Buying out your contract from the Agent

[sal]

What TF said

[TheFaQQer]

The driver is cash saving. Saving for my client who I have a very good relationship with and hopefully an increase margin for me.

The agent adds no value and has no contact other than renewal time.

What payment terms are you on with the agency? What payment terms would you be on with the client? I'm currently direct with this client, invoice at the end of the month and am then on 60 day terms (although they usually pay around 30 days). When I've dealt with agents, payment has normally been made the week after invoicing.

Did you find the work originally, or did the agent find it?

To suggest that the agent adds no value may be a misnomer here. Have you discussed this with the client at all - many don't want to deal with individual companies, and prefer to deal with an agent. And whilst some managers may be happy to go with you direct, they then find out by corporate procurement that they aren't allowed to do that.

I'd like to understand peoples view in terms of IR35. I'd assumed that going direct, business to business would enforce the fact that you are outside of IR35. Thoughts anyone ? I am ltd co btw.

Doesn't make a difference. Look at the three criteria for being an employee and then explain why you think being direct would help an IR35 defence. If anything, you might find it hinders a defence.

[GottaBeOptimistic]

The driver is cash saving. Saving for my client who I have a very good relationship with and hopefully an increase margin for me.

The agent adds no value and has no contact other than renewal time.

I'd like to understand peoples view in terms of IR35. I'd assumed that going direct, business to business would enforce the fact that you are outside of IR35. Thoughts anyone ? I am ltd co btw.

It's really the terms of termination that I was interested in. What length of contract service did anyone pay the agent, 3 months, 6 months, 1 month ? etc. The commitment could be quite high, I can manage (to an extent) the risk with the client so was interested in other peoples experiences.

[Goatfell]

Just as well, if that's your understanding of how IR35 works...

My understanding of IR35 is reasonably good thanks, it was the knee-jerk reaction of "you've been there that long, you're bound to be viewed as "part in parcel" blah, blah, blah" I was hoping to forestall, but it seems you can't win

The contract was in fact about as IR35 caught as it's possible to be

MOO - Yes, you carry on with this when you're finished that
D&C - You'll carry out your allotted tasks here, like this, at the times we specify
RoS - You're joking, right?

But as I said, I was brollying so I didn't GAS about IR35.

[jantill]

Hi, has anyone got any experience in buying out your contract and going direct to the end client ?

Would be interested to hear any stories anyone has on this subject...

GottaBeOptimistic

I have done this twice.

The first was when client wanted another contractor at my recommendation (who was an employee of my Ltd Co) and I had already, by chance, negotiated down the cost of a buy-out clause in the agency contract and there was an ambiguous restriction on direct work in the contract.
I then took the agency margin for both me and the other guy but was at risk for about 10 weeks. It ended up very worthwhile.

The second time was more recently was when the agency offered both me and the client the same rate on a very local contract. The client agreed to pay more and I took less. After some weeks the agent came to see me and offered me to buy them out (I noted that he left the agency shortly afterwards). I had not at that time completed timesheets nor invoiced. After long negotiations with the agency demanding silly money we settled for something sensible. Again I was at risk for about 3 months but after 4 years of taking the agency margin I am very pleased to have done it.

Money apart, a big advantage was that I was able to negotiate a sensible business-to-business contract which gave the client the reassurances needed as well as protecting my company's independent status.
Those who ask why one would want to buy out the agency might tell us what, apart from work-finding and invoice factoring, the agency brings to the party.

[jmo21]

Are these numbers real or fiction? Have you even been offered such deal by the client or just day dreaming?

There a numerous reasons for the client to use intermediary when dealing with contractors. If they are after cost savings and agency is making a huge margin (like in your example) it's easier for the client to lean on them and squeeze the margin, instead of going direct and still get their £50, while retaining the benefits of using an intermediary.

Or if you know that the agency is making a huge margin it's easy enough to squeeze them on extension time, as they will prefer £50 over 0. Most agencies are happy to work with 10-15% margin and go as low as 5% in the right circumstances.

It was just an example.

I am well aware of why clients use agencies, but I am also well aware agencies try to bend both clients and contractors over.

The OP asked a question, PG asked why he wanted to do it, you asked why would a client want to do it, I gave you an answer.

I can't imagine I'd ever be in a situation where I would want to try to buy out a contract though

[sal]

Originally:
Agency charge £X
Agency pay you £X - £100

Cut them out
You charge client £X - £50

win-win for you and client, you are both up £50 a day.

It would only be worth paying the agent off IF you were guaranteed enough work to cover the pay off.

I'm not sure I would risk it. The client could bin you the next week.

Unless you get some kind of guarantee written into your new contract with the client of course.

Are these numbers real or fiction? Have you even been offered such deal by the client or just day dreaming?

There a numerous reasons for the client to use intermediary when dealing with contractors. If they are after cost savings and agency is making a huge margin (like in your example) it's easier for the client to lean on them and squeeze the margin, instead of going direct and still get their £50, while retaining the benefits of using an intermediary.

Or if you know that the agency is making a huge margin it's easy enough to squeeze them on extension time, as they will prefer £50 over 0. Most agencies are happy to work with 10-15% margin and go as low as 5% in the right circumstances.

[malvolio]

PS before the usual suspects start blethering on about IR35, I was (for good reasons at the time) brollying

Just as well, if that's your understanding of how IR35 works...

[jmo21]

Why would you want to do that?

More importantly is why would the client want to do that?

Originally:
Agency charge £X
Agency pay you £X - £100

Cut them out
You charge client £X - £50

win-win for you and client, you are both up £50 a day.

It would only be worth paying the agent off IF you were guaranteed enough work to cover the pay off.

I'm not sure I would risk it. The client could bin you the next week.

Unless you get some kind of guarantee written into your new contract with the client of course.

[Goatfell]

Why would you want to do that?

Some years ago I did something similar, the dept head was a contractor and while he loathed agencies, HR required that he use them.
I asked the agency about buy-out costs after the initial six months and they wanted the equivalent of 30 days. A deal was eventually worked out where they were given six-months notice to waive any "non-compete" style restrictions. I then went direct with a 25% rate increase (the agencies margin was eye watering) and ended up with 15 six-month extensions

So that's why I did it.


PS before the usual suspects start blethering on about IR35, I was (for good reasons at the time) brollying

[sal]

More importantly is why would the client want to do that?

[PurpleGorilla]

Why would you want to do that?

[GottaBeOptimistic]

Hi, has anyone got any experience in buying out your contract and going direct to the end client ?

Would be interested to hear any stories anyone has on this subject...

GottaBeOptimistic