H&A Systems Engineering: Contract Information
Independent Contractor Status
H&A Systems Engineering has complied with the IRS common-law rules on independent contractor status since 1994. Our firm has the following characteristics to ensure compliance with the IRS rules for independent contractors:
- Staffed by licensed professional engineers who are subject matter experts
- El Segundo city business license
- General liability insurance
- Use own methods and tools
- Provide own periodic technical training
- Significant investment in computers and software
- Unreimbursed expenses
- Opportunity for profit and loss
- Provide engineering consulting services publicly
- Advertise on the web and social media
- Work only under written contracts:
- Two-party Client-Consultant relationships only *
- Defines relationship as independent contractor
- Specifies Statement of Work
- Includes no employee benefits
- Specifies reimbursements only for travel outside of LA area
- Limits the scope or term of the contract
For engineering services and consulting in key aspects of a Client's business, our firm is providing a subject matter expert engaged to help the Client do something it has not done before, has trouble completing with its current staff, or to improve the capabilities of its staff through mentoring. Our work is controlled by the statement of work in the contract and not by direct supervision.
* Section 1706 of the Tax Reform Act of 1986 removes the safe harbor protections in cases of three-party relationships such as a job shop trying to provide independent contractors to a client. Two-party Client-Consultant relationships retain the possible benefit of the safe harbor provision of Section 530.
- We only provide services as independent contractors and have done so exclusively since 1994. An independent contractor clause is recommended for all consulting and engineering services contracts.
- Travel expense reimbursement is not applicable for client locations within the Los Angeles metropolitan area, unless performance of the contract suggests travel by the consultant outside the local area.
- For consulting and engineering services, we grant ownership to the client for all that is developed under contract and we grant royalty-free rights to the client for all that is owned by us but supplied to the client in support of the contract.
- We are delighted to assist Clients in obtaining patents and copyrights at their expense.
- We retain relevant unclassified notes and documents generated by us in locked and/or encrypted storage to ensure compliance with nondisclosure agreements and to be able to supply the delivered work product to the client after completion of the contract should it become lost or deleted.
- An indemnification clause is preferred, but a liability limitation clause is acceptable. For example: The liability of the Consultant with respect to this Agreement shall in any event be limited to the total compensation for the services provided under this Agreement and shall not include any contingent liability.
- An arbitration clause is preferred. For example: Any dispute between Client and Consultant regarding this agreement will be settled under the commercial rules of the American Arbitration Association by mediation and if not resolved, by arbitration of the last offered mediation positions.
Sample Contracts, IRS Common-Law Rules, and Code of Ethics
On large contracts, we generally negotiate from the clients standard contract. Specific items that we look for in a contract are compliance with IRS common-law factors, liability limitation or indemnification, and protection of our rights to intellectual property which is not developed under contract, typically tutorials and analysis software. The sample contracts are listed below: