Four reasons to formalize your consulting arrangement

Johanna RobinsonLegal

On our most recent episode of Tech School, I talked about basic legal concepts for startup founders. One of the things we covered was consulting agreements.

Here are four things you’ll want to make sure you give special attention to, and a few reasons why. (Obligatory disclaimer – I’m not a lawyer, and this is not legal advice.)

1. Scope of work

It’s super important to make sure you and the other party are on the same page regarding the scope of work. In my talk, I gave the example of a website project, which is one project type I’ve seen with the potential for a lot of misunderstandings.

If one party of non-technical, it’s especially important to make sure your shared understanding of the scope of work is clear. In the website project example, there are lots of things to consider, such as who is providing graphic assets, who is selected and paying for any templates or plug-ins, who is paying for hosting or any other services needed, is the site static or dynamic, how many pages will be built, who will approve designs and changes, who will be responsible for maintenance… you get the idea. There are a lot of opportunities for misunderstanding and frustration.

2. Business Relationship

Regardless of whether you are the consultant, or the client, you will need to make sure the business relationship is clear.

If you are the client, you’ll want to make sure there isn’t an implication that the consultant is an employee and therefore entitles to employee benefits.

If you are the consultant, you’ll want to make sure the client doesn’t think you are an employee, and potentially subject to the client’s preferences for work site, work hours. You also might want to mention if you are working 100% on the project through to completion or if it’s just a portion of your time (or your team’s time) that will be allocated to the project.

3. Payment Terms

Early stage startups are not usually flush with cash. Projects usually cost something.

If you’re the consultant, you’ll want to make sure your client is going to work with you to support payment for project activities so that the work won’t be a hardship for your fledgling company.

If you’re the client, be aware that in addition to the cost of the work, there may be additional expenses. Travel, pass-through costs for tools and/or materials, interest on late payments. You’ll also want to make sure the payment schedule is reasonable. What’s reasonable is up to the parties to the agreement. However, you don’t want to leave yourself vulnerable to a situation where you’ve made all the payments but still don’t have the work product.

4. Protecting Intellectual Property

Hopefully, the result of the consulting agreement is a work product of some sort. Make sure you’ve sorted out ahead of time who owns that work product and who is allowed to use it.

It’s much easier to talk about this before the work product is created than it is to talk about it after there has been a misunderstanding and related conflict over the work product.

If you want to learn more about the other legal basics topics we covered (contract, confidentiality, and trademarks), you can watch my talk on our YouTube channel.