IR35 & Effective Contract Negotiation with an Agency

Much has been made recently of the need to 'be in business' in order to defeat IR35 and whilst this is a key factor the most important evidence is still the contract - in most cases this will be the contract between the contractor's company and the agency. Although most agencies have made some amendments to their standard terms in response to IR35, most agency contracts still include terms that will make it difficult for the contractor to pass IR35. We have prepared a brief article on some of the tips on negotiating with agencies. Whilst this is intended to be helpful to contractors and advisors, we would recommend that it is best to have contracts checked and drafted by a legal professional. There may be IR35 or commercial issues that are not immediately apparent to a layperson that a legal professional will pick up on straight away.

The main terms to look out for in a standard agency contract are those that indicate control, mutuality of obligations and personal service (this includes substitution) but all the employment status indicators should be considered. Once any problems with the contract have been identified it is necessary to make the necessary changes and agree them with the agency.

The problem with making changes to the agency's contract is getting them accepted by the agency. Most agencies do not like to receive a copy of their contract back from the contractor covered in amendments. It is time consuming and sometimes costly for the agency to verify and accept the amendments. So the first rule in negotiation is where appropriate to amend the terms that are already present rather than deleting whole clauses and inserting new ones. This gives the impression that you are prepared to reach a compromise rather than being stand-offish. Another tactic is to incorporate additional terms, including a full description of the services, in the schedule as this is usually more acceptable than adding clauses to the standard terms and conditions.

Effective negotiation requires give and take and we usually expect that not all amendments will be accepted. It is then a case of ensuring that the most important amendments are made. However as soon as the contractor has a legal professional assisting them the agency is usually more cooperative - after all let's not forget that the agency will want to do the deal if at all possible. What the agency will be most concerned about is its own liabilities to the client, its profit margin and the fact that it may not be able to negotiate with the client itself because there is an overriding framework agreement in place with the client. The skill therefore is in being able to put forward amendments that an agency is likely to accept.

Often it is a case of explaining why a certain amendment is required, what the commercial implications are and identifying and overcoming any objections. Usually a suggested amendment should be accompanied by the explanation for its requirement. Most agencies and clients are willing to assist to a certain extent and by inserting clauses that demonstrate that the contractor is prepared to take on the genuine risks of a business this reassures the other party that there are benefits in entering into proper commercial agreements. We have dealt with agencies that have initially refused to amend. However the chance of losing a key contractor is a powerful persuader and we have been able to get amendments agreed even with some of the most difficult agencies.

In conclusion there are a few key points to remember when negotiating with agencies

• Try to limit changes and use the schedule
• Negotiation is always a give and take process
• Be aware of the agency's requirements & liabilities
• Explain the thinking behind amendments
• Highlight the contractor's additional liabilities
• Consider the commercial terms as well as IR35
• Be persistent - the agency will want to do the deal

Unless the contractor or advisor has a thorough understanding of contracts and the relevant issues then we would recommend obtaining the help of a professional to ensure that the job is done properly. One final note is to be wary of agencies that insist that their contract will pass IR35 unless they are prepared to put the statement in writing or support their claim with some evidence.

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