Contractor contracts: when you need to draft the contract yourself

IR35 Test

Contractors contracting direct with clients can be asked to prepare a draft ‘contract for services’ for review. For those dealing direct with a client for the first time, this can be a daunting proposition, particularly if time is tight to secure the work.

The client will be expecting a professional contractor to provide a comprehensive and detailed draft contract that includes all the standard clauses a contracting contract should have, plus schedules containing information specific to the contract being bid for.

And, considering the contractor will be bound by the contract for the duration of the project, which could be six months or more, there is no room for mistakes that could leave the contractor out of pocket or unprotected should something go wrong.

Sources of contractor contracts

Contractors asked by a client to provide a draft contract have a range of options to choose from:

  • Contracts from previous assignments
  • Generic business contract templates from enterprise support organisations
  • Standard ‘services’ contracts from online stationers and legal suppliers
  • Specialised contractor contracts from membership-based contractor organisations
  • A contract of service created by a generalist commercial solicitor
  • A bespoke contract from a specialist contractor legal expert.

Although template contracts are generally available free from government-subsidised enterprise support agencies, or available to purchase at low cost from online suppliers, contractors should be cautious. That’s because most draft contracts from such sources are oriented at the general small business market. As a result, contracts of this type may include content that is not appropriate or relevant to a knowledge worker like a contractor and may be missing vital clauses and schedules. It is even possible that they will include provisions or clauses that could work against the contractor’s interests.

Specialist input can be worth the investment

Contractor organisations like PCG provides its contractor and freelancer members with draft contract templates as part of its membership benefits, and these can be a good place to source a basic contract written specifically for contractors.

A previous contract from another assignment should also have been written with contractors specifically in mind, but if provided by a previous client it will almost certainly be written favouring that client. There could also be copyright issues, and the previous client will own the copyright in the contract.

If a contractor is tempted to start with a free contract template or cheap draft contract download, then at the very least they should ask a contract lawyer to check through it before they send it to the client. This is not an ideal situation, but cheaper than asking a legal specialist to create the contract from scratch.

Commissioning a contractor legal specialist will ensure that a contractor has a contract tailored specifically to their needs and that has been written in their favour. This can be the most expensive route compared to the other options, but the few hundreds of pounds it costs could prove a very small investment compared to the money a contractor could save if something later goes wrong.

Ideally, contractors should invest in paying a contractor contract specialist to check the draft contract and potentially negotiate changes on their behalf.

When the draft contract is supplied by clients and agents

If the contract is being advertised through a recruitment agency, then the agent normally supplies the draft contract. And if the contractor is contracting direct, the client will sometimes supply the initial contract. Contractors should proceed cautiously, as of course these draft contracts will be written in favour of the agency and/or client.

Contractors should never accept an agency or client contract at face value and should always carefully check through the draft contract. These may include some clauses that could cause a contractor difficulties in the future, particularly if they relate to IR35 and other tax-related issues that have the potential to reduce considerably the net value of the contract.

Ideally, contractors should invest in paying a contractor contract specialist to check the draft contract and potentially negotiate changes on their behalf. Although this cost may seem steep at the time, it’s money well spent in the event there is a contract dispute, or the contractor is later investigated by HMRC looking for contractual indications that they are a ‘disguised employee’.

Published: Wednesday, March 31, 2010

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