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What is contract splitting?

Contract split

Contract splitting has two distinct meanings. One is the division of a major piece of procurement into a number of smaller contracts in order to avoid rules governing big tenders. The other is the splitting of a person's employment contract among several countries to take advantage of low-tax jurisdictions.

Where have you heard about contract splitting?

Not from the literature of a company in which you are invested, that's for sure. Both types of contract splitting meet with official disapproval, so you may have heard of it from pronouncements by bodies such as the US Treasury and the public accounts committee of the House of Commons in the UK.

What you need to know about contract splitting.

Both types of contract splitting have the effect of dividing what is essentially one job into many smaller ones for reasons of gain.

Contract splitting in terms of procurement seeks to avoid rules governing major tenders - such as the demand for competitive tendering or for compliance with social or environmental objectives - by creating lots of smaller tenders, each of which is 'under the radar'.

In terms of individuals, the employment contract of someone working in different countries is split into separate contracts, one or more of which will be in a low-tax jurisdiction, allowing some of the salary to be sheltered.

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