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Contracting mindset tips: clauses preventing you bypassing agencies are enforceable

Your agency has invested considerable time and money in brokering the deal between you and your client. It is therefore perfectly reasonable for agencies to include restrictive covenants in the contract that prevent you from contracting direct with the client. These covenants are enforceable and should not be taken lightly.

When you broker a deal, you expect to receive your cut, don’t you?

Let’s say you’re running a small building firm and you’ve just won the contract to build a new leisure centre pool. You’ve lined up all the subcontractors and built your margin into the price. But in week two the subcontractors up sticks and start working for the client direct, cutting you out. Would you take that lying down, after all the time and money you invested to win the work?

You want to downsize from your large townhouse, asking a local estate agent to make the sale. They run an ad campaign and throw a couple of open house receptions and find you a buyer. You promptly try to cut out the estate agent and deal direct. What action do you think the estate agent would take?

Restrictive covenants are contractual clauses to protect agencies’ investment

Despite the fact that an estimated 80% of all UK contract work is sourced via recruitment agencies, some contractors think that it is perfectly acceptable to circumvent the agent and work for the client direct. This is the case even though it is the agency, in common with the building contractor, which has spent time and money assembling the team of contractors required by the client to complete the project.

Recruitment agencies, just like estate agencies, incur advertising and marketing costs to attract contractors to contract opportunities with clients that they would otherwise be unaware of or unable to sell their services to.

Some sector-specialist agencies also carefully follow their client markets and then spot and exploit brand new markets for their ‘roster’ of contractors. These contracts might otherwise not even exist, if it were not for such switched on and market savvy agents.

Clauses stopping you from bypassing agencies are enforceable

Having a contract in place protects agencies from the actions of less than scrupulous contractors who don’t appreciate the value that agencies bring to the contracting marketplace.

Like the scheming swimming pool subcontractors, if you decided you’d get a better deal dealing direct with the client following an introduction by the agency, the agency’s restrictive covenant is enforceable and would prevent you from doing so. If you went ahead anyway, the covenant is likely to be enforced to ensure that the agency receives the agreed share of your earnings for effectively brokering the deal.

Equally, if the client suggests that you might want to come and work direct for them, this is like a house owner inviting a prospective buyer to deal direct and split the difference of the agency’s margin. So beware, because it is likely that the agency will come after you for their share and not the client.

Contractor mindset tip:

Contractors who flout contract terms by trying to deal direct with the client should expect enforcement action from the agency.

Published: 01 March 2011

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