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Knowledge Base

Contracts - the basics

16 January, 2008

Terms used

  • Agents, Umbrella Companies, Clients = the employer
  • Contractor, Freelance worker = the employed
  • Contract = employment agreement

Agents providing employment to contractors are obliged to provide the contractor with a Contract of Employment as laid down under the Employment Rights Act 1996. The Act grants full employment rights and statutory protection for the contractor. The agent should take care of all administration and the drawing up of the contract. This forms the whole basis of your relationship, prevents disputes and makes sure you get paid timeously.

Contracts of Employment should be drawn up on the premise that you are a permanent employee with the expectation of ongoing assignments.

Contractors should be covered by the agent’s insurance cover, i.e. employers’ liability, public liability and professional liability.

One of the risks of being a contractor is the possibility of being sued if things go wrong, and it is advisable to have insurance with clauses to cover the following possibilities,

  • A clause covering you in the event of a death or personal injury through your negligence during the project
  • A ‘force majeure’ clause, which covers your responsibilities if the project cannot be completed due to circumstances beyond your control
  • A clause covering the event of fraud by either party
  • A clause covering damage to property

Other things you may want to consider adding may be the possibility of a computer virus, and a security breach if you cause the client to lose another contract.

When drawing up your contract don’t forget to cover things like Intellectual Property Rights, i.e. know-how, designs and software that you might bring with you to a project that could later be licensed for re-use on other projects.

Remember to clearly outline the terms of notice at the end of the project.

One of the important points to set out very clearly in your contract is when and how you will be paid and whether the contract is set at a fixed price or based on time and materials.

Fixed price contract:

You are paid immediately the project is completed or as particular milestones are reached. It must be remembered that the amount agreed upon in fixed price contracts is all you will be paid, no matter how long the project takes or what costs are involved. However, if the project is completed ahead of time, you are still paid exactly the same. In Fixed price contracts it must be laid out meticulously as to what is expected. Vague wording that states “to the satisfaction of the agent or client” should be avoided in favour of a specific definition of completion when payment is dependent on milestones being met.

Time and materials contract

The agent pays for your time as well as for the materials or software that you will purchase or provide. It is important to lay out the details of this type of contract, as the contractor may need to claim for expenses outside of the actual materials used e.g. travel and accommodation if the project takes you away from home. It is also good to write in a time clause and to define the number of hours per day or week that you will work.

Remember that if terms have been provided by the agent or client in writing and you have started work on a project, you have accepted the terms regardless of whether a contract is signed or not.

Verbal contracts are difficult to prove when it comes to a dispute.  Costs can escalate and contractors can find themselves in awkward situations.

Most agents have standard contract documents outlining the terms and conditions of employment. It is important to read and check the contract carefully and to make certain that it applies to the particular project you intend working on, as quite often issues such as payment vary from project to project. If you are uncertain about the terms and conditions, it is fairly inexpensive to have a solicitor draw up a contract that clearly outlines the terms on which you would like to work and when you are to be paid. It may well show a professional attitude and give you an advantage when negotiating the project.