Engagement Letter An engagement letter is a written agreement that defines the working relationship between a service provider and a client. It outlines the scope of work, terms, fees, timelines, and other expectations to reduce ambiguity and limit liability. While usually less formal than a full contract, an engagement letter is legally binding once signed by all parties. Key points
Defines scope of services, deliverables, deadlines, compensation, and terms.
Sets expectations to prevent misunderstandings and "scope creep."
Commonly used by attorneys, accountants, auditors, consultants, and other professionals.
Legally binding when signed. Explore More Resources
How it works An engagement letter functions like a concise contract that communicates what will—and will not—be done. Typical elements include:
Description of services to be provided
Specific deliverables and deadlines
Fee structure, billing terms, and any out-of-pocket costs
Limitations of scope and exclusions
Dispute-resolution provisions (e.g., mediation or arbitration)
Signature lines for all parties Example: if an attorney is hired to handle a land purchase, the letter will typically limit the attorney’s responsibility to that matter and not cover unrelated legal issues like family law. Explore More Resources
Advantages
* Clarifies expectations: clients know what to expect, when, and at what cost.
* Prevents scope creep: clearly defined boundaries reduce unauthorized additional work.
* Reduces disputes: written terms provide evidence of agreed responsibilities.
* Protects both parties: can include clauses for dispute resolution and liability limitation.
* Facilitates project planning and resource allocation for the provider.
Special considerations
* Preparation: service providers usually draft the engagement letter, often with legal input, and present it to the client for signature.
* Timing: issue the letter before work begins.
* Updates: reissue or update the letter whenever the scope, services, or pricing change. Many firms require annual re-signing for ongoing relationships to reflect changes and strengthen legal standing.
* Formality: shorter and less jargon-heavy than a traditional contract, but still enforceable in court when properly executed.
Common questions Q: Is an engagement letter the same as a contract?
A: It serves the same legal purpose but is typically briefer and less formal. Both can be legally binding. Q: When does it become legally binding?
A: When signed by all parties. Explore More Resources
Q: Who should draft it?
A: The service provider typically drafts the letter, often with legal counsel; the client reviews and signs. Q: How often should it be updated?
A: Update when scope, fees, or terms change; many providers update annually for ongoing relationships. Explore More Resources
Bottom line An engagement letter is a practical, legally enforceable document that sets clear expectations between a client and a service provider. It reduces misunderstandings, limits liability, and provides a basis for resolving disputes, making it an essential tool for professional and business relationships.