Going direct after a four-party contract breakdown

[WTFH]

Thanks.

Letting the End User deal with it appears to be the best option.

It seems that the Contracts (Rights of Third Parties) Act 1999 gives the Consultancy the same rights as the Agency - so the Agency will have to enforce the restriction on behalf of the Consultancy.

The Agency is sympathetic but have said they are bound by their contract with the Consultancy and advised that I try to persuade the Consultancy to waive the restrictions. I am not sure that will work.

So, I will try to get the End User to resolve any issues they may have with the Consultancy - pay up front if they need to and move on from there. Or I will have to move on.

OK, if you're going down that route, make sure you have it in writing from the end user BEFORE signing any contract with them or doing any work directly.

[hardcode]

We don't know any of the points above so just best get the end client to say they'll deal with any fall out and carry on without worrying.

Thanks.

Letting the End User deal with it appears to be the best option.

It seems that the Contracts (Rights of Third Parties) Act 1999 gives the Consultancy the same rights as the Agency - so the Agency will have to enforce the restriction on behalf of the Consultancy.

The Agency is sympathetic but have said they are bound by their contract with the Consultancy and advised that I try to persuade the Consultancy to waive the restrictions. I am not sure that will work.

So, I will try to get the End User to resolve any issues they may have with the Consultancy - pay up front if they need to and move on from there. Or I will have to move on.

[rootsnall]

If the handcuff has been clearly breached I'd be preparing for more than threats.

If it's one contractor then they'll hurl a bit of abuse and then move on. They do it all the time.

[northernladuk]

Not very likely, if his contract with the agency doesn't mention end users. There's also the question of how the agency would even know.

But ultimately, the agency would have to prove loss, and if the consultant has cancelled they'd have a hard time proving that.

If OP is getting a rate uplift out of this by going direct, maybe he sets aside 10-15% of it for a while in case there's a later claim from the agency. But for that to happen, they have to find out, they have to prove that they've incurred a loss, and OP could even then go to the client and say, "You wanted this, you said you'd handle claims." Chances are they'd see off the agency just like they'll see off the consultancy.

We don't know any of the points above so just best get the end client to say they'll deal with any fall out and carry on without worrying.

[WordIsBond]

Your problem is also claims from the agency as well.

Not very likely, if his contract with the agency doesn't mention end users. There's also the question of how the agency would even know.

But ultimately, the agency would have to prove loss, and if the consultant has cancelled they'd have a hard time proving that.

If OP is getting a rate uplift out of this by going direct, maybe he sets aside 10-15% of it for a while in case there's a later claim from the agency. But for that to happen, they have to find out, they have to prove that they've incurred a loss, and OP could even then go to the client and say, "You wanted this, you said you'd handle claims." Chances are they'd see off the agency just like they'll see off the consultancy.

[LondonManc]

you talk about financial risk, and legal jeopardy like they're different.
They're not.

This is all about financial risk. You cannot go to prison for breaching a restrictive covenant. You cannot get a criminal record either.

They could be.

Financial risk could be that the consultancy are aware of an untoward financial situation at the client (i.e. they're struggling) and won't be paid so are pulling their workers out, especially contractors who they would still have to pay and don't want a reputation by association.

If your contract simply has no working for the consultancy direct for x months as a clause then great.
However, I'd be credit-checking end client and maybe even asking someone you trust at the consultancy as to why they're pulling out.

[northernladuk]

End user is a large retailer. The contract was due to be renewed and paperwork was in the pipeline until the lockdown came into force. I got a call from the Consultancy (after the end date) to tell me they would not renew me and so I asked for and got email confirmation.

Both the Agency and End user were surprised as they had not been informed when I told them. The info I got was that the Consultancy had wanted to be paid up front.

The End User is okay for me to go direct and said it will handle any claims from the Consultancy

Your problem is also claims from the agency as well. Get them to handle claims from both the agency and consultancy in writing and then fill your boots.

[Lance]

<snip>

The End User has now asked if I am willing to go direct as the project is at a critical stage and due to go live soon. I am happy to do so and take on the financial risk as long it does not put me in legal jeopardy.
<snip>

you talk about financial risk, and legal jeopardy like they're different.
They're not.

