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Loading ...An engagement letter is a combination of items - it’s a proposal, contract and listing of services to be provided. It basically formalizes the relationships between a customer and service provider (such as consultant). Key items included in an engagement letter include the work to be performed, key project deliverables (e.g., presentation, written work) and timing / structure of any payments.
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Scope of Work
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This is a description of the work that a provider is going to perform for you.
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What are the deliverables? It is important to specify want deliverables the provider needs to have for you. For example, does the provider need to provide a written report? Or, is both a written and oral presentation. It is obviously important to include details because this will help to ensure that the provider and you are on the same page. In other, defining the deliverables helps to set expectations appropriately.
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Does the engagement include a particular amount of provider’s time? Again, in order to set expectations for both sides, it’s important for the provider to be aware what you expect.
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Timeframe
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Usually, an engagement letter has some reference to a timeframe. This timeframe provides an outline of when the work will begin and any key milestones. In general, a good engagement letter outlines the following:
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When will the work start?
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When will it be completed?
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Are parts due at different time? In other words, are there key data points or items during the project that you want from the provider?
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What’s the expected timing for the provider to respond requests? What happens if the Target is late in responding to requests, etc.?
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Fees
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It is important to outline the fee structure for the project. Again, specifying how the provider will be compensated will help to ensure everyone is on the same page.
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What’s the billing methodology - hourly, fixed-fee, daliy? Is it a combination?
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How much does the project cost? Or, how much is it estimated to cost? It’s important to get an estimate for the number of hours the provider expects the project to take. In addition, it’s a good idea to include language that requires the provider to alert you if it expects to exceed the estimated hours (especially if fees based on hourly rate).
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Travel Expenses
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Is travel expense included or billed separately? For example, is travel time included in the billable hours (if methodology is hourly)?
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Will the provider receive any reimbursement for out-of-pocket expenses (e.g., special equipment, industry consultants, supplies, etc.)? Again, be specific as this will help to ensure that everyone is on the same page.
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Payment Terms
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Providers want to know how and when they are going to get paid. Some examples of questions that usually are answered include:
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Is there a deposit that will be put down before work is started?
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How will the timing of payments be decided? In other words, are there any key milestones or project deliverables that must be met before a certain payment is made to the provider?
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Completion of project milestones, fixed time schedule, end of project?
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Any rebate and/or discount for early payment? The provider might be willing to provide a discount for early payment. It cannot hurt to inquire when trying to negotiate and engagement letter.
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Additional fees assessed for missed / late payments? Providers want to get paid a timely fashion so they will want to include a fee for missed or late payments. It’s up to you to make sure the late fees are reasonable.
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