Good contracts increase satisfaction with consultants

Have a written agreement that spells out your expectations, work deadlines and other details.

By Bonnie Kreitler

Hiring outside consultants gives small businesses access to expert help on an as-needed basis. Consultants can temporarily expand available staff when a business lands a major project. Whether the consultant creates an office computer network, develops a software program to run new machinery, or writes an employee handbook, carefully defining the company’s expectations is key to a successful relationship.

Too often companies end a relationship with a consultant feeling they got less than they bargained for. The biggest problem when companies use consultants, says attorney John Kreitler, co-chair of the Ventures and Intellectual Property Group with Shipman & Goodwin L.L.P. in Hartford, is matching the company’s expectations with the consultant’s performance. The scope of the job, its scheduling and the terms for accepting the final work all have great potential for misunderstanding, he says.

Misunderstandings about job specifications can occur if the company does not define them clearly to the consultant, or if the company does not fully understand what they should be in the first place.

Mary Jo Leahy, of Leahy Resources in Tolland, says one of the consultant’s jobs is to make sure the client really is asking for the right thing. A client might honestly not know what he or she needs. That means the project might change as it progresses.

Leahy has worked both sides of the desk, first as a corporate human-resources manager, and now as an independent training consultant. "It is really easy to miscommunicate," she says. "Everyone can be sitting together at the same meeting, yet come away with a different understanding of what was said."

When Leahy is negotiating with a client, she first discusses the client’s expectations face-to-face whenever possible. She says the business owner should try to find out if the consultant understands his or her business and the problem at hand. "You must be comfortable with the person before you get locked into a contract," she says. "Both sides must have some trust."

If both parties feel there is a fit, the client should check the consultant’s references. That, Leahy says, should confirm the initial gut feeling that the fit is right. If both of these steps leave a business owner with positive feelings, what gets put down on paper should work, she says. Leahy feels that for small projects, a follow-up letter outlining what is to be delivered, the deadlines and the costs is probably sufficient.

When should you ask a lawyer to draft, or at least review, a written agreement? That’s a hard boundary to define, says Kreitler. Many projects are too small, in terms of time or dollars, to warrant costly legal scrutiny. Others involving large sums of money, careful coordination with company teams or other outside consultants, proprietary or confidential information, or missions critical to the company in some other way need to be carefully crafted.

Kreitler advises including six key elements in any written consulting agreement:

1. Description — Exactly what does the company want done? What problem does it need to solve? What outcome does it expect?

2. Schedule — What is the project’s deadline? Can the project be broken into parts, each with its own deadline, so it’s easy to judge if the project is lagging and corrective steps are needed?

3. Acceptance criteria — What standards must the consultant’s work meet? How will acceptance and payment be linked?

4. Ownership — Who will own the final output? What information or process knowledge is the consultant bringing to the job? Who will own rights to any information or process developed as a result of the job?

5. Compensation — How will the consultant be paid? Besides pay for the work and reimbursement for expenses, will there be other incentives?

6. Warranty — If there’s a problem after the consultant leaves, who fixes it? Will there be additional costs?

Failure to clearly define any one of these elements right from the start increases the potential for dissatisfaction with the consulting relationship. Kreitler points to ownership of any end product, such as a software program or training manual, as an example. The business owner’s attitude may be that the company paid for the work; therefore the company owns it. Intellectual property laws, however, give ownership to the consultant unless a written contract specifies otherwise.

Similarly, consultants need to be free to use their general knowledge on projects for many companies. A contract whose ownership requirements are too narrowly defined might limit the consultant’s ability to work for other companies in an industry.

Placing too many restrictions on a consultant can backfire in other ways, says Susan Krell, managing partner of the Hartford office of Jackson, Lewis, Schnitzler & Krupman. A business should be sure it has a true independent-contractor relationship with any consultant. The big issue is control. If there are narrow specifications about how the work is done, where, when or by whom, the Internal Revenue Service could regard the business as the consultant’s employer. Then, if the relationship sours, the business may become liable for workers’ compensation, unemployment compensation or back-pay claims.

Krell advises business owners to be sure that they are not a consultant’s only client and that the contract clearly defines the length of the project, how it will end and the total compensation due. "There should always be something in writing, more or less formal," she says. "It doesn’t have to be a big thing." Krell says asking a lawyer to check an agreement, even an informal letter, is always wise. Things work out well most of the time, she notes, but for the 5% to 10% of cases in which businesses are dissatisfied with consultants, the small cost of a quick review can save big dollars down the road.

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