Having recruited within the IT + Business Change contracting sector for over 12 years, I can safely say that rate increases at the point of renewal are often a contentious and problematic issue. So I thought I’d play devil’s advocate and look at an issue that I believe is often overlooked by many contractors.My question is: “Do many contractors consider the potential damage that requesting a rate increase could create?”
I’m not saying that asking for more money at renewal is always going to cause an issue, but I do believe that sometimes a client’s positive opinion of a contractor may reduce when they ask for a hike in their daily rate – especially if their role hasn’t changed, their responsibilities haven’t increased and their workload hasn't grown.
I can (and do) see it from both sides:
- the client doesn’t want to pay any more for a contractor than they currently are paying and don’t like being held to ransom (in their opinion) when a contractor has become business critical,
- and contractors want to ensure their rate is in line with market rates, or what they perceive to be their worth for the services they are providing (this is clearly a hard thing to measure!)
I think the problem often stems from the fact that, for whatever reason, many clients seem to take rate increase requests personally and sometimes hold it against the contractor for asking – whereas contractors see it simply as a business transaction for the provision of services and argue that negotiations like this happen across the globe in all industries.
One of my long-standing contractors (who has worked for me for over 8 years at a number of different clients) has always taken a pragmatic approach to his rate. “Rob, if my rate is a bit lower than most of my colleagues, and I don’t usually ask for increases at renewal, I’ve found that I tend to get renewed for a lot longer than most of my colleagues”. One of his contracts lasted for around four years, whereas the majority of his colleagues who were demanding 30-40% higher rates tended not to last much more than 6-12 months.
Was this due to their rate demands, or just because my contractor is better at his job than the others? Hard to say, but he’s convinced that his easy-going attitude to rates has certainly played its part and he has never been out of work for more than 2 weeks in over 10 years of contracting.
Personally, I think his success is due mostly to him being an excellent Project Manager, but I do believe that his stance around rates has helped.
I guess it depends on your own personal opinion, attitude and ultimately what drives you, as to what approach you adopt.
Many contractors are in the contracting business predominantly for the money, therefore they want to maximise their earning potential and will push their rates as high as they possibly can. If this causes ill feeling with the client, then so be it – they are here to manage and deliver a project for the client, not to make life-long friends!
Others like to work in a friendly, positive atmosphere without any ill-feeling so don’t want to push for a rate increase in the worry that the client might hold it against them.
And others (like my contractor mentioned above) take the pragmatic business approach that he will earn more money in the long-term if he is always in work at a slightly lower rate, rather than have a higher daily rate but risk not get renewed as often and being “out of contract” more often.
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I have worked as a contractor for many years and don't often ask for a rate increase when my contract is renewed.
However, I found out that one agency I worked through got a rate increase (for the agency) every time I was renewed, even though I had not changed my rate.
Now tell me that Sandersons don't do this kind of thing.
So I'm working on a contract and I find out that my peer group are all getting paid 10 - 20% more than I am. Even those peers who aren't working very effectively.
It comes to renewal time and I'm meant to sit back, shrug my shoulders and stick with my low rate?
Are you serious?
Mr Cooper, a lot of contracts are advertised as paying 'Market Rate'. Over the course of a year the market rate for a particular skill may vary considerably, both up and down.
A contractor is well within his/her rights to ask for a rate increase during an upswing, in the same way that a client may offer an extension at a lower rate during a down swing. It's called market forces. Have you ever had to go back to a contractor and tell him/her that the client is offering an extension at a lower rate? If so, did you attempt to dissuade the client from reducing the rate?
One thing you have failed to mention is that when market rates rise, a client may be prepared to pay a higher rate to retain the services of a contractor who has proved that he/she can deliver, rather than take the risk of paying the higher rate that the market demands for somebody unknown.
It sounds like you are trying to persuade contractors to forego rate increases, so you can avoid an 'awkward' conversation with the client. The agency take their commission, which may be up to 20% of the contractor rate. You get that commission for actively managing the contract, which includes looking after the best interests of the contractor, as well as those of the client. Earn your commission!
If a contractor seeks a rate increase when a contract is extended, the client is actually suffering the consequence of a problem they have created.
All too often a client wants to take on a contractor for 6 months or a year, but will only offer the contractor 3 months at a time. Therefore, during the year the contractor has to renew 3 times. If the client wants the contractor to work for a year at a fixed rate, then they should offer the contractor a 12 month contract, not a 3 month contract. As Bob Sherunkel commented, market rates fluctuate, so each contract should be based on the market rates available at the time the contract is agreed. If the client offers four 3 month contracts during the course of a year, then the market rate for each contract may well vary. So does the price of other goods and services. Just because the last time I filled up with petrol it was 127.9 a litre, doesn't mean I should expect to pay 127.9 next time I fill up. Petrol prices fluctuate and so do market rates for contractors. Perhaps you should explain that to your clients.
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