Understanding IT contract terminology: 25 key terms explained

It’s always easy to be confused by terminology, particularly if it relates to a type of industry that you are not familiar with.

And nothing can be much more confusing than ‘legalese,’ not least as it consists of a mish-mash of old and new English, plus Latin (although the latter is frowned on these days).

Compounding the situation, different draftsmen have different styles of language usage.

But here, exclusively for ContractorUK, I will attempt a rundown of some key terms or common ‘legal’ words that you may encounter in a standard contract, to assist you in understanding IT contract terminology, writes Adrian Marlowe of Lawspeed.

1. Contract/agreement

These terms are interchangeable – a contract refers to a legally binding agreement between two or more parties to do something in exchange for something else.

2. Party

A person who is a party to the contract.

3. Timesheet

A record of time spent by the contractor.

Although normal practice is for a timesheet to be signed off by a client, legally this is not normally a requirement for a timesheet to be valid.

4. Opt-Out

Written notice by a contractor and his/her company to an employment business that both the contractor and the company have agreed that the Conduct of Employment Agencies and Employment Businesses Regulations 2003 shall not apply to the engagement.

5. Assignment

Either the description of the services or the time to be spent, or reference to transfer of rights from one party to another.

6. Solicit

Entice someone away from their job.

7. Deliverable

The thing or things to be delivered under the contract.

Having something to deliver, for example a project where delivery is the passing to the client of the completed work, often is evidence that the work arrangement is not subject to IR35 taxes.

8. IR35

The name given by HMRC to an Inland Revenue press notice issued in the year 2000, that introduced the body of tax avoidance rules otherwise referred to as the ‘Intermediaries legislation.’

9. MSC

The tax avoidance rules introduced in 2007 and known as the ‘Managed Service Company’ rules – a framework which applies to organisations that control payments to contractors.

10. SoW

Also known as SOW,  this is a ‘Statement of Works.’

It’s an alternative expression for deliverables referring to the written document recording what is to be done under the contract.

11. Product / Service

These terms are sometimes interchanged but are a reference to whatever it is the contractor is providing for the client.

12. Person

In UK law, ‘person’ can be an individual or another legal entity such as a company.

13. Company

A legal entity that is not a human being!

14. Guarantee

Usually refers to a promise to pay in the event that something goes wrong.

For example, a contractor who guarantees the performance of the services by his/her company could result in the individual becoming liable for loss caused by a breach of contract by the company.

15. Warranty

A statement that what is being stated in the related part of the contract is correct such that the other party can rely on it as a fact, and which gives rise to potential additional liability if it transpires to be incorrect.

16. Indemnity

The obligation to pay if a stated event occurs.

17. Liable / Liability

The is used to describe responsibility for recompensing another party in the event of a breach of contract or negligence.

18. Undertaking

A formal promise to do something which the other party can rely upon.

19. Procure

A party required to ‘procure that’ something is done is required to make absolute certain that it is done, and a party who is required to procure that someone else does something is liable if that person does not do it.

20. SDS

This is shorthand for ‘Status Determination Statement.’

And an SDS is to be provided by a client as to whether the engagement is deemed employment under the IR35 rules.

21. Term

The period of the contract.

22. KPI

Short for ‘Key Performance Indicator’, this term is a measure applying to performance.

23. Milestone

The point at which certain deliverables are to be provided or payments are to be made.

24. Time and Materials

A self-explanatory term which typically refers to a type of contract – notably based on the hours, days, weeks required for something to be achieved/delivered, and the associated materials (such as software). The opposite to 'Fixed Price' contracts, so-called T&M contracts are to be avoided by those who operate outside IR35!

25. Reasonable

The most subjective and therefore argued over word in the English language, which finds its way into tax clauses and legal agreements more than it should!

Final thoughts

There is almost no limit to IT contract terminology (especially with technologies developing and client-expectations evolving).

Therefore context is everything. It’s important to understand what a proposed contract means before agreeing to it. Reach out to us if that’s help you could benefit from.