Excessive contractual obligations

[ThisIsNotNormal]

Hello all,

I’d be interested to know others’ views on some proposed contract terms -

I am the sole director of a limited company through which I provide IT services as per a normal contractor model. A new client has presented me a contract with the usual definitions i.e. the client is ‘The Client’, the ltd company is ‘The Consultancy’ and I (or a substitute) would be ‘The Worker’.

The contract explicitly states that all of the terms of the contract are not only direct undertakings and agreements between the Client and the Consultancy but also between the Client and the Worker.

Should the Consultancy fail to be able to provide services or meet obligations, all terms of the agreement transfer from the Consultancy to the Worker, including indemnities, which actually could extend beyond the required £1M PI Insurance; any shortfall being made up from the private resources of the Consultancy/Worker.

My limited company has PI Insurance but I have never heard of a Client/Consultancy agreement imposing all terms of the contract on the Worker as well. Also, I’d imagine this would make providing a substitute impossible in any practical sense.

Has anyone come across anything similar where a consultancy agreement requires the actual Workers, in addition to the Consultancy, to bind themselves personally to all terms of the Agreement?

All best!

[NotAllThere]

It's a contract. You haven't signed it. Negotiate. Expecting the limited liability of your company to be swept aside is a step too far. I'd tell them to stick it. (Politely draw their attention to the fact that it's not possible for you to sign that clause, and if they insist, then, reluctantly, you'll have to walk away and they'll have to find someone equally qualified but more stupid).

[eek]

You want a lawyer to check it and get all offending clauses removed but I would be running away from that contract as rapidly as I could - if the consultancy is pulling tricks like this in the contract what is working for them like?

[Cirrus]

Has anyone come across anything similar where a consultancy agreement requires the actual Workers, in addition to the Consultancy, to bind themselves personally to all terms of the Agreement?

Yes.

I first saw these 30 years ago. I've assumed all contracts are like that but don't remember checking recently.

The problem here is the company signs the contract but the company is not a trustworthy partner. If anything goes wrong the contractor can make the company bankrupt. So to make the contract have any teeth it needs to target an entity that can't just walk off.

[ThisIsNotNormal]

It's a contract. You haven't signed it. Negotiate. Expecting the limited liability of your company to be swept aside is a step too far. I'd tell them to stick it. (Politely draw their attention to the fact that it's not possible for you to sign that clause, and if they insist, then, reluctantly, you'll have to walk away and they'll have to find someone equally qualified but more stupid).

Thanks for the reply! Agree that contracting out of the protections of the limited company would not be sensible (although the financial risk could potentially be mitigated with a second PI policy). It is just not something I would do although I can see their intention is to de-risk their side.

[ThisIsNotNormal]

You want a lawyer to check it and get all offending clauses removed but I would be running away from that contract as rapidly as I could - if the consultancy is pulling tricks like this in the contract what is working for them like?

This one would is direct to client (my ltd is the Consultancy) but yes, not favourable terms and should I supply a substitute, what worker would want to take on that risk!

[eek]

This one would is direct to client (my ltd is the Consultancy) but yes, not favourable terms and should I supply a substitute, what worker would want to take on that risk!

How could you provide a substitute with that clause in it? I would argue it destroyed any other RoS clause within the contract.

[ThisIsNotNormal]

Yes.

I first saw these 30 years ago. I've assumed all contracts are like that but don't remember checking recently.

The problem here is the company signs the contract but the company is not a trustworthy partner. If anything goes wrong the contractor can make the company bankrupt. So to make the contract have any teeth it needs to target an entity that can't just walk off.

Hi, I think I am lucky then to have avoided such terms up to now & I do get what you mean. It just muddies the waters; if the entire contract for services flips (for any reason) from the consultancy to the worker then it strips out one of the main reasons to trade through a ltd company.

[LondonManc]

How could you provide a substitute with that clause in it? I would argue it destroyed any other RoS clause within the contract.

Ey up, Lionel Hutz is in.

I'd whizz the contract straight off to QDOS and see what they make of it.

[eek]

Ey up, Lionel Hutz is in.

I'd whizz the contract straight off to QDOS and see what they make of it.

I seem to remember suggesting a lawyer in my very first post. That one was just to encourage the OP to do so...