Consulting Agreements: Five Common Mistakes
Whether you are a website developer, graphic designer, marketing professional (or in a similar industry), you likely have (or should have) a standard form agreement that you use with your clients. Having seen a number of these agreements over the years, I have noticed a number of common mistakes made by consultants.
Defining the scope of services
It is important that consultants clearly define the scope of services to be provided to a client. All relevant services should be set forth either in the agreement itself or in a commercial schedule to the agreement. From the perspective of a consultant, it should be a closed list of activities, based on the commercial discussions between the parties, and set forth the services that the client is expecting to receive. The advantage of having a closed list is that it protects the consultant from being asked to perform additional services for which it may not be getting paid. The list of services should be sufficiently detailed and, depending on the context, may include things like content creation, certain marketing activities, reporting, updates, testing, etc. In addition, a consultant may wish to further specify that the manner and means through which it chooses to perform the services will be in its sole discretion and control.
Payment
All consulting agreements (at least for services not being provided on a pro bono basis) should include payment provisions. In particular, the amount of fees to be charged to the client should be clearly set forth in the agreement (or a commercial schedule). In addition to the amount of fees to be paid, the mechanism(s) of payment should be well defined. For example, will you be taking a retainer up front for your services? Will you be invoicing the client on a monthly basis? Will invoices be net 30 or some other duration? In the event of non-payment of an invoice, consultants may wish to consider the inclusion of a penalty interest provision (e.g. 1% per month, etc.).
Liability
How much liability are you willing to accept for the performance of your services? Typically, consultants will be asked by clients to provide a representation that the performance its services will not infringe the intellectual property rights of any third party and to indemnify the client if they do. However, consultants may wish to limit their liability to a pre-determined amount, such as the amount of fees which have been actually paid (e.g. the amount of fees paid to the consultant over the past six months, etc.).
In addition, if a consultant is using materials provided by the client to perform its services, they may wish to require a similar representation and indemnity from the client that such materials do not infringe the intellectual property rights of any third party and that the consultant will be indemnified by the client if they do.
Ownership of intellectual property
If you are creating work product (such as a logo, source code, slogan, website, etc.) for your client, it should be specified in the agreement who will be the owner of such work product. The agreement should clearly indicate whether the relevant work product is being created as a ‘work made for hire’ and if the consultant will be required to assign and transfer its ownership rights in such work product to the client. If the work product is to be owned by the client, the consultant may wish to consider requiring full payment of its fees prior to assigning and transferring ownership to the client. The determination of whether ownership of work product should pass to the client often comes as a result of commercial discussions between the parties and standard practices in the relevant industry. For example, it may be appropriate, in some circumstances, for the consultant to retain ownership of the work product and license it back to the client (e.g. in the case of photographs, music, literary works, software programs, etc.).
Governing law and jurisdiction
In the event that a dispute arises between you and your client, what will be the governing law and in what jurisdiction will the dispute be heard? This issue is more relevant in situations where a consultant and client reside in different jurisdictions. For example, if a consultant lives in Vancouver, British Columbia, and a client lives in Toronto, Ontario, in the absence of a provision which specifies governing law and jurisdiction, the client may be able to argue that the dispute should be governed by Ontario law and heard in a Toronto court. Clearly, such an outcome would not favour the consultant, who may be seeking to enforce payment of its fees, etc. Alternatively, many parties are now including mediation and arbitration clauses in their agreements, which, in some cases, can have the advantage of lower overall costs, increased confidentiality and quicker resolution of a dispute.
Conclusion
The foregoing list is only a summary of a few common mistakes which I have noticed in standard form consulting agreements and is not intended to be comprehensive. There are a number of other issues, not included in the list above, which are also important and should be properly dealt with, such as duration of the agreement, termination rights, expenses, confidentiality, entire agreement, status as an independent contractor, etc.
Before you enter into a consulting agreement, it is advisable to seek counsel from a business lawyer with experience in such matters.
For more information with respect to consulting agreements, do not hesitate to contact Murphy & Company at (604) 360-7014 or by email at tmurphy@murphyandcompany.ca
This article is not legal advice and is not intended as legal advice. This article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This article is based on British Columbia law. You should consult with an attorney familiar with the issues and the laws of your country. This article does not create any attorney client relationship and is not a solicitation.
