An Engagement Letter is a document that sets out the business relationship between a client and a company. This letter serves as an agreement between the two parties on the terms of their engagement. This includes details on the services being offered, client responsibilities, deadlines and compensation. In addition, the document outlines the nature and limitations of the services being provided.

As a company providing services, an engagement letter will help establish transparency and understanding in your relationship with a client. Having a set of defined expectations and terms to which both parties are satisfied with is highly advantageous. This will help limit the potential for disputes and misunderstandings to arise with your client in the long term. An engagement letter in effect acts as a contract between the two parties and is considered a legally binding document. 

Use this Engagement Letter If:

• You’re entering an agreement to provide services to a client
• You want to establish the terms and expectations of the relationship prior to commencing

What does this Engagement Letter Cover?

• Purpose and scope of services
• Client responsibilities
• Period of engagement
• Confidentiality
• Estimated pricing
• Professional fees
• Terms of trade

Frequently Asked Questions

Who needs an engagement letter? 

An engagement letter is needed in various professional fields and industries to formalise the client-service provider relationship and clarify expectations.

Examples include:

• Legal Services

• Accounting and Audit Services

• Consulting Services

• Financial Planning and Investment Services

• Real Estate Transactions

• Construction and Contracting Services

• IT and Technology Services

• Healthcare Services

• Freelance and Creative Services

• Nonprofit Organizations

• Insurance Policies

When do I need an engagement letter?

Engagement Letters are commonly employed when a professional services firm is enlisted by a client for a specific task or project.

Many businesses incorporate Engagement Letters into their client onboarding process. While typically less formal than contracts, Engagement Letters hold legal validity.

When should I send an engagement letter? 

You can send an engagement letter in the following scenarios: 

• Send an engagement letter when you onboard a new client or customer.

• Whenever you undertake a new project or provide a new service to an existing client outlining the scope, terms, and conditions related to that project or service.

• If there is a significant change in the scope of work, fees, or terms of the engagement

• For ongoing or retainer-based services, at regular intervals (e.g., annually) to reaffirm the terms of the ongoing relationship.

When should I update an engagement letter? 

You may want to send an updated engagement letter in the following scenarios: 

• If the scope of work evolves during the course of the engagement, update the engagement letter to reflect the current scope and any associated changes in fees or timelines.

• Any changes in the terms of the engagement, including fee adjustments for clarity 

• If there are changes in laws or regulations that affect the engagement

• If the client requests modifications to the engagement terms or if both parties agree to certain changes, then to document these adjustments.

• In longer-term projects with milestone achievements, consider updating the engagement letter to reflect progress and any adjustments to the original terms.

Consider reviewing and engagement letters periodically to ensure they remain accurate and relevant.

Other documents you may need:

• Memorandum of Understanding

• Service Level Agreement