Negotiating for contractors: How to get the best IT contract rate

Negotiation can be as complex or a simple as you want to make it. My preference is to keep things as simple as possible, but not any simpler.

In this article, we will look at a simple framework for negotiating to support you in getting the best deal for you and yours. Contract rate negotiation is a game of perception with three players: Client, Contractor and Agent.

The more you understand these different perceptions and the forces at play, the easier you are able to get the best deal without losing a contract you would rather keep.

By the end of this article, the aim is to develop a richer sense of your valuation from the client-side, your-side and the agent-side so you're fully equiped for contract rate negotiations.

Let's begin with the Client perception:

Player #1: CLIENT PERCEPTION

Commodity

Seeing ourselves as commodities may not be very nice, but it does provide us with the necessary objectivity to discover the value that the client sees in us.

The client's perception of your value is largely determined by your replaceability, that is, the likelihood of finding someone to do the same work at the same or better level for the same cost.

No-one is truly irreplaceble - although I have seen many continue to argue this point, even as they leave the building!

Key replaceability factors include:

1. Skill set - what are you good at?
2. Local knowledge - is your knowledge unique/special, difficult to pick up?
3. Likeability - do you fit in well with the team?

Circumstances

Apart from replaceability, the client is also considering the circumstances, that is, the criticality and importance of the business needs being met by the project/team you work on.

Key circumstantial factors include:

1. Criticality and importance of business needs - is the project/system high-profile?
2. Timelines - are there critical deadlines to be met?
3. Consequences - what would be the consequences of you leaving/staying?

Comfort

As with most human beings, clients like to take the path of least resistance. They would rather not go to all the bother of recruiting another contractor, when they have an incumbent doing a good job.

Knowing the key factors that shape the client's perception, we can get a deeper understanding for our Client's Valuation of our work.

Player #2: CONTRACTOR PERCEPTION

Preference

Everyone is different. Some IT contractors prefer to stay where they are. Others like to move around as often as possible. Some refuse to work where they believe they are under-valued. Others are glad to have a contract at all. Consider your own preference and be honest with yourself.

There's no point in seeing yourself as some maverick contractor willing to go to any lengths for that extra pound a day, if your skill-set means that you'll be out of work for 6 months!

On the other hand, if you are in high-demand, you will know it. This gives you a strong position in that you are happy to walk away unless your terms are met. Most IT contractors are in the middle-ground: they could get more work, but would rather not have the hassle, unless they have to, or they decide they need to change - for personal, skill-set or legal reasons.

Lifestyle

How happy are you where you are? Is the work enjoyable? Are your colleagues ok? Are the facilities worthwhile? Is it close to work? Can you enjoy life outside of work? What about your health? Have you felt good since you joined? Or are you increasingly feeling stressed out?

Look at the contract and how it supports your life as a whole.

Range

Decide on the minimum rate that you are willing to say "Yes" to. Take into account your Preference and Lifestyle above.

Player #3: AGENT PERCEPTION

Business

An agent wants to get business. The easier the better. They are under pressure from their boss to get the best margin they can (although in fixed margin contracts, this is not an issue). If it is fixed margin, then the rate will be based on the client's suggestion.

If it is a variable margin contract, then there is flexibility in the margin and the client rate.

Sometimes, with respect to rate, the agent is little more than a mouthpiece for the client.

Relationship

Most agents, these days, want to build good relationships with the client. If the client wants to keep you, that may influence the agent's approach. For example, they may try and persuade the client to offer your more by suggesting that finding a replacement would be tough.

Market

Agents will know how replaceable you are in the market. Again, this will influence their approach in contract negotiations.

A Framework

Come negotiation time, weighing up all the above will allow you to accurately determine your valuation. Consider these three elements:

1. Your current contract rate.
2. Your valuation.
3. Your lifestyle.

Tactics

Coming up to negotiation time...

* Do what you can to increase the perception of your value within the project.
* Research the market for IT contract availablity and to discover how replaceable you are.
* Decide what is the minimum rate you are willing to say Yes to.
* Ask for a rate above what you are willing to settle for.
* Remain artfully vague about rates before the interview.
* Ask for an increase at every extension - if you don't ask you don't get.
* Prepare a justification for your request: changes in role/responsibilities.

Summary

Put your contract in context with your life as a whole. Get a clear sense of your valuation. Use this valuation to determine the IT contract rate you negotiate/ask for. Remember to justify any requests clearly - you don't want to look like you're asking for asking's sake.