how an engagement letter works
a letter of engagement serves the same purpose as a contract between two parties however its format is less formal than a contract and it generally avoids legal jargon 1the letter is intended to briefly but accurately describe a letter of engagement is a legal document it is binding in a business deal an engagement letter is less formal than a contract but still a legally binding document that can be used in a court of law 1an engagement letter also serves to limit the scope of the company s services for example when an individual or business secures the services of an attorney the letter might describe the specific purpose or area of expertise in which their services can be used a contractor who hires an attorney to draw up a land purchase cannot call the attorney for advice about his divorce most likely the engagement letter will not state that fact outright but the meaning will be clear because it will specify the scope of work to be undertaken an engagement letter doesn t become legally binding until it is signed by all parties advantages of an engagement lettersetting expectations is an important part of a business relationship and an engagement letter makes these expectations clear on both sides the client gets the reassurance of knowing when a service will be completed how much it will cost and the specifics of the scope of work the letter also makes it clear if other costs are involved that are not covered in the agreement such as required software that must be purchased separately by the client the business benefits from having clear boundaries regarding the work that will be performed from the beginning of the project this is intended to prevent scope creep something that every tax accountant and attorney dreads the letter may also cite services that lie outside the current agreement but may be added in the future as needed with an estimate of the costs of these additions an engagement letter also protects both parties in the event of a dispute or disagreement it may include a clause regarding mediation or binding arbitration as a first step rather than legal action special considerationsif the relationship is long term many companies require their engagement letter to be updated and signed again by the client annually this allows for any changes in the business relationship over time and strengthens the legal standing of the document it also reiterates the scope of the agreement which can change over time and establishes any new costs or fees related to changes in services provided who prepares a letter of engagement an engagement letter is drafted by the company rendering the service often with the help of a lawyer it is than presented to the client and both parties must sign in order for it to be legally binding 