The engagement letter is a legally binding agreement that establishes the terms of the business relationship between a company and its clients.
It helps the company communicate what the client should expect in terms of the service it will provide. It includes information such as the scope, costs, and responsibilities of both parties, among other details.
It is often used by professional firms. These firms may provide accounting, legal representation, consulting, and auditing services, among others. In addition, the letter can be used when communicating with individual clients and corporations. This letter helps ensure that the customer knows what to expect from the company.
Establishing expectations helps to reduce the risk of conflict that may lead to litigation by either party. It also helps protect the company’s payment by setting up a fee structure for the client. Companies must clearly understand when and how often they should use a letter, what should be included in it, and its benefits.
These details will help ensure that companies utilize the document appropriately and include the right details. This article will help elaborate on these details while also providing templates and samples to help you create an effective engagement letter.
Free Letter Templates
When and How Often is It Used?
A company should create a letter before starting its business relationship with a new client. Though it is less formal than a contract, it is a legally binding agreement. It plays an important role in ensuring that the company communicates appropriately to its client without using the legal jargon associated with a contact. It contains the company’s services to its clients, its terms and conditions, cost, deadlines, and other details.
The information relayed in the letter is effective for a long period. However, companies should review the document to make appropriate updates. This review can be done annually. Significant changes to pricing, terms, and conditions, the scope of service, or the services offered to the clients may warrant changes to the letter.
A new engagement letter or supplement letter can be created to outline the updates the company would like to make. The reviews and updates made to it help the company maintain its professional standards. A termination clause that allows both parties to exit the engagement under certain applicable conditions should be indicated.
What to Include in the Letter
Companies must clearly understand what to include in the letters. The components of the letter help ensure that information is appropriately conveyed to clients. It also helps ensure that key details are not left out of the agreement.
The following information should be contained in the letter:
Parties identification
This letter should begin by identifying the parties involved. It will help identify who the service provider is and who the client is. The document should specify whether the client is an individual, group, or partial entity.
EXAMPLE
James Smith
456 Main Street,
Atlanta, Georgia 14560
Service type
Secondly, the type of service that is being provided to the client by the company should be identified. It helps clarify what the client should expect from the company. The statement identifying the type of service the company will provide should be short and straightforward.
EXAMPLE
Dear James,
This is to confirm the legal services being provided by James and Jane LLP.
Specific service details
Thirdly it should provide specific details about the services the client should expect to receive. A brief description of the services will help the company avoid misunderstandings with the client.
EXAMPLE
The services that will be provided under this letter are legal consultation services.
Scope of service
Next, the company should outline the scope of its services. It helps create an understanding of the work that needs to be done. It will also help reduce scope creep.
EXAMPLE
Our firm will consult on a business-related matter. Our services will include:
- Conducting legal analysis and researching legal matters
- Reviewing your legal documents
- Providing advice on legal matters
Period of engagement
It should also outline when the engagement starts and ends. The company can go further by specifying the delivery date for specific deliverables if any. It will help highlight the due date and enable the client to follow up on the progress of the work.
EXAMPLE
The engagement will begin on March 6th,2021, and end on March 10th,2023.
Fee structure
A clear fee structure outlining the cost of the services provided to the clients should be indicated. The free structure should include information on how and when the payments will be expected. In addition, the company should establish how it will go about changing for extra services the client may request that have not been indicated in the letter. A clause outlining what will happen in the event of late payment should also be included.
EXAMPLE
Our hourly rates are$ 62. This amount is based on the time spent consulting on issues that may be brought to us. An extra $170 for any additional services that are not indicated in this engagement letter.
Responsibilities of each party
A brief description of the responsibilities of each party throughout the engagement should be outlined. The client may be responsible for certain actions and providing specific information, among other responsibilities. It will help ensure that both parties are clear on what they need to do to ensure it goes smoothly.
EXAMPLE
The client will be responsible for providing relevant information and documentation. Access to business documents should also be granted to aid in the provision of appropriate advice. The advice provided is simply an opinion, and the client is free to accept or decline it. On the other hand, we will provide informative, reliable advice to help the client. We are also responsible for maintaining our client’s confidentiality
Professional standards
The letter should contain a statement assuring the client that professional standards will govern the engagement. The standard will depend on the location of the parties involved.
EXAMPLE
The engagement will be governed by the standards and requirements of The State Bar of Georgia. This, therefore, means that we are bound by state law to ensure the confidentiality of our client’s information and the provision of reliable information.
Disclaimer
The company should also include a disclaimer to help establish the limitations of the service. It helps avoid confusion and complaints that may be brought about by a lack of understanding of the company’s services.
EXAMPLE
The firm will only provide the services listed for the period indicated. The client will need to seek legal representation elsewhere for any matters that must be brought before a court. The client shall also be informed of any updates or changes to the firm’s services that may occur within the set period.
