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Contracts Protect Management Consultants from Liability

Monday, March 24, 2014/Categories: consultant-liability

Before beginning work on a consulting engagement, smart management consultants protect their business interests and reduce their liability with legally binding contracts, signed by their clients.

During the initial stages of project development, management consultants may tend to rely on informal documentation methods, such as retaining e-mails to and from the client. E-mail can provide a convenient record of written communication between you and your customer, but legally, it is no substitute for a signed project agreement that governs the relationship between you and your client.

Management Consulting Agreements Reduce Your Risk

Before any dollars change hands, it's a good idea to set a strong foundation for a project risk management strategy by having a consulting contract or project agreement signed by both parties. Well-crafted project agreements or contracts are an important first step in project management, as well as an integral part of your project risk management plan to protect your consulting business.

Having a signed management consulting agreement in place before you begin an engagement can reduce or eliminate any complications that could pop up during your consulting project – and that reduces your liability as a management consultant. Establishing project deliverables, milestones and limitations early – and in writing – may help you avoid legal trouble later, saving you from a costly legal defense as well as valuable time spent in a courtroom.

Most consulting contracts clearly establish each party’s responsibilities, as well as compensation, terms, expenses, project reporting, confidentiality and termination rules.

A management consulting contract can also help ensure that you will receive the payment that your client has agreed to. A project can be well under way when, for some reason, a client might decide not to pay, attempt to lower the price of the engagement, or change the engagement’s terms. If any of these things happen, and you don’t have a contract in place, you could be out a lot of time and money, and your relationship with your client is likely to suffer.

What Management Consulting Contracts Typically Cover

A management consulting agreement typically establishes the goals of the engagement and what’s expected of the client. It may also set performance benchmarks as well as a schedule for reviewing progress toward those benchmarks. It lays out the limits of your responsibilities to the client, as well as your pricing and payment terms.

A consulting agreement also protects both you and your client’s intellectual property rights, prevents your client from hiring your employees away, and establishes confidentiality standards that protect both parties. A management consulting agreement can also limit your liabilities in the event that your client should suffer any losses – financial or otherwise – due to errors or omissions you might make during the course of the engagement.

In addition to the main consulting agreement, depending on the job, management consultants may need additional contracts, such as:

  • Employment contracts
  • Staffing and placement agreements
  • Subcontractor or independent contractor agreements

Subcontractor or independent contractor agreements may be valuable if you plan to bring subcontractors in to assist in any way with your management consulting engagement. Such contracts clearly define the ownership of intellectual property and prohibit your subcontractor from taking your client’s business away or from being hired onto your client’s staff.

In addition to protecting your consulting company against liability, well-designed consulting agreements can make for better client relationships by giving both you and your client written guidelines to follow as you work together. By establishing the project's goals, how you will achieve them, and how much it will cost, you can reduce the possibility of unpleasant surprises and set the stage for a successful engagement.

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