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Referral or collaboration agreements can be a beneficial way for businesses to work together to achieve a positive outcome. Often these agreements will be informal and develop through conduct over the course of time. Other times, parties might formalise their arrangement and enter into a written contract. Depending on the type of relationship, the contract might be a ‘Referral Agreement’ or a ‘Collaboration Agreement’. In this article, we will consider the similarities of and differences between referral and collaboration agreements.

Referral Agreements

A referral agreement is a contract between two parties that details how one party (the referrer) refers customers or clients to another party (the referee or principal). Alternatively, both parties might provide referrals to each other in a reciprocal way. The agreement will describe the fees (if any) paid for a referral and the payment method. 

Many businesses enter into referral agreements because good referrals can be a valuable and reliable source of revenue.

Managing the Referral Relationship

What is the Referral Process?

Under a referral arrangement, it is critical that both parties clearly understand the referral process. This will help ensure a smooth and positive working relationship between the parties. The referral process may be as simple as one party providing the other party with details of the referral via a handover email. 

In other scenarios, the referral process might be more complex. Your referral process might include:

  • an opt-in process, giving referrals the option to choose whether or not they would like to be referred to another party;
  • a method for measuring the efficacy of the referral. For example, you might only accept a referral that matches the desired customer persona; and
  • if the referral is accepted, the way in which the referrer is paid for the accepted referral.

How Long Will the Agreement Last?

Additionally, the referral agreement should state the duration of the agreement. You may prefer the agreement to be a:

  • short-term arrangement, such as two years; or
  • long-term arrangement. For example, you might specify that the contract is ongoing and will end following a specific reason set out under the agreement.

An ongoing referral agreement is unlikely to have an exclusivity clause or a quota for a minimum number of referrals. The arrangement is flexible, especially for businesses that are looking for a reliable source of customer acquisition.

On the other hand, a short-term agreement may be suitable if you are partnering with a business to promote a time-sensitive event.

Are You Tracking the Quality of Referrals Received?

You should also consider whether there should be a minimum performance threshold for referrals. Setting clear expectations concerning the quality of referrals received can be helpful if you want to track and document the return on investment of a customer referral over time. It is also valuable to avoid wasting time or money receiving referrals that are not a good fit for your business.

Collaboration Agreements

A collaboration agreement is useful where two parties join together to work on a project. The collaboration agreement ensures both parties know what they are responsible for, who will own certain assets and how parties can use certain intellectual property.

Collaboration agreements can be useful in a wide variety of circumstances. Some examples of when you might choose to put together a collaboration agreement include where:

  • two or more businesses join together to work on a particular project;
  • content creators create content together; and
  • influencers work to promote a business’ products or services in exchange for a non-financial benefit.

All collaboration agreements are different, but most contracts will:

  • describe the role and responsibilities of each party;
  • cover who owns the IP and how IP can be used;
  • include a provision ensuring parties work together in good faith. This means that they will not compete with one another or breach confidentiality; and 
  • specify how payment will work.

How Long Will the Agreement Last?

A collaboration agreement should specify the term or duration of the agreement. Like referral arrangements, under a collaboration agreement you might:

  • enter into a fixed-term agreement, such as for six months in the lead up to an event. Once the event occurs, the parties may no longer need to work together; or
  • engage in a more flexible ongoing arrangement, designed for both parties to work together on a project(s) until one party ceases to continue the relationship.

A collaboration agreement might also include a project schedule. A project schedule can help keep the parties accountable and commit to certain deliverables within a prescribed timeframe.  

What is the Purpose of Collaborating?

It can be beneficial to articulate the purpose of two or more parties joining together. The purpose is similar to the project’s overall goal, and it is often essential to focus both parties on the goal that they must achieve.

What is Each Party Contributing?

The terms and conditions of a collaboration agreement should allocate certain responsibilities to each party. It should detail what each party is contributing from a financial perspective. It is important that these obligations are recorded in writing so that the project actually comes to fruition and is as successful as possible. 

Maintaining a Fair Relationship Between Parties

In both referral and collaboration agreements, you want to ensure there are protections in place to help manage a fair relationship between the parties. 

Confidentiality and Privacy

When working together to promote another’s business or collaborating in any other way, it is likely that confidential information will be shared. Confidential information is generally very important to a business’ success. As such, it is crucial that parties agree not to divulge information to parties outside the agreement. Therefore, you should include a confidentiality clause in your agreements so that both parties understand the rules around sharing and handling confidential information.

Particularly important for referral agreements, you might be transferring or receiving personal information such as a person’s name, date of birth and contact details. Including a detailed confidentiality and privacy clause will explain how the receiving party should handle personal information according to law and the terms of the agreement. Likewise, if you are the party passing on confidential personal information, you should make those people aware that their details can be forwarded to third parties.

Intellectual Property

Under these types of agreements, you should include a clause that addresses intellectual property use. An intellectual property licence allows the parties to use IP, such as the marketing materials of another business, to make successful referrals or contribute in a meaningful way to a project.

For example, you might like to feature the other party’s business logo on your website as part of an advertisement for a special deal available from your referral partner. An IP licence will permit you to display the other business’ logo or other materials related to their business. The effect is that your customers can make an informed decision about whether to buy goods or services from your referral partner.

The IP licence should also outline how each party will not misuse each other’s IP.

All parties must also be clear on who owns the intellectual property used and who owns any new intellectual property created under a referral or collaboration agreement.

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In addition, you might elect to include an exclusivity clause in your agreement. This clause will prevent the parties from entering into similar agreements with other businesses. 

Collecting Fees

Further, you should include the exact method for calculating referral fees in the referral agreement. For example, suppose Party A refers a lead to Party B (which later converts into a customer). In that case, Party A may receive a flat fee from Party B. Alternatively, you can generate referral fees based on commission. For example, Party A can receive a commission based on the percentage of any fees that Party B receives from customers for the next 12 months. 

If the collaboration agreement involves the payment of amounts between the parties, it should specify the calculation method employed. This can prevent disputes from arising later down the track. 

Key Takeaways

A referral agreement is a contract that manages the referral process between those parties. Whereas a collaboration agreement regulates two or more people or businesses working together on a project. In these types of contracts, you should include clauses relating to:

  • the nature of the agreement;
  • the referral process or roles and responsibilities (depending on the type of agreement);
  • confidentiality and privacy;
  • intellectual property;
  • exclusivity;
  • the duration of the agreement; and
  • fees or commission.

These contracts can be pivotal in preventing disputes between parties and mitigating issues, particularly concerning intellectual property rights, breaches of confidentiality and the distribution of revenue or referral fees.

If you need help drafting referral or collaboration agreements, 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. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is the difference between referral and collaboration agreements?

A referral agreement is a contract that manages the referral process between parties. On the other hand, a collaboration agreement regulates two or more people or businesses working together on a project.

What is the purpose of a referral or collaboration agreement?

These contracts can be pivotal in preventing disputes between parties and mitigating issues, particularly concerning intellectual property rights, breaches of confidentiality and the distribution of revenue or referral fees.


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