Building my engagement letter template and want to make sure I'm not missing anything critical. What clauses do you include?
What should be in your engagement letter?
At minimum: scope of work (which accounts and utilities you're auditing), fee structure (contingency percentage, what it applies to — refunds, ongoing savings, or both), fee calculation period (how many months of ongoing savings the fee covers), payment terms (when the fee is due), term and termination provisions, LOA authorization, confidentiality clause, limitation of liability, and a process timeline. I also include language that the fee applies to all savings identified during the engagement period, including savings the client implements without my involvement.
Phil covered the essentials. A few additions I strongly recommend: a clause stating that your fee is earned upon identification of the savings, not upon collection of the refund — this protects you if the utility is slow to pay. A clause covering what happens if the client terminates the engagement before completion. And the disclaimer Derek mentioned in the E&O thread: that your analysis is based on historical data and the client should notify you of operational changes. Finally, make the engagement letter simple and readable. A 10-page legal document scares clients. Two pages in plain English closes deals.
The "fee earned upon identification, not collection" clause is huge. I didn't have it in my first engagement letter and had a client delay paying me for 9 months because the utility was slow issuing the refund. Not the client's fault but I was out $12,000 in fees until the utility paid. Now my letter clearly states the fee is due within 30 days of my findings report, regardless of when the utility issues the refund.
This is incredibly helpful. Drafting my letter now with all of these clauses. The "fee earned upon identification" point alone is worth its weight in gold.