Extension of IR35 to private sector IR35, Part 7 – when good enough is perfect
In an earlier part of this series I floated the question of whether you could safely omit from a contract with a personal services company some of the “quality control” wording you might see in an employment contract. After all, runs the argument, that sort of obligation must amount to control or direction, and then you are crossing the line between what you want your contractor to do, which is okay from the IR35 perspective, and how you want him to do it, which is not.
Most employment contracts contain “how” wording because it helps in any litigation around the employee’s dismissal. It is very rarely used as the basis for a claim for negligence or breach of contract against the employee by the employer. By contrast, “how” wording in commercial contracts is not generally about termination since the contractor will have no unfair dismissal rights through which to challenge it, but is instead about claims for damages caused by defective performance. But where side-stepping the revisions to IR35 is concerned, do you need it at all? Can you enforce a standard of performance fit for your purposes unless you make it a matter of contractual obligation on the part of the contractor?
A partial answer to this may be found in the Supply of Goods and Services Act 1982, Section 13. This little gem says that into almost every contract for the supply of services is incorporated an implied term that the entity supplying the services will do so “with reasonable care and skill“. A failure to perform to that standard will therefore expose the contractor company to a claim for breach of contract damages in the civil courts. The question for you as end-user then becomes whether “reasonable care and skill” from your contractor is enough to get you where you need to be in terms of the finished product.
It is established that if the contract is one for the supply of professional services, the degree of care and skill required of the contractor under Section 13 is that which is to be expected of someone of his profession (in the appropriate speciality, if he is a specialist) of ordinary (in the sense of usual, rather than indifferent) competence and experience. That implied term may be bolstered by an express commitment by the PSC that the person or people it will supply do indeed have the competence and experience necessary to fulfil the end-user’s requirements.
So do you need more than that basic minimum obligation? Is your individual contractor really going to do a better job just because your written contract with his company requires the exercise of utmost, rather than reasonable, care and skill, or because it demands that he perform to “highest industry standards” or the like? Does that additional hostage-to-fortune control wording actually achieve anything for you in the great majority of cases?
This may depend on the sort of service being provided by the PSC. If it is something fairly routine, with little harm to be done by the occasional slip, probably not. If your contractor is re-wiring your nuclear power station, on the other hand, then you will want something better. You would not pick A.N. Other sparky off a suburban building-site and send him into your power station since what counts as reasonable care and skill on his part will clearly not be enough (though nor in fairness would be his promising contractually and in detail to be really careful with not mixing up the red wires and the green wires this time). If you need specialist expertise (and that of itself strengthens the IR35 position) then hire it as such and don’t resort to trying to obtain though the written contract a level of service which the individual either cannot give at all or will give anyway.
For your PSC contracts going forwards, either new ones or re-issues of existing arrangements, think – if your contractor is not required to do more than exercise reasonable care and skill, i.e. you do not tell him anything about how to do his role, do you actually lose anything in terms of:
- your rights to terminate the relationship;
- your right to sue the PSC in the event of defective performance; or
- the actual quality of the services provided?
If the answer is no, or nothing material, then you can cut back on the level of control wording in the contract and the degree of supervision applied in practice, and that will strengthen your position when IR35 changes in April next year.