I had a friend once who had several years of experience. He decided to give consulting a try. He knew a friend in the industry and made an agreement to consult for him. It was a handshake agreement. They were friends after all. It would have been insulting if either side insisted on a signed contract.
My friend worked for his friend for a few weeks and submitted an invoice for his services. His friend balked. He had no idea the cost would be so high. He didn’t agree to that.
My friend insisted that they had agreed on his hourly rate and that the invoice was accurate. His businessman friend had a different memory of the agreement and had different expectations.
Needless to say, the friendship became strained and my friend never did get all the money he invoiced. He learned a valuable, yet expensive lesson about consulting.
It doesn’t matter whether you are an independent consultant just starting out, or top tier firm with thousands of consultants. You should do no work without a signed contract. This contract should spell out specifically the work that will be done, the rate to be paid, and how the agreement will end.
There are different contractual documents for various purposes in consulting service agreements.
Master Services Agreement (MSA)
The MSA is a contractual agreement that a consulting firm will sign with a client when they initially decide to do business. This agreement defines high level information that will apply to many projects they may execute together. This may include billing rates, payment terms, and how they will resolve disputes if/when they do business in the future.
Statement of Work (SOW)
An SOW is written for a specific project to be performed by a consulting firm. It is often a rider to the MSA, referencing any specifics, such as rates. The SOW defines the specific work that will be performed, the duration in which it should be performed, and the deliverables that will be provided.
Other information that may be included in the SOW is the project purpose, scope of the work, and any special requirements that may be unique enough to spell out.
Request for Proposal (RFP)
The RFP is a document that a potential client sends, usually to multiple vendors, asking them to propose on a project. The RFP describes the project purpose, scope, and any other pertinent information needed to propose. Most consulting firms will meet with the prospect at least once to gather additional information.
The RFP can specify rules for how the firms should bid on the project, including a timeframe and who may be contacted.
Request for Quote (RFQ)
Similar to an RFP, an RFQ asks simply for a price quote. This document is used by prospective clients when the product or service is more simply defined and further information about timing and staffing are less important.
There are many contractual documents that should be used to ensure clear expectations for a consulting agreement. These describe a few of the most common. Nobody wants to indicate a lack of trust, especially at the beginning of a relationship. But defining all specifics up front is the best thing to do for both parties.
Have you ever gotten burned by not having a contract?
As always, I welcome your comments and criticisms.
If you would like to learn more about working in consulting, get Lew’s book Consulting 101: 101 Tips for Success in Consulting at Amazon.com
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