Do I need a contract? (direct to client)

[SoupDragon]

I have been offered contract work with a client who contacted me direct - so no agent involved.

I am thinking of not bothering with a formal written contract and just invoicing them monthly. Is there any reason why this is a bad idea?

[lawspeed]

You will hear differing opinions on this but I am firmly of the view that relying on merely an invoice and a verbal understanding can be very dangerous from both an IR35 and a commercial risk perspective.

IR35
Having no written contract clearly invites the Revenue to rely entirely on information regarding working practices when determining deemed employment status. Written evidence (including contracts) as to the relationship between the parties will make the status position much clearer and whilst the Revenue may still wish to obtain factual input, this written evidence will be very persuasive in determining status in an appeal hearing.

Commercial Risk
Relying on a verbal understanding offers little or no protection in the event that things go wrong. Clear liability limits and termination rights can be crucial to offer protection to a contractor (and a client) and removes ambiguity which will often reduce legal costs in the event that there is a dispute. A gentleman's understanding can and will fall down, particularly where there is a change of management staff and the people whose hands you shook are no longer there or have different responsibilities.

[SoupDragon]

Thanks for the info. Are there free contract templates around or do I have to get PCG membership?

[chicane]

I do a fair amount of small volume work (1-2 weeks) on a gentleman's agreement basis, but only with clients that I know and trust.

I once made the mistake, several years ago, of having no written contract for a two month project for a client I didn't know very well. Following the usual level of scope creep, things ended with the client's solicitor sending over nasty letters.

If you're determined to avoid the hassle of getting a contract written up, at least mitigate some of the risks involved by making sure the client understands what exactly they're paying for, when they're going to get it, and what happens if they change their mind. In which case, you might as well write a contract.

Ho hum.

[malvolio]

Thanks for the info. Are there free contract templates around or do I have to get PCG membership?

How much is your direct work going to earn? Access to PCG's considerable resources costs £120 a year. That's not even a no-brainer, is it?

[ratewhore]

I usually find a PO, a small set of t's and c's and a final invoice works fine.

But that's just me of course, each to their own...

[ChimpMaster]

You have the opportunity to largely draw up your own contract - a great chance to ensure that it is as far out of IR35 as possible.

[Ardesco]

Yes


HTH

[Bigbird]

I am thinking of not bothering with a formal written contract and just invoicing them monthly. Is there any reason why this is a bad idea?

None at all! But never mind that, in the meantime I have a fistful of magic beans here that would be a wonderful investment opportunity for a forward-thinking and well-organised bod like yourself........

[oraclesmith]

If I were you I'd invoice regularly up to an amount which I'm happy to risk maybe writing off (which depends on personal circumstances).

If they have long lead times (credit taking) on small-firm invoices - eg. typically about 6 weeks from invoicing to being paid for large firms paying small ones, then think about how much work you might have to do before getting the cash. If the answer is more than a couple of months, then personally I would put a contract in place.

A lot depends on your existing relationship with them, their stability and the kind of work you'll be doing and the degree of 'supervision' you will have. If it's a low grade job, then use a contract because you're seen as more expendable. In my opinion. If it's a job that has a definite product - eg. putting together a website to a spec, then it's ideal for outside a contract because they're basically buying something from you, not just your day to day effort, and they don't get it until they pay up.

You can invoice for ad-hoc stuff on an invoice and some well written terms and conditions like most suppliers would.

PS. It doesn't have to be just a choice between a full multi-page service contract and a casual verbal agreement. If you go outside a full contract arrangement, then make sure there is something in writing which is basically them asking you to do certain work for a certain fee or accepting a written quote for work which you have already provided. Or get them to send you a purchase order. If they don't want to even send you a purchase order, then I'd question whether you'd really want to work for them !

You can always e-mail them discussing the work and keep these and any replies as some evidence of a contractual obligation to pay you for your work. In my opinion.