Contractors’ Questions: Is the schedule of services legally binding?

Contractor’s Question: Is the schedule of services alongside my contract legally binding? I ask because rather than change the contract, which is PCG-approved, my end-user and I wish to add some changes into the schedule. These amendments would reflect some small changes in the service that they want from me and some developments in how my limited company and their company interact.

Is incorporating these additions in the schedule perfectly legitimate, or is it better to change the contract? Would changing the schedule (rather than the contract) to reflect my working reality, be problematical in the event I was investigated under IR35? Or is it the case that HMRC views the schedule and the contract together, so there’d be no problem?

Expert’s Answer: As contracts are often amended or altered for a given piece of work or for a given contractor, it is fairly common for the body of the contract (with the signatures at the end) to make reference to a schedule which sets out the commercial terms. Often the terms change and it can be easier from a practical perspective to change the terms of the schedule (and attach a new one) rather than amending the body of the agreement.

The status of the schedule though is usually no different to the status of the body of the agreement (I say usually because it is possible to put a provision in the contract to say otherwise), meaning that a change to the schedule will need the consent of both parties (as a variation to the agreement) and will, once made, be binding on both parties. 

Third parties looking at a contract will want to see, not only the agreement itself, but also the schedules to it which set out the commercial terms, meaning there is no significant difference between a change to the contract terms and a change to the schedule.  Both should be kept together and, ideally the schedule should be appended to the body of the agreement.

One point to watch out for, however, is if the body of the agreement makes no reference at all to the schedule. This could be more problematic as it won't be obvious to a third party what the terms are and there is scope for argument as to what terms have been agreed. For certainty therefore, it is worth making sure that the schedule is both referred to in the terms of the agreement and is also appended to the electronic and physical copies of the agreement so that both can be produced when needed.

The expert was Richard Nicholas, a contracts and IT lawyer at Browne Jacobson LLP.

Thursday 28th June 2012