Top 8 Steps to Follow When Negotiating and Preparing Your Consulting Agreement
“Every great building once begun as a building plan. That means, sitting in that building plan on the table is a mighty structure not yet seen. It is the same with dreams.” – Israelmore Ayivor
The importance of a good consulting agreement is huge, and a successful business relies on the foundation of a well-crafted contract. From idea conception to the final results, a project depends on the contract.
Consulting is a sensitive business with many variables that need to be included in the agreement, to assure as best you can the overall success of your Consulting project.
Here are the essential steps you can follow to secure and draft an effective, solid agreement.
Top 8 Steps to Follow When Negotiating Your Consulting Agreement:
Let’s start with how to negotiate better – once you have identified the most promising proposal, you can start negotiating. Similar to the selection process, you need to gather as much information as possible to have leverage during the negotiation
Let’s discuss in more detail the Value creation – the pinnacle of opportunities for the Consulting industry to deliver more.
1-Prepare for your negotiation – what you need to do-
Before you dive into the key elements, take the time to prepare for your negotiation. The first step is to agree on what you want to negotiate. With intangible services, almost all the components of the proposals are negotiable. You can modify anything from the scope, the team composition, to, of course, the price.
You also need to keep in mind the overall value of the project vs. the price. Understanding the dynamics of the pay-off matrix will help you define the needed magnitude of the negotiation. Now, look also at how much latitude you will have in the negotiation. Do you have a negotiation edge? Or are your hands more or less tied?
Finally, get the right people at the table based on the size and the strategic importance of the project. No spending weeks negotiating cost when fixing the issue yields more each week than the cost of the project.
Try to anticipate as much as possible how the Consultants will act to get the best deal. In this situation, the best deal is when both parties have a positive outcome.
2. Negotiate the key elements – what not to miss –
When you enter a negotiation with multiple dimensions, the BATNA (Best Alternative To Negotiate Agreement) and ZOPA (Zone Of Possible Agreement) concepts can come in handy. They will allow you to draw a bundle of potential deals along the different dimensions. To build such a bundle, you will need to analyze how the changes in scope or team staffing will impact the price and conversely identify the trade-offs you are willing to accept. Do not lose sight of the ball, usually it is better to achieve your expected results than a half baked result at low cost.
If you still need to reduce the costs, you should explore other savings opportunities such as travel expenses, or expert staffing.
3. Why is better to give feedback to the unhappy consultants?
Don’t forget to debrief the consultants who lost the project. Take the time to explain why they didn’t get the project and what they could have done differently. It will help them improve their proposals for your next project or with their next client.
You can also ask the Consultants to give you some feedback on the project as well. It can bring you some valuable insights on how your teams manage a consulting project, and help you improve your practices.
4. Drawing the contract –
“A contract is only as good as the people signing it.” – Jeffrey Fry
Once you have negotiated the terms of the agreement, you can start drawing the contract. You can either work with a standard consulting agreement, or a couple Master Service Agreement (MSA) plus Statement of Work (SOW). The latter solution is particularly interesting when you work with the same consulting providers on a regular basis. We strongly recommend to work with your legal team to develop your own agreement templates.
5. Formalize your expectations –
Even if you work with a standard consulting agreement, the Statement of Work is the first element to include in the contract. It covers the scope of work & deliverables, the schedule & phasing, the Governance & Escalation procedure, and the expected outcomes & metrics.
The contract is always the reference in case of litigation. You want the Consultants to commit to the results of the project, not the means.
6. Define the terms & conditions – how and why –
When you have described what work will be done, how and when, it is time to define how the consultants will be paid. Even if you have opted for a flat fee, the schedule and the terms of payments should be clearly stated in the contract.
If you work with hourly fees or performance-based fees, you should include the conditions to get paid and the potential safeguards to avoid derailment.
7. Clarify the rules –
Depending on the project, and the company, some rules should be included in the agreement.
- Confidentiality – This clause should always be involved in a consulting agreement. Many projects include confidential information about the company’s strategy or products.
- Use of Third-Party – Many Consulting Firms work with subcontractors or partner with other firms on projects.
- Intellectual Property – Monitor the information and the models developed during the project and clarify the ownership in the contract.
- Client Policies (such as information management and safety) –The Consultants should comply with any rules that you might request.
- Conflict of Interest and Non-Compete – On some projects, you might want to make sure that the consultants won’t have any conflict of interest, or won’t go and sell the methodology they developed for you to your competition.
8. Prepare for the worst – avoid the risks and the pitfalls –
As the old saying goes, hope for the best, but prepare for the worst. In your contract, you should integrate clauses that cover the most probable problems you might encounter if the project goes awry. The resolution of the issue if and when it occurs will be much easier to manage.
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