Beware the pitfalls of clients retaining consultants

When asked to draft an agreement to secure consultancy services for a client, one challenge is how to ensure maximum protection for the client. As often as not, they have agreed terms in principle with an individual only to
find that, when discussions turned to the formalities, the consultant operates through
a limited liability company.

This throws up a number of issues for the practitioner, who may well be aware of IR35 (which deals specifically with tax and the managed service company regime) but who may focus on that and fail to adequately address other aspects.

So, what are the key drafting aspects to keep in mind?
 

Clarify expectations
On numerous occasions, disputes arise over the enforcement consultancies simply because of the mismatch of expectations against performance, especially in ‘soft consultancy’ such as web marketing or search engine optimisation. Ensure that a detailed specification is annexed to the consultancy agreement setting out exactly what services are to be performed and what milestones can be agreed on to monitor both the performance and quality of service.

It’s not just the consultant’s obligations that need to be addressed when drafting this provision in the contract. Disputes often arise because the client who has retained the consultant simply fails to provide them with adequate data or other resources
they need.

Also, keep in mind the extent to which the consultant is to be permitted to negotiate and conclude contracts on behalf
of the client, which could otherwise fall foul of the Commercial Agents (Council Directive) Regulations 1993.

Establish service provider

Should one key individual be made available on secondment to address any particular issue and who will direct them? Take a warranty that the consultancy has adequate resources to
make key staff available throughout the contract, otherwise ensure the client
is aware of substitution risk.

For any long-term secondment of specified personnel or where the contract provides for the supply of an individual, take particular care to ensure that all the usual tests to demonstrate that the relationship of an independent contractor are satisfied so that there is no chance of ‘worker’ or ‘employee’ status being created

Agree fee structure

Have the parties agreed whether there is to be a fixed
fee payable per month or are fees to be linked to either hours, performance or targets? If the latter, should it be linked back to those milestones?

Equally important is remembering to address the issue of expenses, supplemental fees and third-party costs, which are often overlooked.

Protect trade secrets

There is no implied duty of confidentiality owed by one company to another or by a self-employed individual, so always keep in mind that often consultants are given widespread access to the client’s business. Securing confidential information and trade secrets is essential.

Build into the agreement express warranties from the consultancy to respect confidential information and do not forget to effectively define it. Recognise a need to add undertakings from them not to take any similar work from competing companies.

Consider the appropriate extent of restrictions and consider for how long after the proposed consultancy ends
that any such provisions should remain. Always think about the need to draft provisions that
will probably be regarded as fair reasonable and proportionate by any court asked to rule
on enforceability

Ensure that the undertakings and covenants are not simply effective against the consultant company but also against the key personnel operating in it. Wherever possible, identify those executives involved
and make sure they each
enter into side letters to the agreement personally to
ensure enforceability.

Termination without dispute

Finally, don’t forget to address carefully how the client can bring the arrangements to an end without too much dispute.

In so many instances, disillusionment sets in far quicker than the client
imagines will be the case,
so provide appropriate mechanisms to enable the client to terminate agreements, which, on the face of it, might otherwise run for significant periods of time. SJ

Jonathan TR Silverman is a founding partner of Silverman Sherliker