A contractor's covid-19 guide to negotiating your new client and agency contracts
The PM is ushering certain occupations back to work. A mini-Budget was just delivered on the same theme. And there’s even an online widget to gauge if you should leave the safety of your own home to defy coronavirus and re-enter the workplace.
So a new set of contracts and negotiations will likely be lying in wait to confront contractors and consultants when they too resume ‘business as normal’, writes Lily Morrison, legal consultant for Gerrish Legal.
Interestingly, us law firms often stress the importance of certain clauses for contractors and suggest wording to ‘look out for’ or ‘push back on,’ when it comes to tying up agency deals.
Suddenly sticky wickets, and newly fortified positions
While contractors negotiating their agency and client contracts every month or three will likely have grown accustomed to the process, the ‘new normal’ might make arguing a point or insisting on a clause a bit of sticky wicket to occupy.
So ordinarily it can be intimidating or feel frustrating when you’re pushing for just a bit of wording to be included. But in today’s climate, it might look plain awkward that you’re not being flexible in an age where flexibility has just become the new buzzword across the world of work. It might even lose you the contract outright.
Let’s assess how to negotiate the main clauses of a typical consulting agreement, include some points you should be wary of and give a little practical, covid-inspired advice to use, in the event that you need to manoeuvre yourself around some newly fortified contractual positions.
1. Before you negotiate – is he/she really the decision-maker?
Make sure the person you are negotiating with has the appropriate authorisation from the business they are representing in order to contract with you. There are common law rules on “agency” to determine who is acting on behalf of a company, and the authority that they have to create and change legal relations on behalf of them.
These rules can be complicated when there is an argument that the company they represent did not recognise their agency, or that they gave the impression to you that they did have agency. It would be incredibly frustrating to be promised an attractive set of terms by HR, only for the organisation to later push back on them in a letter advising you that you ought to have been speaking to a commercial manager in the procurement department.
Therefore, ensure from the outset that the company makes clear to you that their representative has the required authority to make agreements with you- and, as always, keep this evidence in writing!
2. Keep your cards close to your chest, ideally with an NDA
It is essential that you think about what you will be sharing while you negotiate. Sadly, we often see contractors and consultants sharing business information and ideas, and more unscrupulous clients can take this information and run, without concluding a business agreement.
While there are legal rules that prohibit a person who has received information in confidence from gaining an unfair advantage from the information disclosed, you would still have to fulfil certain conditions in order to prove a necessary “quality of confidence” and the circumstances that demonstrate confidentiality. In reality, this can be difficult to prove and places you in a highly precarious situation.
To avoid creating legal barriers that you will need to pass in the case where a dispute arises, think about having a “Non-Disclosure Agreement” (‘NDA’) in place, to protect your information and prevent such a scenario from arising. An NDA is a must-have when you are revealing innovative ideas or business plans, or even if any confidential information about your work or product/service is revealed during the negotiation stage.
We often hear independent contractors, consultants, and sole practitioners state that they do not feel confident asking their clients to sign an NDA, or they are unsure as to what an NDA should contain. However, asking for an NDA to be signed can actually show the value that you provide, as you have taken the initiative to protect your services and ideas. Here at our London and Paris-based firm, we have done a lot of research into the importance of having such agreements in place, and currently have an offer for a bespoke one-way template NDA if you do not have an NDA in your toolkit yet - check it out here.
3. The tête-à-tête (and other potential flashpoints)
We understand that negotiating can seem timely and adversarial at times. It may be that your client seems more informal and you don’t want to put them off creating a relationship, or, perhaps an agency has its own solid terms that it does not seem to want to alter. However, contracts are in place to protect both parties. In issuing a contract you are looking to protect your client, and in negotiating it you demonstrate that you understand the industry you work in.
Please don’t be tempted to agree to a company’s vague-looking standard terms, or the tender documents you have exchanged before agreeing to finer details in order to speed up to process.
This lack of detail can often cause contractual disagreements in the future, and contracts which are uncertain can be found to be unenforceable by courts.
4. Watch for key phrases that get approved, undefined
Before contract negotiation begins, it is common to issue tender documents promising to “enhance business functions” or “complete project requirements.” But if you do not carve out what this actually means, precisely, how can anyone know what they are agreeing to?! In such cases, if a dispute arises a court can refuse to enforce the entire contract due to its vagueness.
This being said, while it is important not to hold back when negotiating as you must fight your own corner, we do understand that you do not want to go too far the other way and scare a potential business partner off with an aggressive negotiation.
So, here are our top tips for a negotiation which will lead to a good, successful business relationship.
i) Ask yourself why you’re in this fight and envisage the reasonable outcome(s)
If you are negotiating a contract yourself without legal representation, there is plenty of guidance online about wording that you should and should not accept, or clauses you should always include. However, before asking for particular wording, you must think about why you want it and whether it is actually useful for you.
The main reason for asking for any wording changes in a contract will almost always be to do with risk. When you think about the risks under the contract, you should think about what could go wrong, and if it did, how much it could cost you.
For example, a contractor might need to think about the likelihood of contribution claims from third parties. It might feel important to strictly limit liability to claims from the party you are contracting with. This is a completely valid reason to limit liability, and it is reasonable to ask a contracting partner to protect you from this possibility.
However, before strictly pushing back on requested wording for fear of a risk under the contract, think about whether there any reasonable steps you could take to mitigate the risk.
- Could you qualify that such third-party claims are limited to strict circumstances?
- Could you qualify that such third-party claims are limited to a certain financial amount?
Mapping out these considerations and making sure you only push back on points which are necessary will demonstrate to the party you are contracting with that you are only asking for what is reasonable.
When you ask for a clause to be inserted or for wording to be changed, it is useful to provide the other party with a comment explaining why you need this clause. Of course, to do this, it is essential that you understand the legal effects of the clause you are requesting -- for any wording you do not understand, we would always recommend getting independent legal advice.
ii) Explain and set it out – to stop the fear factor of them taking your clause badly
Ensure that before asking for any changes, you have mapped out the risks, the potential consequences and the possible mitigation measures.
These should demonstrate your reasons for asking for particular clauses or wording, and you can use them to explain your concerns to your agency or client. Use your own internal risk evaluation as a way to demonstrate that you are not being unreasonable -- you are merely being sensible! This brings us on to our next point.
iii) Run your own reasonable-ness test, again and again, so your fairness isn’t in doubt
The parties that you are negotiating with will likely be just as experienced in negotiation and contracts as you are. If you think something is too good to be true, they will too!
Don’t push for wording which only protects you and ignores them. Think about whether you would accept the wording you are pushing for. You should be able to explain to them the valid reasons you are asking for wording, and if it doesn’t seem fair, don’t ask for it!
As well as affecting your relationship with the party, there can be legal consequences if you are not reasonable. Restrictive covenants, for example, can be included in a contract to prevent an individual from working with another company which might compete with their previous contracting partner. There are strict rules around the reasonableness of these clauses which can affect their enforceability.
The “blue-pencil-test” means that if there is wording in the clause which is not acceptable, it can be deleted by courts. However, this is on the condition that the rest of the clause is reasonable and the deletion does not change the inherent meaning of the clause. If this is not possible, and if the clause is not reasonable, the entire clause will not be enforceable. So, that time spent negotiating a contract which only protected one party would be time wasted in the end!
If you want wording which heavily protects you and which the party would probably otherwise object to, you might need to think about making concessions on other points. If a party is simply not willing to accept wording which feels unreasonable to them, consider our next TIP:
iv) What else can you offer, tweak, or suggest, to end the standoff?
Think about re-defining your obligations. Perhaps a party is pushing you to accept unlimited liability for work which could have potentially high liability -- involving personal data, for example. If the party will not step down from the high cap it wants, consider re-carving your obligations under the contract so that there is less liability this way. For example:
- You might clarify that in fact, your work will not involve any personal data, only anonymised data.
- You could ask to reduce your absolute obligations to be “reasonable endeavours” or a “duty to use reasonable skill and care.”
- You propose qualifying the warranties you are giving to state that that this relates only to actual knowledge at a specific time.
The key thing is to think of ways that you can reach your desired level of risk, by changing other sections in the agreement which might be more agreeable to a client.
Of course, this does also require a level of understanding the wording you are pushing for and the effect that the rest of the contract has on this wording. So if you are ever in doubt, seek legal advice.
Lastly, negotiation is your first impression
A contract will not be formed until negotiation is completed and demonstrating yourself as being unreasonable or inflexible during the negotiation process could ultimately lead to you losing business, at a time when the pressure to win and retain business is immense.
But in our experience of this pandemic and before it, if you are flexible on certain points which are important to the party you are negotiating with, they will also be flexible with you on your own ‘hard lines.’ Use the negotiation process to learn about the party you are contracting with.
Finally, and to reiterate, ensure you have mapped out the risks you are avoiding, can explain your risk appetite, and can demonstrate that there are no other acceptable mitigation measures except for the raft you’ve tabled or tried to suggest. Never be afraid to ask for wording which protects you -- the whole point of the contract is to protect you and the other party. Good luck with your negotiating!