Engagement Letter

What Are Engagement Letters?

An engagement letter is a legal document that binds two parties, usually professional service providers and their clients. This document provides the framework in which the client-business relationship works. It also establishes the scope of work that the professional is obliged to provide and the size and schedule of payment the client is to pay.

An engagement letter is frequently used to formalize the services of attorneys, real estate agents, or CPAs and enforce the client to pay fees upon completing the agreement. The engagement letter templates usually consist of such details as information about the parties, a clearly defined scope of tasks, requirements and obligations of both parties, fee amounts, and the period of validity of the document.

When to Use an Engagement Letter

This legally-binding document is conducted by the client who seeks professional advice in a respective field. In most cases, it plays the role of a traditional contract between two parties. An engagement letter, in its essence, is less formal than a proper agreement as it stays away from jargon. Still, such a contract remains legal and can be used during disputes.

Any individual is encouraged to utilize an engagement letter for any type of engagement, particularly if it is entangled with any professional services.

Although an engagement letter is usually associated with such business professional services as liability insurance, audit, accountant and investment consultancy, and attorney, the scope of engagement letters is not limited. Several engagement letter types are frequently used for specific circumstances. The following engagement letters are among the most widely-used ones.

• Accountant (CPA) / Bookkeeper Engagement Letters

This document is usually offered by a CPA firm or a professional that performs tax, audit, or other bookkeeping duties on behalf of a client.

• Attorney Engagement Letters

These engagement letters are used for various services performed by legal experts with a strictly defined scope of responsibilities.

Creating a new engagement letter is required when the scope of services is altered. A legally-binding engagement letter is a tool that CPAs and other service providers should use in all cases as it safeguards them from getting sued in case of unpredicted events.

Why Is It Beneficial to Use an Engagement Letter?

An engagement letter is more than a matter of good business manners. Writing down the work, the schedule and the fees gives the client and the provider one shared reference. It also sets the limits of what the provider is expected to deliver.

Although even a well-crafted and thought-through engagement letter can’t provide a hundred-percent guarantee of resolving any disputes and freedom from litigation, it’s much a safer option than going without any engagement at all as it is a legally binding document. The convincing reasons to go for an engagement letter are as follows:

• Having a clear layout of obligations and services prescribed to an executor diminishes the number of misunderstandings and quarrels that may arise during the cooperation period and ensures a healthy relationship.
• Having written and mutually concerted terms and conditions help to set boundaries for both parties. Moreover, it is possible to avoid scope creep with a well-established engagement letter. The engagement letter may also include any possible future services not included in the current contract.
• For clients, an engagement letter offers certainty in the professional services to be provided, their size, and schedule. The fee structure for all due services and contingencies is listed and predefined in the contract. If the engagement entails a non-disclosure agreement, correctly identify this in the engagement letter.
• Mitigate the risks with a written contract, such as undefined professional liability insurance for a loss during unexpected events. In this manner, the firm can protect itself against any claims in court.

What Information Should Engagement Letters Include?

The contents are usually similar to most engagement letters across all professional services. Thus you can freely use a basic template for completing it. You can find a sample engagement letter on our website. The general engagement letter has the following obligatory components.

• Introductory clause with the names of both parties
• Services to be provided
• Term, with a start date and an end date
• Fee arrangement and billing type
• Client’s obligations
• Client’s signature

Introductory clause

The first section is usually dedicated to introducing the parties engaged in business relationships. Both receiver and recipient can be a private individual, group, or entity, and it’s required to state this part clearly.

Services to be provided

Provide extensive information regarding the scope of services you offer to the client and its limitations. This way, you will be able to set boundaries against clients’ set expectations and protect yourself from scope creep. Keep the list very precise and descriptive.

Term

The engagement letter is limited and has its start and due date. Besides, you’re encouraged to provide the expected service delivery dates if specified.

Fee arrangement and billing type

The document must clearly state the payment amount for services and the recurring amount. The good-established agreement will consist of the fee summary for the agreed services and the additional fees for extra services.

The engagement letter also allows clauses to describe the awaited implications for a late fee or agreement termination.

Client’s obligations

Usually, clients must provide a piece of personal information, for example, accounting records or financial information, for the service provider to fulfill the services. In this case, the engagement letter may list down expected actions from the client.

Client’s signature

To confirm that both parties are aware of and agree to the terms stated in the letter, the document must be signed by both a client and a contractor.

Download your fillable Engagement Letter template in PDF.

PDF

How to Fill Out an Engagement Letter Form?

These steps follow the FormsPal engagement letter template on this page, in the same order as the PDF. Download the template, then fill it in on your computer with the online PDF editor or print it and write by hand. Work through the parts below from the date on page 1 to the signatures on page 4. Keep the details of the project, the client and the provider the same from page to page.

The screenshots under each step show the FormsPal Engagement Letter template filled with sample entries in blue, so you can see where each answer goes. The names, addresses, dates and amounts are examples only.

1. Date and Via email. On page 1, enter the date of the letter on the first line and the recipient's email address after “Via email”.

   

2. Recipient, parties, dates and Project Title. On page 1, type the recipient's name, then the Company name and the Service Provider name. Add the Start Date, the End Date and the Project Title on the lines that follow.

   

3. Project Duties and Responsibilities. On page 1, describe the work on the Project Duties and Responsibilities lines. Keep each line short and specific so both sides can picture the finished job.

   

4. Termination Right. On page 1, tick the first box for the Company's termination right. Tick the second box for the Service Provider's termination right and enter the number of days in the blank. Define the number of days required to send a notice.

   

5. Compensation. On page 2, tick Hourly and enter the rate, tick Project-based and enter the flat fee, or tick Other and describe the arrangement. Amounts are in US dollars.

   

6. Upfront Retainer. On page 2, tick the retainer box and enter the amount and the payment date, or tick the box for no retainer.

   

7. Payment Terms: invoice. On page 2, tick the box if the Service Provider will send an invoice that lists hours and services, or tick the box for no invoice.

   

8. Payment Terms: milestones. On page 2, if payments follow milestones, tick that box and list the milestones on the lines beside it. Leave it blank otherwise.

   

9. Payment Terms: other information. On page 2, tick the Other box under Payment Terms and write any extra payment details on the lines provided.

   

10. Insurance. On page 3, tick the box if the Company asks for proof of insurance, or tick the box for no proof of insurance. Optionally, the service provider may require insurance. Clarify if proof of insurance is required from a client.

    

11. Additional Terms. On page 3, write any extra terms on the lines under Additional Terms, or leave them blank.

    

12. Sincerely signature block. On page 4, sign above “Sincerely”, then print the sender's name and title beneath it.

    

13. Service Provider signature block. On page 4, the Service Provider signs on the “By” line, prints a name and enters the date. Lastly, both parties must sign the document.

    

General information, not legal or tax advice.

Jennifer M. Settles

Author & Attorney

With over 25 years of experience as a business and transactional attorney, Jennifer has mastered the craft of closing highly successful deals for her clients. Through her wide-ranging expertise in commercial contracts, real estate transactions, M&A and corporate law, Jennifer secures results that are second-to-none.