referred to in the remainder of the contract (e.g., "hereinafter referred to as the consultant").
• Typically, the consultant is an individual entering into a contract with a company seeking the consultant's services. For example, a law firm might hire a consultant with expertise in employment law procedures.

Clarify the consideration for each party. In concise, clear, and easy-to-understand language, explain what each party will provide under the agreement. This section does not need to be overly detailed. Usually, you only need to state that one party will provide consulting services, and the other party will compensate for those services.

• For example, a reasonable clause could state: "The client believes that the consultant has the necessary qualifications, experience, and expertise to provide services to the client. The consultant agrees to provide these services to the client under the terms and conditions of this contract. Based on the matters described above..." This language will ensure compliance with the requirement for valid consideration.

Identify the consulting services to be performed. Clearly define the tasks that the consultant is required to complete under your agreement. Provide as many details about the service as possible and record all relevant information.

• This section could start with the following clause: "The client agrees to hire the consultant for the purpose of providing consulting services, including (a, b, and c) to the client. The services also include any other tasks agreed upon by the parties. The consultant hereby agrees to provide these services to the client."
• Common services include litigation support, asset management, process improvement, and medical expert consultations.

Consider the payment terms. You need to decide how the consultant will be paid. Some contracts require periodic payments, while others may ask for a lump sum upon completion of the consulting services. Regardless of your choice, ensure that the payment terms are clearly outlined in the agreement.

• If payment is periodic, consider using a clause like: "For services rendered by the consultant as agreed in this contract, the client will pay XXX.XXX per hour to the consultant."
• If payment is lump sum, you might use a clause like: "The payment for the services will be made upon completion of the services."

Decide whether the consultant will be classified as an employee or an independent contractor. It is crucial to distinguish between these two roles, and you need to specify how you will treat the consultant in the contract. Typically, consultants are considered independent contractors. If you classify the consultant as an independent contractor, be sure to describe the relationship in detail and explain why this individual is considered independent and how they will maintain their independence. Consider using a clause like: the consultant will waive any rights they may have to standard employee benefits such as sick leave, vacation leave, medical benefits, or any other benefits typically afforded to full-time employees.

• Consultants are typically considered independent contractors. This ensures that the company or individual hiring the consultant has minimal obligations toward the consultant. This is advantageous as it means there is less work on your part to establish and maintain the contractual relationship (such as fewer tax and reporting obligations). For example, in the United States, when you classify the consultant as an independent contractor, they may not need to report their income to the IRS for tax purposes if the income does not exceed a certain threshold.

Specify the contract's effective duration. This section should outline the start and end dates for the consulting services.

• A reasonable clause might state: "The contract will be effective from the date it is signed and will terminate upon the completion of the services or be terminated according to the early termination clause in this contract. The duration of the contract may be extended if both parties agree in writing."

Draft the termination clause. This clause will provide information on how the contract can be terminated before the services are completed. Specify how much notice is required and how termination will affect payments.

• For example, your clause could read: "The contract may be terminated by either party, with or without cause, upon thirty (30) days' notice to the other party; in the event the consultant terminates this contract, the consultant must complete any work they have started for the client before sending the termination notice. When the contract is terminated for any reason, the consultant will be entitled to any unpaid fees and compensation as per the terms of this contract, up until the date the consultant stops performing work under the contract. Additionally, the consultant will be reimbursed for any non-cancelable obligations, any penalties for contract cancellation, and, unless the consultant terminates the contract without cause, any reasonable costs incurred in providing services if the contract is canceled."

Consider other miscellaneous details and standard clauses. You will add the typical standard clauses commonly found in contracts at the end of your agreement. Most of these clauses can be sourced from contract templates, but ensure that you read them carefully to confirm that they reflect the terms you wish to establish. Some of these clauses may include:

• Severability Clause
• Amendment Clause
• Indemnity Clause
• Governing Law Clause
• General Provisions for the entire contract

Leave space for signatures. You should leave the last section of the contract empty for all parties to sign. This space should accommodate all signatures and the date of agreement.

Make the offer to enter into the contract with the other party. Once the consulting contract is drafted, you will extend an offer to the other party to enter into the agreement. The other party will have several options:

• The other party accepts the entire offer. In this case, you will finalize and begin executing the contract.
• The other party rejects the entire offer. In this case, you will need to draft a new contract with terms that are more agreeable to the other party, or seek a different party to establish a contract with.
• The other party may negotiate certain clauses of the contract. If this happens, you will enter negotiations with the other party until both sides reach a mutually agreeable solution.

Negotiate any disagreements regarding contract terms. When negotiating the terms of the consulting contract, it’s highly likely that the payment for services and/or the specific services the consultant will perform will be areas of tension. These are the crucial elements of the contract, and they are often the source of disagreement between the parties.

Sign and begin executing the contract. Once both parties are satisfied with the terms of the agreement, you will sign the contract and proceed with its execution according to the agreed-upon terms.