Consulting Contract Work: Everything You Need To Know

Consulting contract work is undertaken by specialists or a recognized authority in a specific field.3 min read

Consulting contract work is undertaken by specialists or a recognized authority in a specific field. Consultants are usually engaged by businesses in an advisory role.

The function of a consultant is typically short-term and results-oriented. Consultants provide knowledge, skills, and expertise for a specific project or task. They can analyze problems, organize and direct training courses and seminars, prepare documents for meetings and conferences, and write authoritative reports on issues within their area of expertise.

Independent Contractors

Consultants are independent contractors and usually work on a freelance or contract basis. They are categorized as 1099 workers in the U.S. rather than W-2 employees. Consultants are usually paid a flat fee or hourly rate for services rendered while W-2 workers receive paychecks and other employee benefits.

Role of Consultants

Consultants work in a variety of fields with a wide range of titles including:

  • Wealth management specialist.
  • Technical implementation consultant.
  • Technical engineering manager.
  • Talent sourcing specialist.
  • Solutions architect.
  • SCRUM master.
  • Revenue growth specialist.
  • Quality assurance specialist.
  • Project manager.
  • Product manager or product lead.
  • Pricing strategist.
  • Performance measurement planner.
  • M&A advisor or researcher.
  • Marketing strategist.
  • Market researcher.
  • Intellectual property investigator.
  • Grants administrator.
  • Financial projections expert.
  • Competitive analyst.
  • Company valuation expert.
  • Business systems analyst.
  • Business development consultant.

Consulting Contract

When engaging the services of a consultant, it's best to draw up a consulting contract. The contract must identify all parties to the contract and include contact information, company names, and tax identification numbers.

At the top of the contract, specify how each party will be identified throughout the rest of the contract — with wording such as, "hereinafter referred to as consultant.”

The Scope of the Project

After this, you should outline the scope of the project and specify deliverables including the timeline and deadline for completion and compensation.

For large projects, you may need to define the project scope on a separate document and make it an addendum to the contract document. All you need to do is give a brief outline and direct the reader to the attachment containing the project details and scope.

Billing/Payment Information

After defining the project scope, you should include billing and payment details. Some contractors require project owners to make periodic payments during project execution while others are comfortable with a lump sum payment upon project completion. For periodic payments, it's best to include amounts, milestones, and a timeline for payment.

IRS Requirements

Employees are not contractors and vice versa. The IRS has specific guidelines that clearly differentiates the two. In the contract document, you should clearly indicate the independent status of the contractor. There should be statements where the contractor waives the rights to benefits such as:

  • Health insurance.
  • 401k.
  • Profit sharing.
  • Sick time.
  • Vacation, etc.

Conflicts of Interest and NDA

Your consulting contract agreement should include sections addressing conflicts of interest and nondisclosures. An NDA prevents the contractor from disclosing project and other related information to third-parties. All information relating to the company or project should only be discussed with and disclosed to other contractors and company employees that are collaborating on or overseeing the project. A conflict of interest agreement prevents the contractor from simultaneously working for a competitor on a similar project.

Nonrecruit Clause

You should also include a nonrecruit clause that prevents contractors from recruiting your employees during the project. Such clauses should also be in effect for a specified period of time after project completion.

Kill Fees

There are several reasons for either party to exit a consulting contract agreement including illness, financial problems, failure to keep to budgets/deadlines and so on. It's best to protect your interests in the event of a contract termination. This involves stating within the contract how much notice either party must give as well as compensations/kill fees to be paid to the contractor if you decide to end the contract before project completion.

Handling Disputes

You should also include clauses stating your right to an injunction. Write out sections that indicate how disputes will be handled, methods of arbitration and mediation as well as payment of attorney fees. You should also include hold harmless and indemnification clauses that protect you from problems and legal issues arising from the misconduct of the contractor.

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