Understanding Damages Based Agreements in IT Contracting

Hiring IT contractors can be a time-consuming and complex process, particularly when it comes to drafting the initial agreement. That is where Bench Direct comes in – a platform that connects businesses with qualified IT contractors and streamlines the entire hiring process. But there is one thing that can take hiring efficiency above and beyond: comprehensive damages based agreements. By learning the basics of damages based agreements and how to implement them on Bench Direct, users can reduce the time spent drafting and negotiating agreements with IT contractors.

You may have heard the term damages based agreement in passing, but for those of you who are not familiar, damages based agreements are contractual agreements that outline an expected level of service or deliverables from an individual or business. In the event that they do not meet the standard expected, the contracting entity is entitled to claim a stipulated amount of damages, which are determined by the expected standard. In many cases, the amount in damages is pre-agreed between the parties, as opposed to a later determination by a court.

So how do damages based agreements apply to hiring IT contractors? For example, Bench Direct users can create a damages based agreement outlined in the terms and conditions to govern the relationship between the customer (the contracting entity) and the contractors (the individuals performing the IT services). This approach ensures efficiency, as both parties know the damages that are at stake in the event of a breach under the agreement. Damages vary depending on how both parties agree to calculate the damages. For example, the parties may agree to calculate damages by reference to:

The obvious benefits of damages based agreements are two elements that any user of Bench Direct is interested in: time and cost efficiency.

Let’s take a quick look at how the damage based agreement principle can increase efficiency when hiring IT contractors. In the traditional contracting process, a customer would need to draft up the terms and conditions of the agreement from scratch. Then, once negotiated with the contractor, the agreement is either sent to their lawyer for a few amendments, before finally being signed. From a practical standpoint, this entire process could take anywhere from a few hours to a few days, with contract negotiation being the most time consuming process. However, with a damages based agreement, the process is shortened from several days to just a few hours.

Damages based agreements streamline the process of contracting by devolving the majority of contract negotiation, with all parties on the same page from the outset. The customer and contractor basically agree that, should any clauses of the agreement be breached, the customer will be entitled to a set amount of damages, depending on the nature of the breach. For example, if a contractor does not fulfil their work on time, they may agree to pay the customer a set number of damages, which would be determined by the number of days that the work was late. For IT contractors, this might be the simplest approach because the customer knows exactly how much work was expected of the contractor, and this allows them to then calculate the amount in damages that they would be entitled to. The customer can then agree these terms with their contractor and have a solid basis for their contractual agreement. In turn, the efficiency of hiring the IT contractor on a Bench Direct will be infinitely increased, as you would not need to spend hours negotiating the terms and conditions of the contract.

Okay, so we’ve talked about how damages based agreements can help make the process of hiring IT contractors more efficient, but what about the potential cost savings? It goes without saying that when a business saves time, they also save money too. By streamlining the process, damages based agreements are a cost saving option for customers of Bench Direct, as they do not need to ask their lawyers for assistance with drafting up the terms and conditions of the IT contractor agreement.

It is important to remember that the injuries and damages caused by a breach under the agreement do not necessarily need to be financial. Instead, damages can also include other consequential losses, such as where the breach of the agreement causes harm to a business’ reputation or decreases in productivity.

Now let’s take a look at how you can easily implement damages based agreement principles in your hiring process on Bench Direct. As mentioned above, you may already be aware of the types of damages that are associated with different breaches of the contract, so in this case, all you need to do is specify those damages in the terms and conditions for the IT contractor agreement. Alternatively, you might not be able to determine those damages, in which case you may wish to ask one of your lawyers to assist with drafting up the terms that you can use in your agreements with IT contractors. Either way, it is easy to apply the damages based agreement principles to your agreement with IT contractors, and you are sure to reap the benefits of efficiency and cost savings.

Remember that although damages based principles make the process of contracting with IT contractors more efficient, they do not, and cannot take the place of legal advice for businesses. Deeming a damages amount to be appropriate in a given scenario requires considerable legal experience and analysis to determine the appropriate amount of damages. For example, if the damages are used on a per day basis, does this account for the ultimate loss of productivity experienced by the business? What about the consequential losses suffered by the business? Does the damages amount account for those losses? Damages based agreements are not the final word on your legal agreement, and should definitely not be substituted for a number of sound legal principles and considerations.

Now that you understand the practical implications of damages based agreements, you may be wondering how they can sometimes end up missing the mark. For example, if the parties do not explicitly agree to a specific amount in damages for a breach of a recommendation, the stipulated amount simply defaults to the amount of financial losses suffered by the injured party. There is obviously no guarantee that the amount in damages would reflect the exact losses suffered, and therefore, damages based agreements can occasionally be difficult to enforce in a court of law.

When are damages based agreements a good idea? In a broad sense, damages based agreements are great for allocating risk to the parties based on their circumstances, by determining where liability falls in the event of a breach of the agreement. More specifically, damages based agreements are particularly beneficial where the damages are not easily calculable during the contract formation process, or where the parties do not wish to allocate a significant amount of time negotiating the possible contingencies of the agreement. This is why damages based agreements are so popular with Bench Direct users, as they simplify the contracting process when hiring IT contractors.

How can Bench Direct leverage off the legal knowledge and articles that have been discussed through this article in order to promote legal education on the platform? For example, the platform could send out an email to users to explain more about the different clauses that can be included in the terms and conditions, and why it is best to let the customer disclose the damages that would apply to any missed deadlines or quality issues in their services. Alternatively, it may be beneficial to include a reference in the FAQ section of the Bench Direct website. That way, the customers are informed of the legal issues that might be at play in their IT contracting process.