Your Guide to Consultancy Agreements in Singapore
What is a Consultancy Agreement?
A consultancy agreement is an agreement between a consultant and his client for the provision of the consultant’s services. Under the consultancy agreement, the consultant will carry out the agreed services as an independent contractor, rather than as an employee of the company.
Why Hire a Consultant Instead of an Employee?
Companies that do not wish to undertake the long-term levels of commitment and obligations (e.g. typical employment benefits such as medical, superannuation and leave benefits) that come with an employment relationship will prefer engaging an external consultant for required services as opposed to hiring a full-time employee for the same services.
Examples of consultancy services commonly sought by companies include:
- Human resources
- Administrative and logistics-related work
- Business strategy
Purpose of Consultancy Agreements
The purpose of consultancy agreements is to establish the rights and obligations of the consultant and his client. The terms of the consultancy agreement will set out clearly set out the scope of both parties’ obligations under the consultancy project from to minimise the risk of disputes arising in the future.
What Terms Should a Consultancy Agreement Contain?
A consultancy agreement will generally contain the following essential terms:
(1) Scope of the consultant’s services
The scope of the consultant’s services will be clearly defined by stating:
- A detailed description of the type and nature of the work the consultant will perform
- The maximum and/or minimum number of hours that the consultant is expected or required to work
- The location(s) in which the consultant is required to provide his/her services
The consultancy agreement will typically stipulate the standards of performance required of the consultant in the provision of his services. This comes in the form of an undertaking or assurance given by the consultant pertaining to the quality of his work in the course of engagement. Such standard of work is usually pegged to the standard of reasonable care and skill expected of the consultant.
The consultancy agreement should also provide for the client’s right to claim against the consultant for damages if the client suffers loss as a result of the consultant failing to meet his performance standards.
(2) Consultancy fees
The consultancy agreement will specify the consultant’s rates for providing his services to the client. The following issues will usually be covered:
- The consultant’s rate (whether hourly, daily, monthly etc.)
- How the consultancy fee is to be computed based on the number of hours clocked
- When the consultant can expect to receive his fee
- How the consultancy fee is to be paid to the consultant (i.e. mode of payment)
- Whether there is any interest rate bearing on late payments of the consultancy fee, and, if so, the applicable rate
(3) Client’s obligations
Apart from the consultancy fee, the consultancy agreement will also state the other obligations of the client in respect of facilitating the consultant’s provision of services.
These obligations can refer to the provision of a workspace as well as access to other facilities which are required for the consultant to render his services. These facilities can include certain of the company’s property, information, databases and/or systems.
(4) Consultant’s expenses
The consultancy agreement will state the consultant’s liability for out-of-pocket expenses and normal overhead expenditure incurred in the course of his engagement.
The procedure for reimbursement of certain of the consultant’s expenses by the client will also be stated.
A standard indemnity clause indemnifying the consultant from losses, claims, liabilities, or proceedings incurred in certain specified circumstances is usually included in the consultancy agreement.
(6) Conflicts of interest
The consultancy agreement will include a provision where the consultant warrants, to the best of his knowledge, that no conflict of interest exists or is likely to arise in the performance of his obligations under the consultancy agreement.
Given the ad hoc nature of the consultant’s engagement, it is important for the consultancy agreement to prevent the consultant from disclosing confidential information for unauthorised purposes, or to unauthorised sources.
The consultancy agreement will therefore usually include a clause defining what kind of information is to be regarded as confidential, and also require the consultant to undertake to keep such information gained in the course of his engagement confidential.
(8) Intellectual property
The consultancy agreement will state who will own the intellectual property rights created by the consultant in the course of his engagement.
In the event that the intellectual property rights are to be assigned to the client, the consultancy agreement should also state the terms of assignment.
The consultant and/or client’s right to terminate the consultancy agreement is established under a termination clause, which would usually provide for:
- The mode of termination (e.g. whether written or oral)
- Whether notice is to be given and if so, how many days’ notice is required
- How either party can validly terminate the agreement
Any rights and/or obligations of either party which are to continue to have effect after the consultancy agreement has been terminated (if any) will also be set out under this clause.
The consultancy agreement may require the consultant to maintain liability insurance to guard against any unforeseen circumstances, if this is required.
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