Validity and termination
A brief statement should be indicated highlighting that the letter is valid until the due date or till the complete delivery of the service. It helps reassure the client of the company’s commitment to the terms they have laid out. It should also contain a termination clause. The clause provides information on why the engagement may be terminated. It also outlines how the relationship can be ended.
EXAMPLE
The agreement is valid for four years. At which point it can be terminated. It can also be terminated without notice by either party.
Related: Contract Termination Letter
Confirmation of term
Lastly, it should end with confirming the terms laid out within it. The statement is used to verify that the client fully understands the document. Both parties must review and sign the document against their names to show that the terms are agreeable to them.
EXAMPLE
We hereby accept the terms outlined in the engagement letter.
Signed:
Full name:
Professional Letter of Engagement Template
[Your Name or Firm’s Name]
[Your or Firm’s Address]
[City, State, Zip Code]
[Email Address]
[Phone Number]
[Today’s Date]
[Client’s Name]
[Client’s Address]
[City, State, Zip Code]
Dear [Client’s Name],
We are pleased to confirm our understanding of the services we are to provide for you and the objectives of our engagement. This letter outlines the scope of our services, terms of engagement, and fees arrangement.
1. Scope of Services:
We will provide the following services: [Describe the services you will be providing in detail, such as consulting, legal representation, accounting services, etc.]. Our work will be carried out in accordance with the [relevant standards/legislation governing your profession, e.g., Generally Accepted Accounting Principles, American Bar Association Guidelines, etc.] for the purpose of [state the purpose, e.g., compliance, advisory, litigation support].
2. Term of Engagement:
This engagement will commence on [Start Date] and will conclude on [End Date or conditions for the conclusion of the engagement]. Any changes to the scope of our services or the term of engagement must be agreed upon in writing by both parties.
3. Fees and Payment Terms:
Our fees are based on [describe the basis for your fees, such as hourly rates, fixed fees, etc.], and will be billed as follows: [describe the billing schedule, e.g., monthly, upon completion of certain milestones]. Payment is due within [number] days of receipt of our invoice. Details of any out-of-pocket expenses that will be billed to you and our rates for additional services outside the scope of this engagement are as follows: [provide detailed information on expenses and rates for additional services].
4. Confidentiality:
We will maintain the confidentiality of all information provided by you within the bounds of the law. All documents and information entrusted to us will be returned upon the conclusion of the engagement or upon your request.
5. Termination:
Either party may terminate this engagement with written notice. In the event of termination, you agree to compensate us for all work completed up to the point of termination and any out-of-pocket expenses incurred.
6. Agreement:
This letter constitutes the entire agreement between [Your Name or Firm’s Name] and [Client’s Name] regarding the services outlined above. Any modifications to this agreement must be made in writing and signed by both parties.
Please sign and date the enclosed copy of this letter to acknowledge your acceptance of the terms of our engagement and return it to us at your earliest convenience.
We appreciate the opportunity to work with you and look forward to a successful engagement. Please do not hesitate to contact us if you have any questions or need further clarification on any aspect of this letter.
Sincerely,
[Your Name]
[Your Title]
[Your Name or Firm’s Name]
Acknowledgment by Client:
I/We have read and agree to the terms of this engagement letter.
Client’s Signature: _______________________
Date: ___________________
Sample Letter of Engagement
Dear Ms. Carter,
We are excited about the opportunity to work with Atlas Enterprises, Inc. and are pleased to confirm our understanding of the consulting services we are to provide. This letter outlines the scope of our services, terms of engagement, fee arrangement, and other relevant terms as agreed upon during our preliminary discussions.
1. Scope of Services:
Bright Solutions Consulting Firm will provide strategic consulting services aimed at enhancing Atlas Enterprises’ operational efficiency and market penetration. Specifically, we will conduct a comprehensive analysis of your current operational processes, market positioning, and competitive landscape. Based on our findings, we will develop a tailored strategic plan that includes actionable recommendations for improvement and growth.
2. Term of Engagement:
This engagement will commence on March 1, 20XX, and is expected to conclude by August 31, 20XX. Any extension of this term will require mutual agreement in writing by both parties.
3. Fees and Payment Terms:
Our fee for the services outlined in this engagement letter is $50,000, payable in monthly installments of $10,000. The first payment is due upon the commencement of our services, with subsequent payments due on the first of each month. This fee is inclusive of all direct labor costs but exclusive of out-of-pocket expenses, which will be billed separately. Expenses incurred on behalf of Atlas Enterprises will be pre-approved and documented.
4. Confidentiality:
Bright Solutions Consulting Firm agrees to maintain the confidentiality of all proprietary information provided by Atlas Enterprises during the course of this engagement. All documents and electronic data provided will be returned or destroyed upon request at the conclusion of this engagement.
