Red Flags in Consulting Agreements: What Consultants Must Know

As a consultant, the contracts you sign directly impact your livelihood. Here are the red flags that should make you pause before signing.

Scope and Deliverables Red Flags

1. Vague Scope of Work

"Strategic consulting services" without specific deliverables is a recipe for scope creep.

2. "All Work Necessary"

Language requiring you to do "all work necessary to complete the project" has no boundaries.

3. No Change Order Process

Without a formal process, clients will expect extra work for free.

Payment Red Flags

4. Payment Contingent on Results

Unless you control all variables, avoid pay-for-performance without a base fee.

5. Long Payment Terms

Net 60 or Net 90 means you're financing the client's project. Net 30 is standard.

6. No Late Payment Interest

Without consequences, clients delay payment without penalty.

IP and Confidentiality Red Flags

7. All IP to Client Including Methods

Your general methods and tools should remain yours. Only project-specific deliverables transfer.

8. Perpetual Confidentiality

Reasonable for trade secrets, but not for general project information.

Restriction Red Flags

9. Non-Compete Clauses

As a consultant, you need to work with multiple clients in your industry.

10. Broad Non-Solicitation

Not being able to work with client's employees as future clients can limit your business.

Liability Red Flags

11. Uncapped Liability

Your liability should be capped at the fees paid or covered by insurance.

12. Insurance Requirements Beyond Reason

$5M in coverage for a $50K project is disproportionate.