Retainer Agreement: Purpose and Who Needs One

A retainer agreement is a work-for-hire legal document or a service contract between a company or an individual and a client. It falls between a one-off-contract and a permanent employment contract. It allows clients and customers to pay in advance for professional services of a company or individual.

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Purpose of Retainer Agreements

The purpose of the retainer agreement is to set out the duties of the parties so that all parties have an agreement on the services that will be provided, how they will be provided, when and at what cost. Retainer agreements are typically used to hire lawyers and freelancers, although they may also be used for consultants, accountants, and other professionals.

The retainer fee ensures that the hired service provider reserves time for the client in the future when there is a need for their services. Unlike a one-time contract, a retainer agreement is a long-term work-for-hire contract and thus can retain ongoing services.

Here more on uses of a retainer agreement.

How Retainer Agreements Work

Retainer agreements do not work on a single formula. However, there is a basic structure followed in all retainer agreements. One party, like a contractor, agrees to provide certain number of hours or certain deliverables each month to the client. In exchange for locking in those hours or deliverables, the client pays a certain amount of fee, called the retainer fee, in advance to the contractor. Once the work is complete, the retainer fee applies to what the contractor is owed, and other hours will be billed at the contractor’s set rate.

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Advantages of Retainer Agreements

Retainer agreements are gaining popularity as service industries need more income stability and try to improve client relationships. Retainer agreements are widely used for legal services, consulting services, accounting services and by freelancers. Here are some benefits of using a retainer agreement:

• Stability: A one-off contract might not bring stable income to an individual or company that is offering its services. However, a fixed retainer fee associated with a retainer agreement ensures stability.
• Time Saved on Marketing: Given that freelancers and professionals would need to look for other clients after a one-off contract ends, marketing commitments are high in a one-off contract for the professional. In a stable retainer agreement, they benefit from a stable fee from the client and a long-term relationship with the client. Thus, they do not have to spend more time marketing themselves.
• Improved relationships: A retainer agreement is a long-term professional relationship. It ensures that the professional is available when needed by the client. This ensures a long-term partnership.
• Predictable Cash flow: Since retainers use an agreed upon retainer fee over a long period of time, it also makes it easier to estimate and maintain cash flows.
• Improved Work: With a retainer agreement, a professional Is paid on a continuous basis, allowing them to focus entirely on the clients’ needs and produce high quality work.

Disadvantages of Retainer Agreements

Retainers come with multiple benefits. Most freelancers and companies would agree that its benefits outweigh the drawbacks. However, there are drawbacks to a retainer agreement for both the client and the professional. Some of them are discussed below:

• Time: A retainer agreement the professional commits to a certain number of hours to the client. This means that they are being locked into a specific schedule.
• Opportunity: Being locked into a specific schedule means that the professional might have to pass on exciting opportunities that might come their way.
• Risk: For a client, retainer agreements can pose some risks. The client pays for the services before receiving them. In months where services are not needed, the client still pays for the hours agreed upon, thus losing money.

Here more on risks and benefits of a retainer agreement.

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Who Needs a Retainer Agreement?

A retainer agreement is widely used in the legal field. It is common for people seeking legal services or anticipating needing legal services to pay a retainer fee to a lawyer who will be available when they need them. This retainer can be an advanced payment for a monthly recurring payment to the lawyer.

Retainer agreements are also used by consultants to provide services to a client over a long-period of time. Especially when the client and professional have established a relationship and the client predicts needing the consultant’s expertise, a retainer agreement provides access to the consultant’s time and services. Freelancers also find retainer agreements to be beneficial. Freelancers often struggle to find a stable source of income and a predictable cash flow. A retainer agreement is a great way to ensure that they have a stable income over a long period of time.

Are you planning to sign a retainer agreement? Here are some things you should consider.

Types of Professional Services Retainer Agreements

There are two types of retainer agreements that a company or individual can use:

1. Pay-for-work retainers: Pay-for-work retainers are often used by companies and professionals that intend to receive ongoing payment on a monthly basis from their clients. This type of a retainer agreement is used when relationships with clients is slightly underway. Companies or professionals get paid for the hours of the work they provide. Pay-for-work retainers are not much different from a contract. However, unlike a one-off contract, professions under pay-for-work retainers are in a loop to deliver services to the client over a long period of time.
2. Pay-for-access retainers: When companies and professionals prefer to get paid for making their expertise and knowledge available to clients, they use pay-for-access retainers. Under this, the client retains the profession on an ongoing basis when services are needed. This is generally used when the client has formed a relationship with the professional and trusts them to deliver high-quality services whenever required.

Here more on types of a retainer agreement.

Getting Help with a Retainer Agreement

Do you have any questions about a retainer agreement and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from contract lawyers who specialize in contracts.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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