5. Termination:
Either party may terminate this engagement with 30 days’ written notice. Upon termination, Atlas Enterprises will be invoiced for services rendered and out-of-pocket expenses incurred up to the termination date.
6. Agreement:
This letter represents the entire agreement between Bright Solutions Consulting Firm and Atlas Enterprises, Inc. concerning the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written.
Please indicate your agreement with these terms by signing and dating the enclosed copy of this letter and returning it to us. We are confident that our services will provide significant value to Atlas Enterprises and look forward to a productive and successful partnership.
Thank you for choosing Bright Solutions Consulting Firm.
Sincerely,
Jordan Lee
Principal Consultant
Bright Solutions Consulting Firm
Acknowledgment by Client:
I/We have read and agree to the terms of this engagement letter.
Client’s Signature: _______________________
Name: Emily Carter
Title: CEO, Atlas Enterprises, Inc.
Date: ___________________
Key Takeaways
The sample engagement letter is effective in several ways:
Clear Scope of Services: The letter clearly outlines the scope of services Bright Solutions Consulting Firm will provide to Atlas Enterprises, including conducting analysis and developing a strategic plan. This ensures both parties have a mutual understanding of the project’s objectives and deliverables.
Defined Terms of Engagement: It specifies the start and end dates of the engagement, providing clarity on the duration of the consulting services. Additionally, it establishes a procedure for extending the engagement if needed, requiring mutual agreement in writing, which prevents misunderstandings about project timelines.
Transparent Fee Structure: The letter clearly states the consulting fee, payment terms, and the inclusion of direct labor costs but exclusion of out-of-pocket expenses. This transparency promotes trust and understanding between the consulting firm and the client.
Confidentiality and Termination Clauses: The engagement letter includes clauses regarding confidentiality of proprietary information and termination procedures, protecting both parties’ interests and ensuring confidentiality and smooth transitions if the engagement is terminated.
Comprehensive Agreement: It serves as a comprehensive agreement between Bright Solutions Consulting Firm and Atlas Enterprises, Inc., covering all essential aspects of the consulting engagement. This clarity reduces the likelihood of disputes and ensures both parties are aligned on the terms and conditions.
Acknowledgment Section: The inclusion of an acknowledgment section allows the client to confirm their agreement with the terms outlined in the letter, ensuring mutual understanding and consent.
Overall, the engagement letter effectively establishes the framework for the consulting engagement, clarifies expectations, and promotes a productive and successful partnership between Bright Solutions Consulting Firm and Atlas Enterprises, Inc.
Types of Letters
The kind of letter created will depend on the company’s services. However, understanding a few types will aid in easing the creation of the letter. The following are three types of letters that you may need:
Accountant (CPA) / bookkeeper engagement letter
An accountant (CPA ) letter describes the overall relationship that will be shared with the client regarding the accounting services a company will provide. It is used primarily by service providers who file taxes or provide auditing services. Both parties must sign this letter for it to be legally binding.
Attorney engagement letter
An attorney letter is used by legal professionals who provide legal services to clients. This type of letter must be clear on the specific services that will be provided, as a wide range of services can be provided. Often, advance payment or a fee retainer may be among the terms outlined by the service provider.
Consultant engagement letter
A consultant letter is issued by a service provider who provides advice or knowledge for a fee. The individual is usually an expert with vast experience and extensive knowledge of the matter. It may indicate that the service provider charges per hour or project.
Benefits of Using an Engagement Letter
There are a few advantages associated with using this letter. Understanding the benefits of the letter helps in the creation of a document that communicates more effectively.
The benefits include the following:
- Helps reduce misunderstandings: Using it helps reduce misunderstandings by outlining the terms of engagement. The details indicated in the letter help ensure that both parties are clear on issues like the scope of the service, deadlines, and the type of service that will be provided, among other details.
- Reduces exposure to potential litigation: This letter reduces the risk of litigation by ensuring that both parties are bound by the agreement. Therefore, both the company and the customer must fulfill the terms outlined in the document. Either party can seek damages if the other does not meet its obligation.
- It helps set expectations: The letter helps ensure that both parties will be satisfied with the outcome. Setting expectations also shows the professionalism of the company. It facilitates a successful business engagement between the company and its client by encouraging open and honest communication.
- Reduces scope fright: A clear letter helps reduce scope fright by allowing the company to lay out what will be included in the service. It also allows the company to plan how it will engage with the client if more work needs to be done.
More Examples
Frequently Asked Questions
A retainer is a fee paid by the client upfront to secure the services of a company or service provider. It is commonly used by professionals such as attorneys and consultants, among others. The retainer signifies the client’s commitment to work with the company.
Reviewing the letter sample can help a company obtain an engagement letter. A quick web search will provide an individual with different samples to aid them in creating their letter.
Yes, this letter is legally binding, even though it is less formal than a contract. However, both parties must sign it for it to be considered legally binding.
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