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On Your Terms

To protect and control your interests, keep these tips in mind when negotiating with consultants.

Name a field, any field, and you can find a consultant ready, willing and (hopefully) able to advise and bill you for his or her expertise. When unique know-how is necessary, these specialists can be key. Of course, you'll commit your agreement to writing. But before you do, make sure these items are on your negotiating agenda:

1.How do i make sure my consultant completes the job to my satisfaction? Start by discussing how often you will communicate during the engagement and what form their work product will take. Bargain for approval rights, periodic progress reports and the like. Then put yourself in the driver's seat with a street-smart payment schedule that protects you. Negotiate milestones, and peg payments to them, with final payment conditioned on final delivery. When possible, pay after services are rendered.

2.Who will own intellectual property created during the engagement? Don't assume it will be you. The law in this area is complicated and, in some cases, unclear. A dispute over rights can cripple your company. Deciding this in court would be time-consuming, expensive and aggravating. For the employer, avoiding this headache is simple: Talk about it upfront, then insist that your consultant grant you maximum rights in writing.

3.How do I keep my secrets? Your consultant may become privy to confidential information. If so, including confidentiality or secrecy clauses is a must. In fact, having a separate confidentiality agreement is even better. If your consultant is sharp, be prepared to negotiate exceptions to his or her secrecy obligations: what the consultant already had in his or her possession before he or she started working for you, what the consultant may learn from a third party who has no duty to keep your secrets, and so on. The longer the consultant must keep your secrets, the better.

4.Is this person really an independent contractor? When a consultant is reclassified as an employee, it's a huge tax problem for both the employer and the consultant. A full discussion of the factors used to make this determination is beyond the scope of this column. However, having a written contract that clearly delineates the consultant's status as independent contractor is helpful. By itself, it won't be determinative, but in a close case, it could make all the difference.

5.What if the consultant gives me bad advice? If money is lost, property damaged or people injured because of your consultant's work, you could be held accountable. Indemnity clauses are good; insurance policies are better. Your consultant may be touchy about it, but you need to know whether your expert has adequate professional liability coverage. You may even ask for a certificate of insurance to verify it.


A speaker and attorney in Los Angeles, Marc Diener (diener@pacbell.net) is author of Deal Power.

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This article was originally published in the March 2004 print edition of Entrepreneur with the headline: On Your Terms.

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