If your business engages contractors or consultants, you must use the correct contract. While a contractor’s contract and consultancy agreement are similar, there are some distinct commercial differences. This article will explore these two agreements and their key differences.
Contractor’s Contract
A contractor’s contract (also known as a contractor agreement) is an agreement between a company (the principal) and a service entity (the contractor) where the contractor agrees to provide a service to the principal for a fee. For example, the contractor may agree to provide a one-off service for a set fee or continuing services to the principal for a pre-determined length of time for a fee.
An example of a contractor agreement is an agreement between a builder and tradesperson, where the tradesperson is engaged to perform their trade on a building site.
Consultancy Agreement
A consultancy agreement is a contract between a company (the principal) and a consultant. The consultant may be an individual or a company. They will often perform consultancy services to the principal for a fee.
The consultant may agree to perform the consultancy services on a one-off basis for a set fee or continuingly, either for a pre-determined length of time for a fee or as required for a set fee. An example of a consultancy agreement is an agreement between a company and an IT consultant, where a company engages an IT consultant with expertise in the field to provide those services to the company.
Continue reading this article below the formSimilarities
Both a contractor’s contract and a consultancy agreement share the same foundations. Each should include the following.
Services They Will Provide
A key element in any service agreement is to detail the scope of services the consultant or contractor will provide. Specifically, having a clear scope of work means both parties have clarity regarding obligations. Additionally, it limits the likelihood of a dispute arising from incomplete work. The services may also include information about deliverables and milestones.
Term of the Engagement
Your agreement might be for a specific project or ongoing assistance, but it is essential to specify this in writing. For one-off projects, you should list the start and end dates. Conversely, for ongoing projects, you should specify the work to complete each day, week, month, or time period.
Fees and Payment Terms
Ensure that the fees payable and the relevant terms are included in the agreement, as well as guidelines for what a party can do in the event of a failure to pay.
Obligations
Depending on the consultant or contractor’s services, you might expect certain experience levels, licences or qualifications. This is often an additional obligation on the party providing the services.
Confidentiality and Intellectual Property (IP)
Consider what information the contractor or consultant will access and whether you should protect that information. Similarly, if the contractor or consultant is using your IP, they may require a licence to do so.
Liabilities
Clarifying liabilities in a contract is essential to identify who will be responsible if something goes wrong and where you can allocate risk. This is important to limit disputes and outline what each party is liable for.
Sponsoring overseas workers as an Australian business is complicated. Let us simplify it for you with this free employer guide.
Key Takeaways
The type of document you use will largely depend on your individual circumstances and industry conventions. There are few genuine legal differences between the two types of contracts. Therefore, this is not necessarily an issue you should spend too much time pondering. Rather, the critical difference between a contractor’s contract and a consultancy agreement is ensuring that they are fit for purpose based on the relevant industry and the services.
If you need assistance determining which document you require, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A consultancy agreement is between a consultant and a business, referred to as the principal.
Determining which agreement to use will depend on the nature of your business and industry and the scope of work you require the consultant or contractor to undertake.
We appreciate your feedback – your submission has been successfully received.
