Computerlink: Direct route to controversy: War has broken out between traditional computer contracting agencies and a new breed of company that cuts out the middle man. Lynne Curry reports

IN THE cut-throat world of computer contracting, tensions and stresses crop up daily. But few rows erupt of the magnitude of that over direct contracting. Its key players are the serried ranks of the traditional commission-charging agencies on the one side and on the other, a handful of industry 'rebels' led by a mature, self-assured businesswoman.

Jan Fraser is one of three directors of Quantum Contracts, a three-year-old Manchester-based company with a modest turnover of some pounds120,000. From this unassuming base she has taken on something of a Boadicean persona. If her professional vehicle lacks the knives on its wheels, it has shown itself capable of upsetting an applecart with gusto.

Quantum Contracts was a pioneer of direct contracting in Britain, set up to facilitate direct contracts between the client company and the contractor. This method totally cuts out the agency, which has been the traditional resort of about 70 per cent of the 15,000 to 20,000 'freelance' contractors operating in the market.

For this service it charges a one-off fee, unlike agencies which continue to charge a considerable percentage as long as the contract runs. The first and most obvious difference between them is that an agency is much more expensive to the company using it, with the differentials running into thousands of pounds a year on the back of one single contractor. The remaining differences between Quantum and an agency are otherwise few (according to Quantum) or many (according to the agencies).

The ructions that have flared up, meanwhile, have enlivened the pages of publications such as the newsletter of Inca, the Independent National Computing Association, and the Freelance Informer, which held a special seminar on it. Feelings have become so inflamed that some of the older agencies have even threatened to withdraw their advertising from journals which support agencies offering direct contracts. Ms Fraser's letters have continued to steam from the correspondence pages in response to a mailbag from agencies warning Quantum and those who use it (or any other concern like it) of dire things to come, mainly from the feared direction of the Inland Revenue.

She remains untroubled by the hostility of her peers, however, and relishes a debate which, she says, the agencies have a direct and vested interest in suppressing before it threatens the comfortable and lucrative status quo currently serving them well.

'I am a great advocate of anything that's simple and to the point, removing the extraneous and irrelevant,' she says. 'This is the obvious step forward to take. When we first introduced it to clients, part of our package of information was to tell people how much per contract per year they could save. As an average contractor is earning pounds1,000 a week, it was immense. So they all got their calculators out and thought, 'Where's the catch?' As we see it, there is none.

'The client doesn't have to do his searching, selecting or technical interviewing. It's all made easy for him but he is contracted directly to the contractor. After the contract is drawn up we don't disappear off the face of the earth - we do offer back-up and we basically do all an agency does. There's nothing underhand about it.'

One major function not performed by a direct contracting organisation, however, is that of paying the contractors. Agencies act as fund-holding bodies, paying their contractors promptly even if they have to wait months for their own payment to come from an accounts department. Unlike employees, contractors are not put on a payroll but treated as a service supplied. The vast majority of them are one-man limited businesses and, like other businesses, can be kept waiting weeks for their money.

This fact is highlighted by the lobby in defence of agencies, who paint a picture of impoverished contractors ekeing out their income until the company decides to settle its bills, of which theirs constitute a fairly low priority. Ms Fraser maintains that this is another 'scaremongering' tactic and claims that by cutting the cost of the contract to the company, the contractor is more likely to be able to negotiate a higher rate for the job.

Quantum has taken specialised legal advice on the tax issue and is punctilious in the wording of the contracts it arranges, taking care that they specify a specific job for a finite length of time. Since the Inland Revenue has so far taken no action against John Birt, who was directly contracted through his company to be Director General of the BBC, Ms Fraser says that the most obvious high-profile precedent has not been set.

Inca sees no reason why contract agencies should not co-exist with traditional bodies: 'Any movement towards increasing the diversity and choice of contracts, agency styles, and commission structures, can only be beneficial to the contractor market and will be supported by Inca.'

Laissez-faire to rule on the contracting front, then? Not if the agencies have their way. Some of their biggest guns gathered at the Freelance Informer forum, armed with horror stories of companies who had come unstuck through direct contracting. Charles Higgs, of Selected Options, is quoted as telling the gathering: 'I know of a client who has had up to 10 direct contractors on site and he has been told by his legal and accounts people that he is in great danger of being deemed responsible, in the eyes of the Inland Revenue, for paying tax on those contractors. Consequently we, as an agency, were asked to assist and take these people on our books, albeit for a nominal margin.'

The tax debate does not send shivers down the spine of direct contractors alone. Agencies shrink from discussion, fearing that if the Inland Revenue casts its net, they will be called upon to defend their own position. Currently, if a company contracts an agency, which then contracts a limited company (the contractor), the company is not deemed to be an employer and a contractor can enjoy the tax benefits of being a company.

The accountant Barry Roback, of JSA Services - a company specifically serving the contracting industry - says that the Inland Revenue's inaction over John Birt does not mean it would adopt the same line on direct contracting. 'Big companies would increasingly go to agencies because at the end of the day, they go one step further away from the potential of the Inland Revenue coming along and saying 'that's not an arm's length transaction'. The Revenue has certain acid test questions to ask such as where the contract takes place and under whose control.

''Our clients are both direct contractors and agency contractors - I don't think they see themselves as one or the other. I believe that the industry is a lot healthier for the agencies; they have a controlling, influencing effect. Contractors would be the hardest hit if they lost the agencies, because they would have no base on which to judge themselves.

'My clients who work through agencies receive their money much quicker than individuals. Their ability to renew and renegotiate is better because there is a mutual motive to keep the rate up.'

(Photograph omitted)