The 'Three Rs' of IT Contracting: Resisting Rate Reduction
Straitened financial times are a double-edged sword for freelancers, with the depth and direction of the cut largely dependent on luck and timing.
While some opportunities will disappear as organisations seek quick and easy savings, others will come into being as the flexibility that contractors can offer makes them an attractive option for customers seeking maximum return on their outlay.
Whether you are prospering or struggling while the economy languishes, however, it’s likely that your contracting rate is the subject of intense scrutiny. Companies have no choice at present but to explore every opportunity to make savings and efficiency gains, and expenditure on third parties is traditionally an early casualty.
Sharing the pain?
Some will argue that some tightening of contracting rates is inevitable – after all, thousands of permanent sector workers are facing real-terms pay cuts and even redundancy.
However, the comparison isn’t entirely realistic. In times when the economy is not in free-fall, permanent workers can generally count on regular pay rises, even if only to meet the cost of living, and will have opportunities for promotion that a contractor by and large does not.
In addition, they are protected against variations in the cost of doing business; if their employer’s loan interest, materials costs or transport fees suddenly rise, this is not immediately reflected in their take-home pay. No-one is immune, and no one group can be expected to shoulder the entire burden of stabilising the country’s finances – but contractors by their nature take on more risk and have a responsibility – some would say a right – to be more protective of their assets.
Over the counter vs. under the covers
Rate reductions can come in two forms. Most straightforwardly, a client can attempt to cut the contractor’s headline rate. This is particularly a concern when taking on a new contract, or at contract renewal or renegotiation time. A similar tactic involves cutting elsewhere in the contract, for example by reducing the budget for new equipment, or removing in-house staff from the project.
More subtly, a client can leave the headline rate alone but seek to extract additional value from the contract, for example by widening the remit, placing new conditions on contract completion, or bringing forward timescales in an effort to begin realising the contract’s benefits earlier.
What are you worth?
The first step in protecting your headline contracting rate is to be sure that you can justify it, remembering always that outside the permanent sector, experience and seniority do not necessarily equate to a high rate. A contract has a value to the client, which is likely to be the same whether the contractor undertaking the work has five or thirty-five years’ experience.
It’s a good idea periodically to repeat the research that you carried out when first setting your contract rate to confirm the state of the market for your skills and to spot any variations. Sites like IT Jobs Watch can give valuable information as to what to request. An advantage of public resources such as these is that most contractors will refer to them, so companies will find there is less variation in the amount they have to pay for particular skills.
You will find that negotiations go more smoothly, however, if you can come up with more persuasive arguments for your fee than a flat ‘that’s the going rate – take it or leave it’. When you come to the table, ensure that you can paint a positive picture of the benefits that the client can expect in exchange for their investment. Stress the added value – for example the maintainability and reliability of your solutions, and the quality of associated deliverables such as documentation and training – that you can bring to the project, and be prepared to back up your claims with facts and figures.
As is so often the case in contracting, a little homework can make you a far more confident and able negotiator on the day, so try to find out ahead of time what are the concerns and priorities that might be forcing the client to put your rate under the microscope.
A rarer but not unheard of occurrence is for clients to attempt to vary a contractor’s rate mid-contract. This can often occur if the client feels they are not getting the service they contracted you to provide, or where the business context changes sufficiently to throw the terms of the original contract into question.
Care needs to be taken in handling this type of situation, as it is sometimes the case that even an apparently cast-iron contract will not protect against an imposed rate change; independent advice is strongly recommended.
The death by a thousand cuts
The more insidious type of cost-saving, whereby the client attempts to alter the terms of the contract in order to lessen their expenditure, to bring forward or increase their benefit, or both, is harder to address.
Good preparation and a thorough understanding of the contract are your best defences here. The client will have far fewer grounds to justify an alteration to the contract if the work is on or ahead of schedule and the scope and deliverables are under control. Ensure that requirements such as the procurement of new equipment or software licences are documented and agreed, and that the amount of any personnel resource that your client must provide is understood and budgeted for.
Again, however, your most valuable asset is your negotiating acumen. In the real world, project scope and business priorities do change, and you’ll find it easier to get along with the client if you are ready to make reasonable adjustments to accommodate them.
The key word here is ‘reasonable’; be aware at all times of what the contract is worth to you, and what any proposed change may mean, expressed as a deduction from that value. Look for ways to turn circumstances to your advantage – for example, if the client is proposing to reduce your hours, ask yourself whether you can use the time this releases for other paying work to offset any lost revenue.
More detailed guidance on how to handle a client who seeks to either reduce the cost or terms of a contract can be found here.
Negotiation and good relations with your clients, based on strong professional standards, are your best ally in protecting your interests. If all else fails, however, remember that a contract is a contract – provided you are confident you have met all your commitments then you should not be afraid to take advantage of the protection that a binding agreement gives you, and seek legal advice.