Consultancy associated with agency & IR35 approach

[Antman]

Just speaking to an agency who have a role with an end-client. The end-client will engage with the consultancy arm of the agency.

The role's been deemed as outside of IR35. In terms of payment terms, this means that the supplier will fill-in the timesheet and get 80% of what they're owed, 20% is held back against milestones/deliverables. When these are hit, then the monies are released.

The agent mentioned that they haven't not paid anyone the 20% using this model. On the one hand I can see why they are using this delivery-based approach to engagement (still have questions about why 20% and others). On the other, potentially they can withhold 20% on some unobtainable milestone which you only see once you've signed the contract.

It seems like it could be a good defence by the agencies against IR35 and who knows could become the way of engagement in the future or it's a non-starter because, well, trust.

Has anyone come across this before? (or am I way behind the curve?)

[jamesbrown]

There is no "scheme" to workaround IR35. Either it's B2B or it isn't. Holding back some monies with the motivation of making the contract "look like" a B2B contract (as opposed to actually being one and the payment terms reflecting that) is obviously a sham and will be exposed as such, when needed. I have had many contracts that held back payments (e.g., 10% until all deliverables were delivered), but none that were T&M with a timesheet.

Also, I don't see how this mitigates risk for the supply chain with the expansive transfer of debt provisions in the legislation.

[Antman]

Yeah, had a feeling it was that way set-up.

[ComplianceLady]

Just speaking to an agency who have a role with an end-client. The end-client will engage with the consultancy arm of the agency.

The role's been deemed as outside of IR35. In terms of payment terms, this means that the supplier will fill-in the timesheet and get 80% of what they're owed, 20% is held back against milestones/deliverables. When these are hit, then the monies are released.

The agent mentioned that they haven't not paid anyone the 20% using this model. On the one hand I can see why they are using this delivery-based approach to engagement (still have questions about why 20% and others). On the other, potentially they can withhold 20% on some unobtainable milestone which you only see once you've signed the contract.

It seems like it could be a good defence by the agencies against IR35 and who knows could become the way of engagement in the future or it's a non-starter because, well, trust.

Has anyone come across this before? (or am I way behind the curve?)

I am seeing more demand from this. Caveat with exactly what jamesbrown said - if it's contrived it won't pass muster. I have clients that pay 100% on deliverables and but I'm seeing more queries from clients looking at a blend of t&m with deliverables. Their thinking isn't quite 'stick a 20% deliverable payment to make it outside' - they think that having a financial interest will force contractors & their 'hiring managers' to look closer at scope and working practices and stop them using it to contrive an outside role. PLUS those that use CEST do find that changing the answer to a mix of T&M and deliverable does change the status. Though we of course don't accept SDS generated by CEST.

[eek]

There is no "scheme" to workaround IR35. Either it's B2B or it isn't. Holding back some monies with the motivation of making the contract "look like" a B2B contract (as opposed to actually being one and the payment terms reflecting that) is obviously a sham and will be exposed as such, when needed. I have had many contracts that held back payments (e.g., 10% until all deliverables were delivered), but none that were T&M with a timesheet.

Also, I don't see how this mitigates risk for the supply chain with the expansive transfer of debt provisions in the legislation.

Problem is that as a single contractor a fixed price contract (which is what a lot of clients are aiming for here even if they aren't being 100% honest) isn't something any sane contractor working as say 1 of 8 people on a project should accept the risk of because too many factors are outside their control.

When similar questions have been asked in the past - I seem to remember the advice being - only take the work if you are happy with the 80% figure and view the final 20% as a great bonus if it arrives.

[jamesbrown]

Problem is that as a single contractor a fixed price contract (which is what a lot of clients are aiming for here even if they aren't being 100% honest) isn't something any sane contractor working as say 1 of 8 people on a project should accept the risk of because too many factors are outside their control.

When similar questions have been asked in the past - I seem to remember the advice being - only take the work if you are happy with the 80% figure and view the final 20% as a great bonus if it arrives.

Indeed. Fixed price work is another world, it's almost as different as perm to contracting. You need to be good at estimating and you need to build in a margin. If I translate my worst and best FP contracts to a day rate, the variation in pay is in the range from negative to Premier League footballer. In other words, there is scope to make a lot of money but also to fook up very badly. It's nothing like T&M and no amount of massaging a T&M contract is going to work, especially if it's teamwork (i.e., IR35 is the least of your worries - especially Chapter 10!).

[eek]

Indeed. Fixed price work is another world, it's almost as different as perm to contracting. You need to be good at estimating and you need to build in a margin. If I translate my worst and best FP contracts to a day rate, the variation in pay is in the range from negative to Premier League footballer. In other words, there is scope to make a lot of money but also to fook up very badly. It's nothing like T&M and no amount of massaging a T&M contract is going to work, especially if it's teamwork (i.e., IR35 is the least of your worries - especially Chapter 10!).

Yep - my point was aimed as much at ComplianceLady's post as yours - the idea that an agency could get payment on deliverables contract right is completely unimaginable given her other statements about agencies.

[ComplianceLady]

Yep - my point was aimed as much at ComplianceLady's post as yours - the idea that an agency could get payment on deliverables contract right is completely unimaginable given her other statements about agencies.

'Agencies' are like any other business type - there's good, bad and ugly out there. I'm not sure what I've said that makes you think this is unimaginable but it's really not.

[malvolio]

'Agencies' are like any other business type - there's good, bad and ugly out there. I'm not sure what I've said that makes you think this is unimaginable but it's really not.

"Really not" or "We rather hope it's not but we can't be sure"...?

I've dealt with many agencies up to board level over the years. Very few actually properly understand or even care about terms of engagement with their contractors. They are purely commercial operations, quite properly focussed on ROI and being legal. That's "legal" as in "not overtly breaking laws".So you will forgive some of us more experienced people being just a little bit scpetical.