Particularly in the past few years where IR35 has been at the forefront of contractors’ minds, the importance of a contract review tends to focus on its IR35 implications. It is therefore not surprising that recent research by Qdos Contractor found 58% of contractors don’t have the commercial aspect of their contract reviewed before beginning a project.
With a number of recent concerns raised to Contractor Doctor around contractual terms, we asked Qdos to share five key elements for contractors to look for in a contract.
1. Term & Termination
Given that the terms and provisions contained within the contract will generally apply to you throughout the duration of the contract, you should ensure the term of your contract is expressed clearly within the contract, to ensure you are fully aware of the extent of your obligations.
Termination excuses all parties to the contract from further performance of their primary obligations. If either party wishes to terminate the contract they must do so in accordance with the contract, otherwise the termination could be deemed invalid and they would remain bound by the contract. It is therefore important to ensure you are fully aware of and satisfied with the termination provisions set out in the contract.
2. Payment Terms
Your contract should set out in full all of the terms and conditions surrounding the payment process. Not all agencies operate the same invoicing and payment processes and therefore it is important that you understand how each agency works in order to avoid any delays in payment throughout the contractual term.
Some agencies utilise a self-billing system whereby you have to submit authorised timesheets either weekly or monthly by a certain time and/or date, if you wish to receive payment on time. Other contracts place contractual obligations on you as the consultant to submit both authorised timesheets and valid VAT invoices by a set date and using an online system.
Further, contracts of this nature usually set out the circumstances under which agencies may withhold or delay payment to you.
3. Contractual Obligations
There will be numerous clauses within the contract setting out in full your contractual obligations. As you are required to comply with your obligations throughout the term of the contract, you should read all of these carefully to ensure you are familiar and fully understanding of them.
The contract is likely to include (but will not be limited to) obligations relating to insurance, intellectual property, and confidentiality. Failure to comply with your contractual obligations would put you in breach of your contract and therefore could result in termination.
Depending on the drafting, breaching your contractual obligations could lead to the agency delaying/withholding payment and further, it may be that some of the obligations reflect Government legislation and therefore if you do not comply with the same, you could find yourself breaking the law in addition to being in breach of contract.
4. Restrictions
Like most commercial contracts, contracts of this nature are likely to contain post-termination restrictions in addition to the usual contractual obligations. Post-termination covenants survive termination of the contract and therefore you will be bound by these going forward, even following termination.
If you breach post-termination covenants, you run the risk of these being enforced against you which could result in remedies such as an injunction, or damages being sought against you. You should therefore ensure you are comfortable with any such provisions contained within the contract prior to agreeing to the same.
5. Indemnity
An indemnity is a legally enforceable promise whereby a party to the contract accepts the risk of loss that the other party may face in certain situations. In contracts of this nature, there are likely to be clauses meaning that you will indemnify the agency and/or the client against costs/losses arising from things such as tax and/or employment claims (such as an IR35 investigation) and defects caused during the provision of the services.
More often than not, the contract will not be drafted in a way which limits your liability to reasonableness and will not limit the indemnity to ensure you only indemnify against losses arising directly from an act or omission on your part. On this basis, you need to be fully aware of the exact extent of the indemnity provisions to ensure you are satisfied with your potential liabilities.
Qdos Contractor have launched a new Commercial Contract Check service for contractors, so you can fully understand the commercial arrangements you are entering into, and what they mean in practice – ultimately reducing the risk of a contractual dispute. Click here for more information.
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