Negotiating a better rate for IT contractors

Many companies are determined to control the end-price of their goods or services – brand reputation depends upon it, they say. Take the conflict between Tesco and Levis (or Tesco and Microsoft) over grey-market, cut price imports, and how hotly the legal ground is fought on the issue of iTune pricing. Apple are prepared to fight competition laws and the European Commission for the right to charge what they see fit.

But do contractors operating Limited companies, have the right to control the rate charged for their services? Can you demand openness on contract terms such that the client pays a known amount and the agent extracts only the agreed fee? Can you say to an agent: "I charge £50 per hour to end-clients. If you wish to represent me, then your margin is 10 per cent."

Well it turns out the answer is yes. Contractors have the right. But the question is not one of legality but, in our capitalist, mixed economy, it is a question of bargaining power; it is down to your hand in negotiation.

Jane Moorman, partner and employment lawyer at Pinsent Masons, does not believe the situation is common, but says, there is no reason you cannot set up an open-book arrangement to view the invoices an agent sends to the client, and have the margins and fees written in the contract.

Except that agencies will resist it. Most agencies issue boiler-plate contracts drafted by legal experts at considerable cost. They will generally resist changes to the standard way they do business since it impacts on their direct costs.

Spring Technology, the largest IT recruitment agency, has between 4,500 and 5,000 contractors working in the UK at any one time.

Ray Murphy, Resource Manager, says they oppose attempts to change their standard terms and conditions, that generally, they consider their template contracts to be written in stone. This is a practical necessity, he says, the company cannot afford to enter complex negotiations with every one of their contractors for each new position.

The reality of operations means efforts to set the fee a client pays, or control the agency percentage will very likely fail. But if the contractor has specialised skills in a niche environment, and the fees can justify it, Murphy admits they would entertain contract changes. They would resist it, but where a profit can still be made, they would not turn the business away.

Not many contractors can wield such power. For the average SQL programmer or business analyst, there is simply too much competition to be able to dictate terms, and with the market bouncing along the bottom of the ditch, this is likely to remain the situation for the foreseeable future.

Transparency over fees and margins is usually at the behest of the client. For contracts through Spring, there is no agency percentage written into the agreement, but Murphy does admit that the businesses recruiting from him sometimes stipulate a percentage fee and transparent pricing to control their own costs and retain parity of payments to the contractors they use.

In most circumstances the agency is legally entitled to charge the client precisely what it sees fit, but in reality, an agent is limited by market and reputation.

Murphy stresses the business imperative of keeping all parties to an agreement happy. "If there's a mismatch, it ends up in chaos," he says, and, while he wouldn't invite many contractors round for a barbie, he tries to maintain good relationships, since today's contractors are tomorrow's clients. "What goes around comes around," he says.

However, before a relationship has been created, and if you are determined that the contract offered is detrimental to your business, you are at liberty to, "troop along to the next agent," says Moorman.

As long as you have not been asked, and agreed, to keep commercial secrets – such as the name of the client, or the fees involved – and have not already "signed-up", you are at liberty to approach other agents for representation to the client. Whether other agents and clients are responsive to such shenanigans is another matter, of course.

William Knight


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