Updated on March 1st, 2023
A consulting engagement letter is an agreement between a consultant and their client that records the terms of their professional relationship. The written document outlines the most fundamental aspects of the consultant’s work, namely their service responsibilities, fees, compensation terms, and contract length. While less comprehensive than a traditional consulting agreement, an engagement letter is still legally binding and can be used as evidence if disputes arise.
When to Use an Engagement Letter
Engagement letters are written when a consultant takes on a new assignment before providing services to the client. Consultants will ask clients to review the letter’s contents to ensure they fully understand what services they’re receiving, how much they need to pay, and when services will be performed.
Note: An engagement letter is a condensed contract containing fewer legal terms than typical service agreements. Sometimes, consultants use an engagement letter when clients are unwilling or hesitant to sign a long, complicated contract.
What to Include
Listed below is the standard information included in a consulting engagement letter. By recording these details, the consultant and client protect themselves in the case of incomplete work or payment disputes.
A letter of intent will generally include the following:
- The names and addresses of the two parties.
- A description of the services the consultant will perform for the client.
- The consulting fee, commission percentages (if any), and other payment terms.
- The start and end dates of the contract.
- The service expenses to be paid by the consultant.
- The protocol for early contract termination.
- The signatures of each party and the date of execution.
Importance of an Engagement Letter
An engagement letter is an important document that helps structure the client-consultant relationship. It builds trust between the parties and can prevent disagreements down the line. Other benefits of an engagement letter include:
- No guesswork – The written contract provides clarity, ensuring that both parties are aware of their respective obligations.
- Written evidence – An engagement letter offers a precise, concrete record of the agreement that may be consulted later on if required.
- Legal recourse – The letter outlines the agreed-upon price arrangement, making it easier for the consultant to pursue damages or other legal remedies if the client defaults on payment.
- Understandable terms – Engagement letters are generally absent of complex legal provisions. Therefore, clients are more likely to understand and sign off on the agreement terms.