10 Key Points To Consider When Engaging A Consultant

There are two main types of consultancy arrangements:

1. Contracting with a self-employed individual:  Under this arrangement, the business contracts with an individual consultant to perform the services in exchange for remuneration.  
   
   This arrangement assumes that the consultant is genuinely self-employed and in business for themselves.  The individual will need to carefully consider (and take advice on) their income tax (by way of self-assessment) and any implications of the IR35 Regulations (the off-payroll working regulations that ensure workers pay the correct amounts of Income Tax and National Insurance); and
2. Contracting with a company which appoints a specified individual to provide the services: Under this arrangement, the business contracts with the individual consultant via their personal service company (PSC) (usually a limited company).
   
   Generally, the individual consultant is the sole shareholder and director of the PSC and performs the services required by the business through the PSC.  

This approach can also be used when a company has several employees and has agreed to make specified individuals available to provide the services (due to their specialist knowledge or skills); however, the company may not be a PSC with a sole shareholder/director. 

The agreement should clearly state that the relationship is between a business and a self-employed contractor (and not employer and employee).

A consultancy agreement should regulate all aspects of the relationship between the parties and set out the main commercial terms that have been agreed upon (e.g., the consultant's duties, payment terms, and the length of the services to be provided). 

We recommend that a consultancy agreement set out sufficient details of the services to be provided (including the standard of services required—i.e., with due care and skill, or whether services are to be provided per any industry-specific standards).

Having control over what hours a consultant is to work and how much time the consultant is to dedicate to the provision of the services does run the risk of the arrangement being more akin to an employer/employee and, therefore, needs careful consideration. 

This needs to be balanced against the nature of the project/services the consultant has been engaged in delivering as it may require set days/availability of the consultant.  

Consideration should also be given to whether the consultant can perform services for other businesses during the project and whether this includes working with competitors to your business.

How much time a consultant is to provide for the provision of the services may be known later, particularly where the project is based on milestones and certain deliverables being achieved/provided.  

Therefore, the consultancy agreement's terms may require flexible timeframes, such as a traditional commencement date, and the end date approach to the terms of the agreement may not be appropriate.  

It is common to include a clause that permits the consultant to appoint another suitably qualified person to perform the services on their behalf.

Including such a clause can assist in demonstrating to HMRC that the consultant is genuinely self-employed (as long as the consultant can operate the right). 

However, the parties need to consider whether a substitute is appropriate in the circumstances, particularly if the main reason for the consultancy agreement is to engage the consultant because of their specific skill set. 

Where a substitute is appointed, the original consultant should remain responsible for the actual performance of the services and assume this liability on behalf of the substitute. 

Therefore, the consultant would be well advised to ensure it has an appropriate agreement in place with the individual who is to act as their substitute to mitigate the consultant's exposure (to its client) for any failures of the substitute to comply with the terms of the consultancy agreement.

How charges are calculated and on what basis the consultant will be paid are crucial terms of the agreement. 

Having clear parameters around fees is essential to avoid uncertainty and can help mitigate and manage the risk of overspending or out-of-scope services. 

If the consultant is to charge a day rate, have the parties established what constitutes a day and what is to happen if services are provided out of hours or over a weekend?  Should the day rate increase during such times?  

If charges are on a fixed fee/project basis – are the parties clear on when matters may fall out of scope and, therefore, be subject to additional charges? 

Parties should also consider how they deal with delays, particularly if they are outside the consultant's control. 

Where fee payment is to be tied to certain milestones or deliverables being achieved, the parties should consider whether such milestones can easily be identified so that payment is triggered and whether they are appropriate triggers for charge payment in the first place.

Most consultants will need access to and use some of the businesses' confidential information. 

Therefore, the terms upon which the consultants are engaged must contain confidentiality undertakings and obligations on the consultant (and any appointed substitute) to keep confidential information just that and to only use such information strictly for the provision of the services as unlike employees, consultants are not generally under an implied duty of confidentiality.

The business should ensure that the confidentiality provisions cover all information it considers confidential and to which the consultant may have access.

Whether a consultant will have any direct interactions with your employees, clients, customers, or suppliers will depend on the nature of the services provided. 

Suppose the consultant is to deal with or be integral to these relationships.

In that case, you should consider what protections you have in the consultancy agreement to prevent or restrict the consultant from dealing with such third parties at the end of the consultancy agreement. 

Including restrictive covenants or other provisions within your consultancy agreement restricting or limiting the consultant's further contact and interactions with such third parties is one way to protect your business interests and client base. 

Careful drafting is required when including such a provision to ensure it provides you with the required protections, but also because imposing restrictions on an individual implies a level of control over the consultant, which may indicate an employee/employer relationship. 

The position on ownership of intellectual property rights when engaging with a consultant differs from that of an employer/employee relationship. 

Under a traditional employment contract, the company engaging the employee will generally own all intellectual property rights that employees create as part of their employment or works related to their employment. 

However, unless the consultancy agreement states otherwise, any intellectual property rights created will belong to the consultant if your business engages a consultant to provide services. 

Therefore, specific provisions must be included to transfer ownership to your business. 

Where the consultant is required to use any of your existing intellectual property rights as part of the service delivery, the consultant should be granted the right to use them strictly for such purposes.

This position is further complicated if the consultant also creates derivative works from such pre-existing intellectual property rights to ensure ownership of any resulting intellectual property rights is clearly established. 

You should consider including indemnity provisions which seek to cover losses, claims, damages and professional fees that your business may incur as a result of:

• The consultant's acts or omissions in providing the services or breach of its obligations under the agreement more generally (including confidentiality obligations);
• Any tax or national insurance liability on the fees paid to the consultant and
• Any materials provided by the consultant that infringe the intellectual property rights of a 3rd party.

Other specific indemnities can be considered on a case-by-case basis and will depend on the nature of the services to be provided by the consultant.

Whilst it is usual for a consultant to supply their own computer/laptop and mobile phone, you should consider what IT security policies and protocols, including any BYOD (bring your own device) the consultant must adhere to.  

Consideration should also be given to whether the consultant may be required to operate any specialist equipment for the services, whether such equipment is to be provided by your business or the consultant, and who is responsible for the risk associated with such equipment. 

Suppose equipment is to be made available or hired by the consultant. In that case, further provisions setting out the terms on which the equipment is made available should be set out in the consultancy agreement, including who bears the risk for any loss or damage to the equipment.

Data protection should not be overlooked when engaging consultants.

As a business, you will be collecting and processing the consultant's personal data (and most companies have this covered in their general privacy notice).

However, if the consultant is processing personal data as part of their services, then the consultancy agreement will also need to set out appropriate data processing provisions.