This is all about financial risk. You cannot go to prison for breaching a restrictive covenant. You cannot get a criminal record either.

[hardcode]

Two things:
1. What is this "financial risk" to which you are referring? Just the handcuff clause, or something else? That makes me wonder if there is something here you've neglected to tell us.

2. These questions pop up frequently here. The one entity with power in this situation is the End User. If they want you, they can either a) ask the Consultancy to release you from any handcuff clauses or b) give you documented proof that it is the Consultancy that has walked away and thus will incur no loss or c) indemnify you against any handcuff claims. If they want you, they should sort this out, it's a relatively minor thing for them.

End user is a large retailer. The contract was due to be renewed and paperwork was in the pipeline until the lockdown came into force. I got a call from the Consultancy (after the end date) to tell me they would not renew me and so I asked for and got email confirmation.

Both the Agency and End user were surprised as they had not been informed when I told them. The info I got was that the Consultancy had wanted to be paid up front.

The End User is okay for me to go direct and said it will handle any claims from the Consultancy

[WordIsBond]

The End User has now asked if I am willing to go direct as the project is at a critical stage and due to go live soon. I am happy to do so and take on the financial risk as long it does not put me in legal jeopardy.

Two things:
1. What is this "financial risk" to which you are referring? Just the handcuff clause, or something else? That makes me wonder if there is something here you've neglected to tell us.

2. These questions pop up frequently here. The one entity with power in this situation is the End User. If they want you, they can either a) ask the Consultancy to release you from any handcuff clauses or b) give you documented proof that it is the Consultancy that has walked away and thus will incur no loss or c) indemnify you against any handcuff claims. If they want you, they should sort this out, it's a relatively minor thing for them.

[northernladuk]

I think it depends how desperate you are for the work. Have you got it in writing that the consultancy don't want to renew you ? If it's really as you have explained then get an email from the consultancy. Be prepared for threats from the agency if you do go direct.

If the handcuff has been clearly breached I'd be preparing for more than threats. In a worst case the client could drop him altogether to wash their hands of the situation as well has having to pay the agency it's loses.

[rootsnall]

I think it depends how desperate you are for the work. Have you got it in writing that the consultancy don't want to renew you ? If it's really as you have explained then get an email from the consultancy. Be prepared for threats from the agency if you do go direct.

[northernladuk]

The key here is what is happening between the consultancy and the end user. If the consultancy (or end user) is terminating the work then there is nothing to worry about. A handcuff will only stand up if someone named in the chain in the contract is going to lose any money because of your actions. It's there to protect revenue stream. If the consultancy is terminating the work with the end client you are free to do what you want. They cannot hold you to a handcuff when it doesn't impact them financially.

If the consultancy is still working with the end client on the project then it's likely you are pretty stuffed. Going to the end client could cause the consultancy and so the agency to lose money in which case the handcuff will be rock solid.

Investigate the chain, find out who is still engaged with who to do what and then apply the above.

[hardcode]

I have a PSC contract via an Agency with a Consultancy who hired me for one of their End Users.

The Consultancy has decided not to extend me as they are no longer willing to take on the financial risk with the End User. No details were given but I can only assume this is due to the current coronavirus crisis and a possible change of payment terms.

The decision was made after the end date of the previous extension and there was no opportunity to handover.

The End User has now asked if I am willing to go direct as the project is at a critical stage and due to go live soon. I am happy to do so and take on the financial risk as long it does not put me in legal jeopardy.

The wording of my contract states that I cannot work for the Consultancy for a period but does not mention anything about working for End Users. I assume any such restriction would be covered in the Consultancy contracts with the Agency and with the End User.

As my only contract is with the Agency, I asked them if they could confirm that going direct is not a breach. They are not willing to do so because of their contract with the Consultancy and have advised that I should get clearance directly from the Consultancy.

I came across the Contracts (Rights of Third Parties) Act 1999 which is mentioned in my contract and I am trying to understand how it applies. Does it give the Consultancy the same rights as the Agency?

I need to understand what options I have (if any) now that the Consultancy has effectively 'withdrawn' from the agreement.

Thanks