What Makes a Good Contract?

The contract which you hold with your client or agency is essential to your operations, it confirms your engagement and sets out the terms which have been agreed by you and your client or agency. Contracts can vary and although there is no set requirements for a contract, there are good ones and those of lesser quality, so what should you be looking for:

  1. Ink and Paper It is quite possible to enter into a verbal contract, and although these are still legally binding, the terms can be very difficult to prove in a dispute. Any enquiry becomes a ‘your word against theirs’ type scenario which is less ideal than written clauses signed from the outset of the engagement.
  2. Clarity Most contracts will consist of two parts; the terms (this is the legal aspect) and the schedule (this is the engagement specific aspect). The legal terms are usually held in the bulk of the contract and the schedule will change for each engagement, so if you renew a contract, you will probably only review the schedule as opposed to the terms. The schedule is where the schedule of payment, start and end dates and scope of work to be provided will be laid out. The contract should also clearly lay out the parties of the contract, and there should only be your company and your agency or (but not and) end client as parties to the contract.

    In general, a good contract is understandable and unambiguous. Although you may need a lawyer to review the contract, you should be able to understand what is being agreed to just by reading it, although jargon does come with the territory.

  3. Detail A vague contract will not do you much use at all in a contractual dispute. A contract which goes to detail with the terms agreed to and the scope of services offered will fare better if there is ever a disagreement, for obvious reasons, there are clear terms and conditions which have been laid out and agreed to by both parties. For example, if you have a disagreement with your client whereby your client believes you cannot take on concurrent contracts, but in your contract it clearly states that you can, it should be a fairly clear-cut case. If there is no mention of concurrent contracts in the contract at all however, it will be more difficult to prove your right.
  4. IR35 Compliance A good contract will support a UK contractor’s position to being classed as a genuine contractor under the eyes of HMRC. Before we continue, a contract which does not sit friendly with the IR35 legislation is not necessarily a bad contract by any means, it may be that the terms must sit within the scope of IR35 for the nature of the work to be undertaken anyway, but it is likely to be less preferable to the contractor than a contract which complies, and so this is why we say that a good contract should be IR35 friendly. A good contract under the eyes of the IR35 legislation, means not just compliance, but robust clauses. It is possible to have a contract so vague that it barely mentions anything relevant to the IR35 legislation at all and so it will not necessarily fail an assessment, or to have clauses which are too controlling. Here are some examples of good clauses for the top three status tests to give you an idea of what makes a good IR35 clause. As always, it is best to have a professional review of your contract for IR35 compliance, as we professionals know what we are looking for and are able to make good judgment on the quality of a relevant clause. It also may reduce penalties if caught by the legislation, if you have been seen to take ‘reasonable steps to ascertain your status.’

As a whole, a ‘good contract’ will be favourable to your company and a ‘bad contract’ will be least favourable to your company and its needs. A contract which details all aspects of terms and conditions which apply to your company, will put you in a better position should a dispute arise.
If having a contract drawn up, a lawyer will be able to help, but remember that no contract is bullet proof, a client can sue regardless of how robust a contract you might have.

Qdos offer both legal & IR35 reviews of your contract so you can have the peace of mind that your contract will be there for you in a time of need, so get in touch on 0116 2690999.

By:Jane Hailstone

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