Employing a Consultancy or Contract Organisation

Engaging a Consultancy or Contract Organisation


Contracting-Out Generally

Your business may involve certain functions which you have no wish or facility to perform on an in-house basis. Such functions may include research and development, manufacture, physical distribution, marketing and promotion, sales, installation, maintenance and routine in-house support functions. It is common practice to purchase such services on a contracting basis from a consultancy or contracting organisation in order to seek to reduce overheads and to concentrate on core skills.

Inevitably they will be entering into such a transaction more commonly than you, and will hence normally have a standard contract upon which they wish to supply the services. However, do not overlook the possibility of obtaining their agreement to dealing on your terms or at least varying their own.

Terms of the Consultancy

Your contract with a consultancy or contracting organisation should normally address the following:

  • the precise nature of their duties and the services to be provided;
  • their specific staff who will perform the services for you and what happens should they leave;
  • standard operating procedures;
  • performance criteria;
  • consultancy fees, payment terms and reimbursement of expenses;
  • duration;
  • confidentiality obligations;
  • their rights to work for competitors during or after the consultancy;
  • their reporting and liaison obligations;
  • their obligations to return documents and copies at the end of the agreement; and
  • legal liability and indemnities offered by them if loss or damage results from their provision of the services.

Ownership of Materials

Ownership of materials and intellectual property rights (IPRs) in those materials generated by the consultancy or contracting organisation may well also be a critical issue. Without agreement to the contrary, ownership of intellectual property rights will normally be vested in the creator. It therefore may well be necessary to expressly provide in the contract that such IPRs created belong to you as the client. The consultancy or contracting organisation may well agree to this provided they have been paid for the work done. It may also be appropriate to address what happens in respect of IPRs and others' rights in the materials if the consultancy or contracting organisation goes into insolvency.

Employee Rights

If you contract-out a function previously performed by your own employees or if you change your consultancy or contracting organisation, there may well be ongoing obligations under transfer of undertaking rules on the part of the consultancy or contracting organisation to continue to employ the staff hitherto employed within that function.

You will have health and safety obligations to non-employees used by your business.

Employment/Self-Employment – IR35

If the consultancy or contracting organisation is only an individual or a personal services company (PSC) used by that individual, you will have to consider whether the IR35 rules apply so as to treat him as if he is an employee for tax and NIC purposes, and what impact that might have on you as the client. Our IR35 and Self-Employment information pages deal extensively with that aspect of engaging a consultant.

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