If you are searching for the content for an engagement letter, we are glad that you are here. Why?

You are doing a right thing – by formalizing your client engagement process. An engagement letter is necessary for professional services firms like accounting, bookkeeping, tax preparation, payroll services, law firms, consulting agencies, etc. An engagement letter can help you define the type of service, the standard of service, the responsibilities, the cost of the engagement, and so on. It serves the greater purpose of bringing clarity to the terms of engagement, and de-risking both parties from possible misrepresentations or assumptions.

What should engagement letter include?

Engagement letters cannot be one-size-fits-all. It will be different from one firm to another or from one client to another; however, the basic structure and principles will remain the same.

Sections content an engagement letter must include

1. Schedule of services / scope of services
2. Timeline of service
3. Service Fees
4. Responsibilities of each party
5. Terms and conditions with signature

 

Let’s look at these sections separately.

Schedule of Services or Scope of Services

What are you promising to deliver?

In this part of the engagement letter, you should list the services you will be providing to the client. e.g. if you are an accounting firm, this section should clearly state whether you will carry out bookkeeping, tax computation, tax return filing, payroll processing, etc.

It is always better to declare the scope of services you can deliver rather than overpromise just for the sake of converting clients. It means, you should be careful about defining the schedule of services. If you include any services that you cannot or will not provide in normal circumstances, there is no reason to overburden or overpromise only to underdeliver. That would be bad client-management.

 

Timeline of Service

When are you promising to deliver?

Your engagement letter should state the service delivery timeline. If there are statutory deadlines, e.g., for income tax return filing, payroll processing, and returns, you must specify such timelines. It becomes imperative for you to state when you want your clients to provide necessary data for you to process and keep ready.

Specifying the timeline of service delivery in the engagement letter also set expectations for your clients.

If the client fails to provide the required data by the deadline, he will not blame you; however, if you fail to process the data despite the client providing all of the required information well within the deadline you asked him to submit, you must accept responsibility for the mess.

In short, specifying the timeline for service delivery ensures transparency of the engagement and holds each party accountable.

Engagement Fees

At what cost are you going to deliver?

Engagement fees become a major point of contention and a reason for clients to part ways. If you offer standardized or productized services, you can transparently lay out the cost of engagement in the engagement letter.

You must include the fees that you are expected to pay to statutory bodies, as well as your processing fees.

You should clearly enlist add-on services beside regular service charges; they can be on an hourly basis or a data-volume basis.

No one likes bad surprises. And specifying engagement fees prevents such bad surprises.

Ideally, you should offer engagement fees in a form of packages. Not only is it easy to understand and compare, but it gives you the opportunity to upsell services with configurable/optional value added items.

Responsibilities

Responsibility can be defined in a one simple line:

Who will do what and when.

None of the engagements is one sided affair. No service vendor can unilaterally offer service without receiving inputs, data from the consumer or client. That is precisely why client engagements encounter disagreements or legal issues.

The engagement letter must identify the responsibilities of each party: the service provider and the client.

• Who is who : client and service provider
• What information, material, inputs client will provide and by when
• What kind of processing, work a service provider will perform and carry out; when
• What are the delivery timeline/ deadline for each party to submit required information, material, etc

You should clearly identify responsibility for each party so that it does not leave any scope for speculation, assumption, or misrepresentation.

Terms-Conditions with Signature

Under which all conditions you promise to deliver your service?

While this is supposedly the boring part of the engagement letter, this is like a necessary thing. You can not and should not avoid it. You are supposed to define the terms and conditions of the engagement.

Terms & conditions can further be detailed and sub-grouped as

1. Billing schedule & terms of payment
2. Intellectual property, ownership of data and data protection
3. Limitations of liability
4. Confidentiality clause (trade secrete, proprietary information, IPR)
5. Privacy policy (PII, etc)
6. Alternative dispute resolution mechanism
7. Termination clause

We suggest seeking a professional advice to draft, finalize the terms and conditions of the engagement.

An engagement letter should not included following

1. Marketing collateral of your firm
2. Marketing terms that would get you in legal trouble e.g. “comprehensive”, “unlimited” or “100% secure”
3. Legal terms which are complex to understand for an average business person

You can go back to the basics of engagement letter guide.

Let me know if you came across experiences related to engagement letter or question or different thoughts about it.