Mind the risk gap – best practice when using consultants
Whether you are planning on using consultants for a one-off project or on a long-term basis, there are several steps you can take to safeguard both your business and business relationships.
‘The first step is to carry out some basic checks on your consultant, as these will often dictate how your contractual relationship should be structured. Is the consultant operating as a sole trader or a limited company? Do they have adequate insurance in place?’ outlines Danielle Austin, a Corporate and Commercial Solicitor at Geoffrey Leaver Solicitors. ‘These are all important questions that will influence the measures you ought to take to protect your business.’
The next step is to get a formal contract in place. It is worth remembering that this needs to address your relationship with the consultant, and it also needs to consider any contract or terms of business that you use with your own clients or customers. This will ensure you are not left unduly exposed as a result of your need to use consultants.
Making sure the contract covers back-to-back risks
Your customer contracts may contain certain terms which you will be held responsible for, and it is these terms that need to be appropriately drafted and included in your consultancy contracts. Here are some examples:
- Confidentiality obligations – depending on the nature of your business, your client contracts may bind you to confidentiality obligations and those provisions may require you to enter into similar provisions with any agents, employees or consultants. It is therefore good practice to include wording in your consultancy agreement to cover these obligations adequately.
- Insurance – remember if your consultant defaults in any way, the client will have recourse to you. If you have agreed a certain level of minimum insurance with your client, you ought to have the same or higher level of insurance requirements met by your consultants and this should be written into the contract.
- Intellectual property rights – this is another important area that needs to mitigate your back-to-back risk. If a client contract states that you have to assign any intellectual property rights in works completed, but your consultancy agreement states only a licence will be granted or assignment is subject to full payment, this will be a clear indicator of exposure which you need to limit.
Other key terms
Aside from the normal provisions setting out respective obligations, payment terms, termination rights and so forth, consultancy contracts should be clear about the nature of the relationship between the two parties.
An ‘independent contractor’ clause is recommended to make it explicit that the parties are acting as independent businesses and there is no joint venture, agency or indeed, employer-employee relationship.
In order to cultivate a positive relationship with consultants, businesses often shy away from a comprehensive agreement and seek a short contract instead. As outlined here, leaving out key protections could also leave your business exposed to unnecessary risks.
As your client base grows, you may end up with a variety of different client contracts and this creates the risk of a mismatch in any related consultancy agreements. It is, therefore, important to conduct regular audits of provisions that have been negotiated with clients which then need to be covered off with consultants.
Sometimes, insurance checks are completed at the outset but then not routinely verified thereafter. This can be implemented once a year, and it is one of the easiest ways to protect your business.
How we can help
Our Company and Commercial team can help you get the analysis right and consultancy contracts drawn up in a way that give you the solid foundations to continue running your business with peace of mind.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.