In the field of consulting, 38 percent of consultants win the majority of their proposals. So what sets this group apart from the other 62 percent?
A lot of the time, it's the quality of their introductory documents – the consulting proposal gets them through the door, and the consulting engagement letter seals the deal. Clients need strong evidence that you understand their needs and will provide them with the highest quality service. That's exactly what a well-crafted engagement letter does.
An engagement letter, or consulting agreement, is a document outlining the terms of the agreement between a consultant and a client. It serves as the foundation for both parties' expectations throughout the relationship. Services, payments, relationships, and responsibilities are all detailed in the agreement.
If both the client and the consultant sign the agreement, it's legally binding – so your best bet is to use a lawyer-reviewed template to ensure that your agreement meets the requirements of your specific situation. Let's take a look at the details of an engagement agreement and how to craft one for your next consulting project.
Understanding the Purpose of a Consulting Engagement Letter
Are you working as a consultant of some kind? If so, you'll understand the importance of controlling client expectations. You don't want to strike up a working relationship without fully understanding the goals, requirements, and timeline for a project, as well as the responsibilities you can be held accountable for.
A consulting engagement letter does exactly this. Rather than leaving any detail to interpretation, it spells out the agreement so that both parties are aware of what to expect – and what not to expect – from the working relationship.
Consulting proposals and agreements are two different documents, but they're actually put under the same umbrella of engagement letters. Why? Because while only one is legally binding, both are written to engage the prospective client.
Here, we'll be focusing on the legally binding engagement letter. Let's zoom in on the details.
Essential Components of a Consulting Engagement Letter
The most successful engagement letters aren't drawn up on a whim but are crafted thoughtfully and carefully. Here we'll break down the most important components of a consulting engagement letter.
Executive Summary: Summary of Consulting Services and Objectives
By the time you send a consulting agreement, both yourself and the client are already aware of the services you'll be providing – but this is your chance to provide a formalized overview of exactly what you'll be doing.
Think of your exec summary as a condensed version of the entire document. Start with a brief statement of the services you'll be providing, then mention the objectives and expected outcomes of your work.
For example, a tech consultant's executive summary might read like this:
"This engagement letter outlines the terms and conditions of our agreement, wherein I will serve as a technical consultant to [client], providing expertise in areas such as software development, IT infrastructure, and cloud computing. The goal of our work together is to improve [client]'s efficiency by streamlining their technological processes."
Scope of Work: Detailed Explanation of Consulting Services
Your scope of work should be a detailed list of the services you'll provide, including any specific deliverables that are part of your responsibility. This is where the client can see exactly what they get for their money, so make sure to provide as much detail as possible – even if it seems like common sense.
For instance, if you're an HR consultant, you'd cover the specific services you'll provide, such as developing or revising policies and procedures, setting up a performance management system, or creating job descriptions. It's better to be more detailed than less to avoid scope creep.
Here's an example of a scope of work section for an HR consultant:
"This engagement includes the following services from [consultant]:
- Developing or revising company policies and procedures
- Establishing a performance management system, including goal setting and performance reviews
- Creating job descriptions for each role in the company and providing guidance for recruiting
- Developing an onboarding and orientation process for new hires
- Providing HR-related training to management staff"
It's brief, but specifically outlines the services that are part of the consulting agreement.
Project Timeline: Schedule and Delivery Expectations
One of the most crucial details to nail down in a consulting agreement is the project timeline. Your clients want to know exactly when they can expect certain tasks or deliverables to be completed; certain business developments could be dependent on the success of your engagement.
The timeline should include all milestones and deadlines, as well as any updates or revisions you'll make along the way. This section can also list out how often you'll meet with the client (whether virtually or in person) to report progress and discuss any issues that arise throughout the project.
“Consultant will devote up to 10 hours per week for the duration of this engagement. Clients will receive an update report every Monday, and will meet with the consultant via video call on the last Wednesday of each month to discuss progress. The engagement will commence on [date] and will be completed by [date].”
You can then list the specific milestones you'll reach and the dates they should be completed.
Payment Terms: Fee Structure and Payment Schedule
There are a few key details to clarify in terms of payment: the rate you'll be paid, when you'll be paid, and any additional costs (like travel expenses) that will need to be reimbursed. List out all these details in the agreement so there are no confusion or surprise fees down the line.
“The client agrees to pay [consultant] a fee of [amount], payable upon completion of each milestone outlined in this agreement. This fee is inclusive of travel expenses, which must be pre-approved by the client prior to booking any travel arrangements. The consultant reserves the right to invoice for additional services outside the scope of this engagement at an hourly rate of [amount].”
You can also include a payment schedule that outlines when the client will pay, as well as the grace period and any penalty fees for late payments. This is especially crucial if you're working with a startup or small business that may not have deep pockets to cover your services upfront.
Confidentiality and Non-Disclosure Agreement: Protection of Sensitive Information
Are you working with confidential information that your client needs to protect? This can include trade secrets, proprietary software, or any other highly sensitive data. If so, you'll need to include a confidentiality and non-disclosure agreement in the consulting engagement letter.
