'I signed a contract to start next week. Now the agent says the Client failed their credit checks, and wants me to sign a fresh document and go direct instead; he says not to worry about this, he'll invoice the Client separately for his fee! But I don't feel quite so relaxed about it.'
Contractors often long for the opportunity to be able to go direct and keep everything the Client pays, without an agency taking a cut.
It seems to me that the Contractor generally benefits in three ways from the involvement of an Agency - matching the Contractor's skills to the Client's opportunity; smoothing the cashflow; and carrying the risk of the Client not paying. Most agencies are set up to be able to manage each of these angles effectively, and can devote resources to them which the Contractor - who need to be able to spend all his time actually earning money, and with 100% of his concentration on the task in hand - cannot hope to do. That's why the industry works as well as it does.
It's a sad fact that many businesses try to manage their cashflow by delaying payment of bills - and if a Client gets into difficulty, these delays are likely to get longer. An agent however knows full well that its reputation with contractors, maybe built over years, would be lost in a week if it failed to pay on time.
You have to first view the problem from a commercial point of view - how would the proposed changes affect you? There's no more money on the table, but you're now being asked to handle the administration of billing the Client and chasing for payment - and the risk of not being paid if the Client gets into difficulties. The agent, having perhaps jumped the gun and got everyone signed up, now gets a report from his credit control people or factoring company, telling him that the Client's creditworthiness is less than perfect. Quite why he should expect you to carry a risk which he now thinks too high to carry himself is beyond me.
You already have a contract with the agent. According to its terms, they would have to give you 4 weeks notice to terminate. So write to the agent and say politely but firmly that you already have a contract, that you yourself intend to honour its terms, and that you expect him to do likewise - in other words, just say 'no'.
Timing is crucial - you must do this straightaway, and before you turn up for work on the first day - otherwise there is a risk that, by doing so, you will show agreement to vary the contract.
And that leads me on to another problem I encountered this week. A Contractor had gone direct under such an arrangement. Not one bill had been paid on time, and each of the cheques that had been received had bounced at least once. Then one day the Client told all its Contractors that they had lost the contract for the project, and that they would no longer be required.
The contract, whilst generally one sided, did not give the Client the right to terminate prematurely. So the Client was in breach of contract on two counts - first, because of the payments that remained overdue, and second, because of the purported premature termination.
If one party is in serious breach and shows that it no longer intends to be bound by the contract, then the other party can terminate for breach. The party in breach is no longer entitled to the benefit of the contract, and the innocent party released from further contractual obligations.
Here, that means that all outstanding invoices become payable immediately, even if they're not yet due under the contract terms. The Client remains liable to pay the Contractor for the remainder of the contract period, as damages for breach - the Contractor is entitled to be placed in the position in which he would have been, had there been no breach. The Contractor will have to mitigate his loss by trying to find other work during that period, and give credit against the damages for any other earnings during that period. If there were any ongoing terms in the contract (such as a restriction), the Contractor would be released from them.
The Contractor is entitled to immediate payment, and could start legal action in the County Court straightaway. Time alone will tell whether or not such action eventually results in payment.
Two lessons emerge: be wary if an agent tries to get you to contract direct; and if you have difficulties in getting paid, don't let misguided loyalty towards a Client who seems to want your work but finds difficulty in paying for it prevent you from taking immediate action - don't let things drift while the debt just gets bigger!
24th July 1998
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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