Contract clause re: Employment Business right to audit for 6 years after contract!

[LondonManc]

Hi, yes I was already planning to come back and update for exactly the reason you say, NLUK - that it'll help the knowledge of the group.

I've almost concluded this, have managed to gain some ground but nothing like what I expected.

I'll update once it's concluded (i.e. contract signed!) but simplistically, I've gained very little ground and couldn't get much out of them as to 'why'.

It happens that conveniently one close family member is an auditor and another is a solicitor (insert own joke about what a barrel of laughs we all are at parties...) so I've had good perspectives on this which have helped me win the limited changes I have.

Meanwhile, I found this online from a law firm I am acquainted with. If you were really interested (as obviously I was) you could scroll through the entire case study but if you're not, you can skip to the bottom few bullet points which detail best practice on audit clauses - most of which was not complied with in the one I received, obviously mostly in ways which benefited the large company on the other side of this rather than MyCo!

https://www.penningtons.co.uk/news-p...t-for-purpose/

Sounds like you could sign it and then point to this as a precedent in case law:
"118’s application substantially failed because no or insufficient detail was provided about the purpose of the audit, how it would take place and what use could be made of the data obtained."

[Glencky]

Unfortunately I don't think there is helpful precedent in the case study - though you couldn't tell that because I can see the clause and you can't! the one I received was written more comprehensively than the one in the case study, in fact my main issue was how strongly worded it was (essentially reserving the right to audit for any reason, at any time within contract period plus 6 years, upon 'reasonable notice'.)

[LondonManc]

Unfortunately I don't think there is helpful precedent in the case study - though you couldn't tell that because I can see the clause and you can't! the one I received was written more comprehensively than the one in the case study, in fact my main issue was how strongly worded it was (essentially reserving the right to audit for any reason, at any time within contract period plus 6 years, upon 'reasonable notice'.)

Fair enough. Although I'd be more accepting of audit clause if I knew the purpose of the audit - have they explained what the scope of any audit would be?

[Glencky]

No, they haven't - I'll say a bit more on my own ideas once I do a final update on the outcome when the contract's in the bag.

It's easier to understand the reason for this kind of clause in the situation in the case study, isn't it - 2 sizeable companies who have a healthy degree of suspicion of each other. But where one company is an agency and the other is a one-person-band contractor... I suppose, following on from the case study, if I were a developer it might be easier to come up with a semi-realistic scenario (checking I'm not nicking the intellectual property from my time with the end client and flogging it to other clients, for example). Although even then you'd be trying to prove a negative...

[Glencky]

I've edited the original post but will place an update here too with the final outcome.

OK so I challenged the clause and tried to get it removed. They held firm. I then suggested amendments to reflect remunerating me for cooperation with such an audit (also tried to get the 6 years reduced). Again, they held firm. This happened whilst they were holding firm on a few other things but making reasonable concessions on other aspects, and whilst on other points relating to different clauses we had a sensible dialogue, on this one I was just blocked. It actually made me more nervous about it rather than anything else.

Ultimately I gave up on trying to get paid for my time in favour of the thing that was more important to me. The drafting of the original clause was both swingeing and quite sloppy - I'm not even sure it was intentional but it was drafted such that they really had the right to come in - including entering premises - and look at whatever they wanted, for whatever reason. I managed to get wording inserted - helped by some legal advice - to limit the purpose to verifying compliance with the contract terms. That was the only concession I won. It was the last outstanding point in the negotiation and clearly there will be some who say 'should've walked away', however whilst I did have a few other irons in the fire contract-wise, I wanted this contract and I'm due to start imminently so...

Finally, the agent did say that he's not aware of the right ever having been exercised. Which is pretty much what I'd expect. However it's not sensible to sign away rights even if you think somebody will never take advantage of what you're signing away! Ultimately, I decided this was a risk worth taking.

My own thoughts? This is financial services industry - very regulated, very risk averse. I wonder if this is part of an overall strategy to demonstrate an appropriate level of control/ oversight over contractors and it may even flow down through from the client via 2 agencies. As I mentioned in a comment previously, I wonder if it's just something that everyone has in their heads as 'it's a must-do clause, it can't be changed' which is often very hard to challenge even if nobody really understands why!!

If anyone else has any more insight I shall be glad to hear it but the above is the conclusion I've come to from the combined effects of discussing with my family members who are auditor and solicitor respectively, my own research and thinking.

[Scruff]

IBM by any chance?

I had a similar clause, in an amendment which they tried to get me to sign, a couple of years ago.

[fidot]

So, if you were using an umbrella company, do you think they would accept those clauses?

Wonder if setting up a limited co for just this one contract and then closing it immediately at contract end would circumvent the worst parts of the clauses.

[Glencky]

Not IBM, no - although I'm not going to carry on with the guessing game so the agency is revealed by elimination!

Interested that you had this too - did you not sign, then? I guess if you were already in role and it was an amendment, easier to challenge.

@Fidot - well yes, you could do that, but it's a lot of hassle to go through just to avoid the hypothetical impact of an audit clause where the impact of supporting any requirement is likely to be relatively low even if such requirement materialises. I mean, if they wanted to take advantage of it, yes OK it'd be a hassle but in all likelihood perfectly supportable. If they started getting totally unreasonable, I'd resist and they'd have to take me to court for it... but really in what circumstances is that likely?

Not sure what you mean about umbrella companies, do you mean would they have enforced it if I'd been through a brolly? No idea, I know nowt about brollies really.

[fidot]

The point I was trying to make was that if you were working through an umbrella, the agency contract would be with the umbrella. If that same clause were in a contract with an umbrella company, do you think they would accept that type of audit intrusion?

I was just musing

[jamesbrown]

Depends on the ultimate source of funding, but this type of requirement often propagates down from the top. For example, if the ultimate source of funding is public money in some jurisdiction, there will almost certainly be a statutory audit requirement for several years after services have been completed, which will propagate down to subs. So they cannot budge on the audit requirement in that scenario. Apologies if this is already covered above.