This section should clearly outline what information is considered confidential – both the type of information and who it applies to (i.e., just the consultant or anyone affiliated with them). You should also specify how long this agreement will be enforceable; typically you would agree not to disclose any confidential information for up to five years after the completion of the engagement.
Termination and Cancellation Policy: Ending the Engagement
Every agreement should include a termination and cancellation policy, which outlines the conditions for ending the engagement. You can't predict the instance when a client may need to end your services unexpectedly, so cover your bases by listing out any scenarios where you or the client can legally terminate the agreement.
Include conditions that allow either party to end the engagement if they are dissatisfied with progress, if there is a breach of contract on either side, or if either party goes bankrupt or is unable to complete their obligation due to an unforeseen event.
You should also list when notice needs to be given in order for the termination of services to be valid. Clarify the financial obligations for both parties in the event of termination or cancellation as well.
"Either party may terminate this Agreement at any time, upon written notice to the other party. In such an event, the Client shall be obligated to pay fees incurred up to and including the day of termination. The Consultant shall also be entitled to receive payment for all services performed prior to such notification."
Governing Law and Jurisdiction: Legal Framework for Consulting Engagement Letter
Finally, you'll need to outline the governing law and jurisdiction for your consulting agreement. This section defines the legal framework within which your engagement will be conducted, and outlines what laws will apply if either party takes legal action against the other in case of a dispute.
"This Agreement shall be governed by and construed in accordance with the laws of [State or Country], without giving effect to any principles of conflict of laws. Any disputes arising out of this Agreement shall be subject to resolution before a court located in [City, State/Province]."
The examples we've included here are simply to give you an idea of what each section might look like – but it's always best to consult a lawyer, who will be able to help you draft language that best suits your particular needs.
Crafting a Comprehensive Consulting Engagement Letter Template
As you can imagine, the process of drafting a comprehensive consulting engagement letter can take time – and it should take time. You're creating a legal document that will govern the scope of your work, and serve as the basis for any disputes that might arise.
We recommend putting together a consulting engagement letter template that you can use for each new project. You'll save time and ensure consistency across all of your engagements.
Tips for Personalizing a Consulting Engagement Letter Template
Personalization and branding help you establish a good rapport with your client. Make your business as professional as possible by putting your logo and colors across all of your documents.
To personalize your consulting engagement letter:
- Add your company name and logo
- Use the same fonts, colors, and style
- Include the client's name in the body of the letter
- Provide contact details for both parties
These might seem like small details, but they all make a difference in helping you create an agreement that looks and feels professional.
Sample Consulting Engagement Letter Template
To help you get started, we've included a sample consulting engagement letter template below. Make sure to customize it for your own needs and consult a lawyer before moving forward.
Address: [Street Address], [City], [State/Province], [Country], Zip Code
Re: Consulting Services Engagement Letter
Dear [Name of Client],
This Agreement is made as of the date above (the “Effective Date”) by and between the following parties:
1. [Your Company Name] with its principal place of business located at [Your Street Address], [City], [State/Province], [Country] (“Company”); and
2. [Name of Client] with its principal place of business located at [Client's Street Address], [City], [State/Province], [Country] (the “Client”).
The parties hereby agree to the following terms and conditions:
1. Executive summary. The purpose of this Agreement is to outline the services that the Consultant will provide to Client, including [Describe], and how those services will be delivered.
2. Scope of work. The scope of work to be performed by the Consultant for Client shall include, but not be limited to [Describe].
3. Project timeline. The Consultant shall begin work on the project by [Date] and complete it by [Date], subject to any changes agreed upon in writing by both parties. Milestones to be met shall include [Describe].
4. Payment terms and conditions. The Consultant shall be paid a fee of [Amount] upon completion of the project, as outlined in this Agreement. Payments should be made via check or bank transfer within 30 days of receipt of invoice.
5. Termination clause. This Agreement may be terminated by either party at any time with written notice to the other party, provided that all fees due have been paid in full prior to termination.
6. Governing law and jurisdiction: This Agreement shall be governed by and construed in accordance with the laws of [State or Country], without giving effect to any principles of conflict of laws. Any disputes arising out of this Agreement shall be subject to resolution before a court located in [City, State/Province].
The parties have read and understood all the terms set forth above and agree to enter into this Agreement on the date indicated above.
[Your Company Name]
By: [Name], Authorized Signatory
By: [Name], Authorized Signatory
As a consultant, your engagement letter formalizes the terms of your agreement with the client. It can mean the difference between a successful project and a failed one – and in the instance of a dispute, it can provide the legal basis for resolution.
Templates take the grunt work out of constructing a legally binding consulting agreement; all you need to do is customize it for each client. Always have a lawyer review the agreement before signing it off on both sides.
At Bonsai, we know that consultants work with multiple documents every time they sign a new client. We've created a library of pre-written proposal and engagement templates that you can personalize and send to clients in minutes. They've all been reviewed by legal professionals, and you can use them for any type of consulting agreement.
Sign up for a free seven-day trial to try our templates for yourself!