Consultancy witholding 20% of each invoice in new contracts

[northernladuk]

I have never come across this and would turn a gig down if it had this clause in it I have not done any public sector work for years anyway that is probably why I have not seen it

To be fair I've done three public sector gigs in not too long a time, including being on one now, and I've never seen it. I'll bet this is nothing to do with the client and just the consultancy covering themselves whether their client is public or private.

[The Spartan]

To be fair I've done three public sector gigs in not too long a time, including being on one now, and I've never seen it. I'll bet this is nothing to do with the client and just the consultancy covering themselves whether their client is public or private.

Same here, last 3 gigs have been SC cleared roles within government through a consultancy. This is more to do with the consultancy in this case, however I thought that the whole point of status determinations was to clarify if a role was inside or outside IR35? If a role is outside why is it necessary to withold 20% of the contract value just incase?

[SueEllen]

Same here, last 3 gigs have been SC cleared roles within government through a consultancy. This is more to do with the consultancy in this case, however I thought that the whole point of status determinations was to clarify if a role was inside or outside IR35? If a role is outside why is it necessary to withold 20% of the contract value just incase?

Yep you just get the money back of the contractor or threaten to sue them....

[eek]

Same here, last 3 gigs have been SC cleared roles within government through a consultancy. This is more to do with the consultancy in this case, however I thought that the whole point of status determinations was to clarify if a role was inside or outside IR35? If a role is outside why is it necessary to withold 20% of the contract value just incase?

See the CEST criteria for a contract being outside IR35 - one of the criteria is financial risk.

[mallisarealperson]

Is this not the same as a permie getting or not getting their bounus.

[jamesbrown]

I've had this in fixed price contracts but never in T&M contracts for obvious reasons - performance is day-to-day, not per deliverable. As far as IR35 goes, I doubt it moves the dial much (it's motivated by commercial reasons related to IR35 rather than the nature of the work and working practices), but it certainly gives the consultancy an opportunity to claw money back.

[northernladuk]

Is this not the same as a permie getting or not getting their bounus.

No.

[Lance]

See the CEST criteria for a contract being outside IR35 - one of the criteria is financial risk.

I finished one contract, and had to do half a day remedial work for them. Something unforeseen. Rather than saying no, or making them engage me again, I fixed at my cost. My thinking was this was a clear demonstration of financial risk (a loss in fact).

[CalmEddie]

See the CEST criteria for a contract being outside IR35 - one of the criteria is financial risk.

Might be a stronger point if you couldn't invoice 20% until the end, but otherwise it's just payment terms. Genuine financial risk has unknowns, like whether capital expenditure and training etc will result in increased revenue. The terms of a contract are predictable on the basis that everything is written down and your exposure to the investment of your time is limited to 20%.

As to what this is, it's reminiscent of snagging in the construction industry. Burden of proof would be with the consultancy to evidence that work was not to standard, rather than contractor has to prove it was, unless the contract wording stated otherwise. One for a legal professional probably.

[Andy Hallett]

I've seen this before as a completion fee. If you don't finish the project within the given criteria you won't get it etc.

Has been quite rare though I suspect may become more common as agencies search for silver bullets.

Personally educating clients and contractors around substitution, MOO and PandP should yield a more consistent result.