Polish up ur engagement letter

The engagement letter continues to be an extremely important instrument for the consultant to use. Perhaps it is time to polish yours for maximum impact.

You should never embark on a relationship with a client without a well defined and signed engagement letter on file. The engagement letter is more than simply an agreement; it is in fact a contract. Perhaps my sense of its importance comes from my years in public accounting, and the mentors who showed me there was a right way to do business, and who taught the importance of being a professional.

The letter you can find from the link below is the basic format I use for all my clients. The detail may change to fit the service being offered, but the general outline remains the same. I provide it for you to adapt as you see fit. I am not an attorney and am not giving legal advice. Therefore I recommend that you have your counsel review the final form of your letter.

The engagement letter says a lot about you and your firm. I have found that since I provide the same services for many different clients, I tend to utilize previously developed letters and modify them to fit the current engagement. This is good and bad. The good news is that is saves me a lot of time from developing a letter from scratch, the bad news is you tend to use your old "stuff" repeatedly. Get it right in the beginning and you end up with all the good - and no bad.

Best Practices with Your Engagement Letter

In the sample letter provided, there is language to guide you in following some best practices in technology consulting. Before we get to the letter, I'd like to call these practices out as follows:

• Addressee. Send your engagement letter to the highest level in the company you can that has the power to sign for and obligate the company. In nearly every case I have discussed the engagement with the client and we have verbally agreed on the scope of the engagement and costs before the letter is sent, so the letter is a legal summation, and approval, of what we discussed.
• Flexibility. Set out that the document is an open letter of engagement between you and the client. Why? There are times you may be asked to provide small services that require only a little time. In some cases, it would take you more time to develop a formal letter than the time and cost warrant. With an open letter, you remind the client that you are performing the engagement based on the initial engagement letter signed by them.
• Be Specific on Scope. Using bullet points, list the primary tasks, products or procedures for executing the engagement. Keep descripttion brief with no more than six items. My rule of thumb is that if the engagement letter is more than three pages the engagement too complex and I consider breaking into smaller more manageable engagements. This is important for a number of reasons. If the scope of the engagement is too complex the client has a hard time wrapping their arms around it and begins to question each item. Secondly, most clients are fearful of long drawn out and costly contracts. Giving them a process that is more capsulated with each objective being seen as "affordable" give them a much higher level of comfort and I always remind them of the termination clause that says that each engagement is stand alone and that they, the client, may terminate our relationship anytime they are not satisfied. Again, the client likes being in control and at the end of the day I find that my actual billings are higher as I have fewer write-offs, adjustments, and non-billable hours to the client.
• Be Specific on Needs. Define what you need from the client prior to or during the engagement. (For instance, I request a list of all hardware, software, and network diagrams before coming in to do my field work. This not only saves the client money and time but is more efficient for me as well. If the client is not able to provide the information I request, I remind them that I can assist them in preparing the information and that is, of course, additional billing. I also explain to the client that the information I request is basic to their Disaster Recovery Plan, their insurance company information, and so forth. This way they realize that the information has value and is not simply make work by the consultant)
• Be Specific on Deliverables. It is important for the client to know what they get from the engagement and when. For instance, for a technology assessment I provide a detail report of my findings and recommendations within ten days of completing my on-site work. Give yourself enough time to complete deliverables especially if you have multiple engagements in process at the same time. I debrief the client in an exit interview each time I complete field work so they know what I have done so far, my impressions, and resolve any questions. Never give the client a final report as you leave. First of all you need time to digest your findings, secondly your report will not be perceived to have as much value. Things that take longer are worth more! That's the perception.
• Manage Expectations. Set out explicitly what the client needs to understand. In this section, you can define any limitations or exceptions such as the milestones or tasks the client is to perform during this engagement and so forth. This is your CYA (cover your assets) paragraph so that the engagement is not open ended and that you do not have complete responsibility if you do not have complete authority.
• Nail Down Timelines. Estimate how long the job is expected to take and when you will begin. One of the most important things I can relate to you is the importance of bringing an engagement to closure. The ability to close an engagement has been at the root of many failed engagements and projects that exceeded budget and time. It may be the feeling that once this engagement ends there will not be more work waiting for me, of it is an unclear understanding of where the end of the engagement is. I am not sure, but I know it is a significant issue for all consultants. This is another reason I force engagements to be smaller and more task oriented - more manageable, so the clients can see goals and see that the goals were meet! I can assure you that if you are good at what you do, and you always put the clients' needs first, the phone always rings and you will have plenty to do.
• Prepare for Additional Services. You will want to explicitly note that "The Client may request additional services at our standard hourly rate as applicable." This sentence reminds the client that your estimate for this engagement is only for those services defined. Keeping track of your hours is important and making sure your people keep track as well. When a client request a service not covered by the engagement, they should expect to be billed.
• Avoid Surprises. Provide explicit amounts in your estimate for expected total fees and travel-related expenses. Just make sure you have covered everything and there are no surprises. Clients hate surprises!
• Withdrawal and Fees. I have included a paragraph in my engagement letters that clearly states that either party has the right to withdraw from the engagement, at which time fees and expenses incurred to date are due and payable. Such a paragraph shows the client that you are serious - and also that there are responsibilities to perform on both sides of the engagement.
• Bill for Value. While you will adjust the language on fees and payment according to your practice, I strongly urge you to focus on the value of the engagement to the client as opposed to billable hours. Remember that clients are not paying for hours, they are paying for your knowledge and they are paying for solutions!
• Discretion with Referrals. In our firm we only identify previous clients if we have their permission to do so, and even then we don't do so as a matter of routine. I recommend a similar discreet approach. Mention your policy in your agreement, and it will help in two ways. One, your discretion is seen by the client as an added benefit. Two, if a prospect is insisting on referrals, nearly every time I call a trusted client to ask if I can give their name as a referral, I end up with an engagement to come back in and do some additional work for them.
• Get it in Writing. The engagement letter requests a signature. You are well-advised to hold off starting an engagement until a signed copy is in your files. (As for me, there are also times with a new client that I request a retain check with the signed letter. Usually this is for any out-of-pocket expenses such as airfare, hotel and first day fees. Again, this says I am a professional and as such must protect my assets until a relationship is established. I have never lost an engagement because I requested a retainer. My retainer is typically 10-15% of the total estimate of the engagement. After expenses the remainder of the retainer is applied to fees.)

Note on Delivery. One last note as how my engagement letter has evolved since my last article on the subject over three years ago.

I no longer mail engagement letters in hardcopy form. I send the engagement letters as PDF files attached to an e-mail. I sign the engagement letter with both a clip of my holographic signature as well as my digital signature and include a space for them to apply a digital signature. As a fall out from this process I have ended up with a number of content management engagements to educate my clients on digital signatures and how they work. I benefit from having one less paper document to track. Today the only content in my clients' "Permanent" file is on optical disks with all the engagement related documents stored electronically. This was a great help when I was hit with five hurricanes in 2004 and 2005.