In today’s episode, we look at a consultant agreement, which appears to be a simple 3-page document until we start digging into the nuances and missing pieces. Arthur Baker, a commercial real estate and business law attorney in Florida, joins us to share his experiences as in-house counsel for a global real estate company before starting his own firm. He delves into the critical questions both parties must ask, the significance of ownership and the clarity when drafting deliverables. As we read this document, we’ll see how the parties’ relationship status influences the contract’s language. So, let’s tear it down.
Questions in this Episode
- What are some key questions that both parties should ask?
- What is missing from the payment clause?
- How can drafters bring clarity when drafting the deliverables section of a consulting agreement?
- Which necessary clause is missing from this contract?
- How can a drafter incorporate both flexibility and protection?
When Reviewing a Consulting Services Contract…
Nowadays, we live in the consulting world. There is no market consultant agreement or form. When you look at the agreement, you have no idea what the consultant is doing. Many times, if you’re a business hiring these consultants, you should not assume a consultant’s form contract is a low risk simply because it appears to be for a low dollar amount on the surface.
You could request redlines, minor edits, your form, or another form to make an informed decision and sign. Remember not to waste time or relationships negotiating a low-risk contract.
The question “what is the purpose of this engagement?” is critical.
Understand their current relationship – is it positive? And are there other transactions that they have worked on with them for different sizes and ongoing deals?
Or is it negative? Did they recently have a terrible experience, change the deal terms, and now look at the consultant agreement for the first time, or do they have no experience?
All of that is relevant when you understand what source this was to provide and the current tenure of the relationship because the Parkview group have business expertise in marketing and finance. They might be providing these services to your co-business colleagues or associates and could be doing a great job.
Do you have that relationship strength in which they play golf at your country club and have a lot of social capital in which you can put your trust? Understanding the relationship can allow you to make a more informed decision about the document itself.
This Payment System is all Over the Place
On the surface, a $500 retainer and $200 per hour appear to be less. But we don’t know if that’ll be a lot of money because we don’t know how many hours of service there will be.
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4. Remuneration The Company shall pay to the Consultant for the services to be rendered hereunder a non-refundable $500.00 retainer on the 1st day of each month. The Consultant shall provide services to the Company at the rate of $200.00 per hour, and the Company shall be billed on a monthly basis for the total number of hours Consultant personnel provided to the Company multiplied by the hourly rate of $200.00 per hour. |
A $500 retainer at the start of each month, for a total of $6000 for the year. It is not stated how many people are employed at that rate for $200 per hour. In this provision, there are no key personnel, individual limits, or weekly hours limits. For example, if one person works 40 hours per week, takes two weeks off, and works consistently with the company throughout the year, the total comes to $400000.
A pro tip on the remuneration section is that a lot of littles can make a lot. - Arthur Baker #ContractTeardown Click To Tweet
Be Clear on Deliverables
Section 2 states that “a consultant’s services may include, but will not necessarily be limited to,” which is slightly backward. They’re attempting to formulate a non-exhaustive list of actions they intend to take.
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2. Services The Consultant shall provide consulting advice to the Company as specified below at the request of the Company, provided the Consultant shall not be required to undertake duties beyond its scope of ability. In performance of these duties, the Consultant shall provide the Company with the benefit of its best judgment and efforts, and the Company acknowledges that the Consultant cannot guarantee any particular outcome as a consequence of its efforts and advice. The Consultant’s services may include, but will not necessarily be limited to (1) advice relating to corporate financing activities; (2) developing marketing plans for providing commercial loans to customers; (3) assisting with the negotiation of contracts between the Company and its suppliers; and (4) providing recommendations with respect to legal, accounting, and other professionals retained by the Company. |
When you go to a service provider, you should see that the consultant services include A, B, C, and D but are limited to X, Y, and Z. This language can be used to revise this provision.
When the section discusses deliverables further, there are no clearly defined deliverables.
They mentioned developing marketing plans, but are those plans provided? It does not explain the parties’ proper understanding of the deliverables. A big fancy proposal with these detailed items, super hot marketing positions, and a 5-year growth chart is typical. However, when you look at the actual agreement, it does not make it from the proposal to this.
Missing Ownership
You want to make sure that you own what you desire. Unsurprisingly, when this document does not address specific deliverables, it does not include any assignable IP rights or ownership of those deliverables.
When service providers create deliverables, they frequently incorporate some of their existing IP or items, which is often a heavily negotiated or detailed provision. This provision does not specify who owns the intellectual property and other documents provided by the company to the consultant that may be required for the consultant to provide services.
At first glance, this three-page agreement appears to be relatively straightforward. It’s not a problem, but it doesn’t identify deliverables or IP ownership if there aren’t any, to begin with.
Get Specific to Avoid a Bumpy Transition
Let’s use an example that everyone can relate to solving the termination problem. You’re single and you go on a first date with someone who may or may not work out. Later, you decide not to see each other again. It’s not a problematic relationship to unravel.
Compared to a marriage in which you own a home, a couple of kids, a boat, dogs, and some debt. When this clause mentions a 30-day notice, the transition will be difficult.
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3. Term The term of the Agreement shall commence on the 1st day August 2009, and shall continue for a continuous period of twelve (12) months thereafter. However, the Agreement may be terminated by either the Company or the Consultant upon the receipt of thirty (30) days prior written notice from the other party. |
When hiring the consultant, think if it’s a first date situation or a marriage. Be mindful of whether you own all of the couch, materials, and the house since it’s your name or did you go to IKEA together and split it?
Building Both Flexibility and Protection in Contracts
When negotiating consulting agreements, it is critical to consider the practical realities of who is more likely to have outstanding actions.
Typically, service providers simply want their money, and if there is an outstanding payment framework, is there a clear and express statement that all amounts payable to that day must still be paid?
Typically, the company receiving the services wants a completed deliverable and the IP to be formally assigned and finalized. It is then necessary to consider which position you are working from and the nature of the services provided in the relationship.
Overall, this agreement feels a little unsure with the vagary of the services, but it’s taking through with the client’s understanding. - Arthur Baker #ContractTeardown Click To Tweet
Understand what you’re getting. Did you clarify, and could there be a back-end termination if there were no deliverables? If you’re in a relationship, you’re not going to try to ramp up 20 or 10 people working 40 hours a week for one week because that alone could cost $80,000 a week, with no right to dispute the bill.
Try not to overburden the situation to the point where the services will no longer be able to re-create the relationship’s term. This agreement may resemble the country club handshake, but it is about making an informed decision that you went for knowing these risks or that you discussed them with the Parkview group and that we are on the same page.
Be flexible and choose a hybrid arrangement between the service buyer and the consultant.
Show Notes
When your golfing buddy offers advice for your business, do you hire her on as a consultant? How formal should your agreement be? In this episode, attorney Arthur Baker gets practical. He evaluates what must be included in a contractor agreement and where flexibility is more important. Get details on questions like payment terms, expected deliverables, termination, and more. Follow along with Arthur as he reviews this simple but significant agreement.
THE CONTRACT: CONSULTING AGREEMENT
THE GUEST: Arthur Baker is a commercial real estate and business law attorney in Florida. He helps business and property owners efficiently navigate real estate and business issues. His specialties include commercial leasing with a focus on tenant representation, land use and development, and drafting and negotiating contracts.
THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.
If you are interested in being a guest on Contract Teardown, please email us at community@lawinsider.com.