I've noticed a tendency on the part of some
contractors in recent times when considering the terms of a new contract to
focus solely on IR35 related factors, but to be far less concerned about the
basic commercial aspects of the relationship.
This in my view is potentially dangerous.
The core issue is this: whilst getting the IR35 angles wrong can
lose you 25-35 percent of your income, making too many compromises on the basic
commercial issues can lose you 100 percent.
It's worth having a review of what those basic commercial issues are,
and of how we should normally expect them to be covered.
1 A clear
statement of what you will be doing, which accurately reflects your own
understanding of (so far at least as is practicable) the precise nature of the
services you will be providing, including not only the 'what', but also the
'where' and the 'when' – the more accurately the contract specifies these
items, the less risk there is of things going wrong because of
misunderstanding, or because of a gap between expectations (on either side) and
reality.
2 Payment
terms need to be clear. They should
always state that the rate is VAT exclusive.
Where the rate is a daily rate it should be clear how many hours (or
what bracket of hours) are expected in return.
It should be clear when you are and are not entitled to charge for
additional hours. The invoicing
frequency (weekly, monthly, or whatever) and the credit period (time from
invoice until payment) must be stated.
You need to have certainty as to the date on which to expect payment,
and to be able to know on what date any payment due from the agency will become
overdue, so that you can take any appropriate action. Any terms which may appear to give the agency the right to
withhold payments or set-off any claims they may think they have against you
should certainly be firmly resisted.
3 Termination
provisions also need to be clear; it is
of course right that both parties should have the right in all but very short
contracts to terminate early on notice and without fault part of the
other. This is a perfectly reasonable
commercial provision, and apart from the obvious fact that it allows either
party to end the contract early in an orderly way in the event of unforeseen
circumstances, it also puts a ceiling on the damages for which either party
will be liable in many cases of breach of contract resulting in early
termination.
It is also right that either party should have the right to terminate
without notice in the event of material breach of contract on the part of the
other - including any failure by the agency to pay within seven days of the due
date.
Beyond that, my own feeling is that other provisions allowing for
termination without notice are generally unreasonable. Often one sees terms which appear to allow
the agency the right to terminate without notice in case of ‘misconduct’,
‘failure to comply with Client's rules’, and a long list of petty misdemeanours
and other grounds. The answer to the
agency asking for such terms should be to say that to the extent that such
things may amount to a material breach of contract, they already have the right
to terminate under the 'termination for material breach' provision - and to the
extent that they do not, they are not accepted as reasonable grounds for
termination without notice.
The other point to be wary of here is terms which allow for termination
without notice if the agency's contract with the client ends. Accepting this term can create a
coach-and-horses-sized hole in the 'termination on notice' provisions, because
it effectively gives client the right to cause the contract to end early
without notice and without cause - precisely what we're trying to avoid. Such a term should be resisted, and the
contractor's position should be that the contractor would expect proper notice
if the client wished to terminate early in the absence of fault on the part of
the contractor.
4 Terms which
operate to restrict what a contractor can do after the contract has ended
should be carefully scrutinized. Such
terms should neither be too broad in scope nor too long in duration. Contractors should resist accepting
restrictions which lasts longer after the end of the contract than the duration
of the contract itself, or which seek to restrict the contractor from dealing
with anyone other than the client itself.
In an ideal world, the restriction itself will make clear that the restriction
will cease to have effect if the contract is terminated as a result of fault on
the part of the agency. Whilst not
strictly necessary, such a provision may remove a source of spurious argument
if this unfortunate event happens - as sometimes it does.
In general, you should expect
all other contract terms to pass three tests:
First, they be as
fair and balanced as is consistent with the nature of the term and the contract
itself.
Secondly, they
should be objective and not subjective - the effect of the term should not be
dependent on the other party's whim.
And finally, they
should be easy to understand, without you having to engage a lawyer tell you
what they mean - if you don't understand a term, don't accept it!
15th
September 2000
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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