Ready a fine-tooth comb for your next contract

With public sector organisations starting to reflect new ‘off-payroll’ rules by inserting fresh provisions into personal service contracts, there’s never been a better time for limited company contractors to thoroughly check through a contract well in advance of signing it.

One-person suppliers to the private sector can’t afford to skim-read either, as there’s no sign that the government is backing down on the proposed framework for ‘controlling persons’ which, likewise, will see new clauses paraschuted into contracts.

The sad fact is that if a business signs up to a contract they will generally be bound by its terms whether they have read it or not. Trying to argue or negotiate your way out of an unfavourable deal is much more difficult, and the outcome is less certain, than making sure you are happy with it before signing up in the first place.

There are various reasons why a business might agree to a business contract without checking it first.

  • Being keen to get on with the work
  • Shortage of time before the project starts
  • Pressure from the other party, such as a client or recruiter
  • Concern that a rival will steal your job by signing before you

Believe it or not, simply not understanding the document and taking the other party’s word for it when they say that it only reflects the terms which were discussed, is another common ‘reason.’ Whatever the excuse, that failure to check through with a fine-tooth comb can cause a business unexpected problems, losses and expenses.

Part of the problem is that all kinds of business agreements are negotiated in hurried meetings, over mobile phones or through email – or a combination of all or any of these.

You and the other party may both think you have a clear understanding of what has been agreed, but I have come across so many examples of cases where that understanding differs, sometimes quite drastically. If your client or agent decides to get that understanding put into a written agreement they will be the one preparing it or having it prepared for them, so it will reflect their understanding of the deal and may have a few – or more – protections added in for good measure, all of which will invariably be for their protection.

That is where the trouble can start.

You will be told that the agreement covers the deal you have agreed. In my experience, when someone comes to write the agreement they will inevitably need to be more specific on one point and add clarification of another. There will always be issues which weren’t addressed in the negotiations, but which should be covered from a legal point of view and that is only right and proper.

But the effect of those additions and clarifications could have a serious impact on your business. For example, a limitation on your end-client’s liability might have been added. If you don’t realise it’s there, how can you make sure it doesn’t cause you problems in your contracts with your other customers - with your business being caught in the middle? Or your client might have included an indemnity which you can’t reflect in the contract with your sub-contractor or agent if you don’t know about it. You wouldn’t want to be responsible for your business suffering the consequences in such circumstances.

So three 'must-ask-yourself' questions before you sign that next contract:

  • Does the small print match the terms you have agreed with your client, agent, sub-contractor or business partner? 
  • Have you developed the basic terms you have agreed into a full form agreement for their signature?  
  • Where are the pitfalls and, in the event these pitfalls are contractually realised, how can you protect your personal/business interests?

If you aren’t sure, or cannot check or understand the contract that has just landed on your desk, we can help, so you don’t have to risk accepting it.

Based on comments to ContractorUK from Sue Mann, a commercial solicitor at Cousins Business Law.

Editor's Note: Further Reading -10 things to be wary of when signing a consultancy contract

Wednesday 5th Sep 2012
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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