Is my company getting ripped off?

May 10, 2006 4:59 AM

How should I deal with the prospect of being put out of business by a greedy University?

Here are the salient points:

We have a small company that offers a range of services mainly focussed on project management (ie we spec software development projects, assemble resources to build them, manage delivery and run subsequent experiments with the software – using external contractors).

We’ve been engaged mainly on academic projects working for a number of Universities throughout the world.

We have been working together with one University for a major commercial client for the past 2 years – the University has told us that in order to participate in the next phase of the project we need to become employees of the University, but they’ve only offered us half salaries.

We’ve told them that we aren’t able to run our business under these conditions and we would prefer to stay on a contract, ie it’s not fair and equitable. However, they’re not willing to engage us in this way (they claim it's a University ruling based on tax law, but we have since discovered that it's a furphy - we have been invoicing them for over 3 years and it's only just been raised as a problem).

The centre (within the University) we work with are using this particular contract (the aforementioned large project) to form a new business centre where they are already attracting Venture Capital in order to establish a commercial entity.

My questions:
Could this be defined as anti-competitive behaviour?
If not, are we being unfairly treated (legally speaking)?
What advice can you give me on what we should do?

posted by anonymous to law & government (11 comments total)

I don't have a comprehensive answer to your question, but I do not that in the U.S. many state universities have strict limits about how much outside contractors can be paid before they either a) become employees, or b) must submit competitive bids as part of an open bidding process. The 'tax law' explanation sounds like nonsense, but then, I wouldn't count on any explanation given by the average university business office employee. I'd ask for a copy of the "ruling" so you can see what it actually says... and if it exists.

On the other hand, the fact that the salary they're offering is less than your contract is not in and of itself a red flag. Presumably as part of employment, the University is taking on your overhead, offering you health insurance, retirement benefits, etc., etc. It's pretty standard practice to factor all that in when making a salary offer to someone with whom you've previously worked on a contract basis.
posted by j-dawg at 5:43 AM on May 10, 2006

Is the university your only client at the moment?

When someone only works for one organization, the IRS tends to frown on calling them an "independent contractor." They may see this as a dodge on the university's part to avoid paying payroll tax for you. (Or the university may be worried that that's how the IRS will see it. That would explain the remark about "a university ruling based on tax law.")
posted by nebulawindphone at 6:19 AM on May 10, 2006

I have a hunch anonymous might be Australian.
Centre is a hint, as is furphy.
posted by Floydd at 6:32 AM on May 10, 2006

Anon, if this contact is worth a substantial sum of money to your company, it's almost certainly worth paying a local legal professional to give you some advice.

Outside the legal arena, though, there's a reason the University brought you on top the project in the first place. You offer expertise or some other quality that they can't duplicate within their own organization. That means you may have more leverage than you think.

Does your contract prohibit you from going directly to the client and contracting with them to be part of the project? If the school is going to cut you out, the the client may still want those services from someone. Then you'd no longer be beholden to the whims of the university.

The other thing to consider is whether your contract with the university prohibits them from requiring you to become university employees. Again, worth paying a lawyer to look into.
posted by mikewas at 7:32 AM on May 10, 2006

j-dawg's answer is great. The competitive bidding point and the contract vs. employee pay point are going to be equally valid in any jurisdiction.

You need to find a way to reframe the conversation you are having with the University. As mikewas says, it is hard to imagine the University can afford to just cut you loose...
posted by Chuckles at 8:58 AM on May 10, 2006

Contact the nearest other University offering your services. Copy that to the University.
posted by A189Nut at 11:40 AM on May 10, 2006

In the USA, you could refute the contractor/employee issue and simply have them pay your "company" instead of your contractor's wages. All you need is a DBA.
posted by catkins at 12:34 PM on May 10, 2006

Hi - I'm the poster - thanks for your responses.

Just to fill in the gaps..

We have a business and an office, various investments (computers, software, insurance, rent, existing infrastructure) that are part of the running costs of the business. The University doesn't supply any infrastructure in this deal - however we're expected to work on site with our own tools in a makeshift area in the middle of a pool of offices (they give us a phone and access to their network - which isn't ideal for what we do).

They've offered us one full time salary (approx $54KUSD) between us and nothing more (the benefits usually associated with being a salaried employee are waivered on a "rolling contract" - ie our employment contract has to be renewed every 12 months, this means that additional superannuation bonuses associated with working in Academia aren't required to be paid). We get all the other things, like sick leave and annual holidays.

We need to contract/employ between 8 and 12 resources to complete the project - but they've no idea how we're going to do that (they have mentioned that they also would have to become employees of the University, even though their tenure would be, say in the case of an Info Architect, as little as 2 weeks on the project.

As I mentioned in my post - we have a number of other clients (other Universities and commercial clients) that we are also engaged with - some concurrently, and others ongoing but not at the same time.

We are happy to go into a bidding process - but when that was offered and we accepted it, they then came back to us and claimed that it would take too long to engage the project (bearing in mind the bureaucracy associated with such a process).

The combined expectation that we "work on site" and the pittance offered, on top of the expectations from the client and the knowledge that they're quite prepared to pay us market rate for the project (albeit through the University) kind of make the whole thing too difficult.

We've been told that we can't contract directly with the client, with an implicit threat (easy to assume what the consquences are likely to be).

I think, however, that's our only option.

Catkins: what's a "DBA"?
posted by a non e mouse at 3:25 PM on May 10, 2006

"doing business as"
posted by five fresh fish at 5:07 PM on May 10, 2006

DBA = Doing Business As. Instead of paying Joe Smith as a contractor, the Uni would pay MadeUpNameCo as a business, where MadeUpNameCo is a DBA for Joe Smith. This is an end-run around possible restrictions the Uni may have about paying individuals as employees vs. contractors.
posted by TimeFactor at 5:14 PM on May 10, 2006

OK - we're a company and have always been paid as such - so that's (DBA) already in place.

We basically take on a project, the risk and hire the resources - all of which are external contractors that we sub-contract. We invoice as a company, not as individuals.

The weird thing is the centre actually asked us to do it this way (run projects externally) and also get insurance to cover both ourselves and the centre for any liability we may be exposed to (that was last year), due to them not being able to operate as a commercial entity. I'm sure we have that in writing.
posted by a non e mouse at 5:26 PM on May 10, 2006