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Contract Negotiations

This situation may have occured to many software developers on this site who are contractors so I'd like to hear what some of the contractors think.

I am working through a recruitment agency on a contract which started in December last year and was originally for three months, when that finished successfully, the company I am working for asked me to work in a different area for 4 months, and now that that's finished successfully they have asked me to start another project in a different department until the end of the year.

My problem is that the recruitment agency that originally signed me up in December are charging the company $100 per hour for my services and paying me $81, meaning that they make $29 per hour. I am actually happy with what I get paid but feel that $29 per hour, or about $1000 per week is too much for the agency, especially since none of the roles I am working in are related to the original job they found me in December last year. With that in mind I have asked for an extra $9 per hour for the new contract they want to sign me up for. The problem is that the recruitment agency are playing hard ball with their margin and won't budge, so it's become an emotive point rather than a financial one (I'd lose no sleep if I lost the role).

My question is -  in this triangular contractual arrangement what happens if I lose the contract only because they insist on a certain margin, given that I have signed a six month clause saying that I will not work for the client after my contract expiration? I actually feel for the client who I would like to continue to work for, and I certainly feel that they should not have to pay any more money, but the agencies greed is frustrating me to the point where I'd walk away from the contract.

Has anybody had any similiar experiences that they could share? Solutions?

Cheers.

Realist
Thursday, September 04, 2003

Realist, it's called negotiation. The recruiter will pretend you have to do what they want, but might be prepared to yield. It depends on whether they can find another person to replace you.

The margin they're taking is actually relatively low for a recruiter, but still excessive.

My advice: if you feel strongly about it, give them a deadline and be prepared to walk. They will play you like a fish; you have to fight back.

.
Thursday, September 04, 2003

$100 an hour - $81 an hour != $29 an hour.

Mr Jack
Thursday, September 04, 2003

Try to manipulate them. Tell them there is a big project in view that could take a year to finish, your company would pay more for the contract just to get the project done and you may accept the contract if they give you that 9$ NOW! What do they have to lose? They already earned enough on your work.

Lacko
Thursday, September 04, 2003

Don't lie, just tell them what you think: $19 per hour is a lot of money they get for no work at all, and you think they could pay you more. If they don't, that's up to them, you like the project, so you'll do it anyway, but as soon as something better comes along you're gone.

Cpt. Kirk
Thursday, September 04, 2003

I don't understand why you care what margin they make. Focus on what you make--do you feel you are adequately compensated? If so, don't worry about it. If not, try to get more, but don't worry about cutting into their margin. If your getting $10 more an hour means that they raise their rate $10, what do you care?

Rob Warner
Thursday, September 04, 2003

"...but the agencies greed is frustrating me to the point where I'd walk away from the contract."

Is the agency being greedy?

Are you working for a staffing firm as a W-2 no benefits hourly employee?

$19 an hour or 19% of the billing rate might seem excessive just keep in mind that some firms (especially large consulting firms) take a whole lot more!

A six month non-compete agreement is pretty much industry standard.  Many firms try to make you sign one year agreements!

How did you find out what the agency's cut is?  Most won't tell you what they are earning from your services.

Are there other agencies that do business with this client?  If so, you might want to contact them and see if you can work out a better deal for yourself.


I would really like to see large companies that use lots of contractors push for transparent contracts since it would benefit both them and the contractors they choose to use.  I don't see this happening in my lifetime since it would require intelligent thinking -- something that seems to be in short supply nowadays within corporate America.

One Programmer's Opinion
Thursday, September 04, 2003

I've never used recruiters/brokers/middlemen to obtain contract work, and I've been doing it successfully for 6 years now. Keep that in mind when you read the below.

I've always thought that if I did actually have to break down and use one, I really wouldn't give a second thought to what the broker is charging, as long as I was happy with what I was getting paid. Think of it this way: without the broker, you wouldn't have gotten this contract. They deserve something for that. Like you, they're businessmen and will seek to maximize their profit. If you're happy with the rate you're getting, and the client's happy with the rate they're paying, then what the heck does it matter what the broker's taking by acting as the middleman? If you think that it's too much(and it usually is), then fix it. Drop the broker and get your own contract so you can be the middleman taking that profit. It's really that simple.

Sgt. Sausage
Thursday, September 04, 2003

Listen to Rob and Sgt.
19% is *very* low for a recruiter

In my experience, they simply will not budge on their margin. The contract manager is evaluated on his/her profit/loss ratios - giving you more money means they take a hit on their evaluation. So what incentive do they have to give you more money?
About the only way you'll get them to cut their margin is to threaten the income flow completely - threaten to walk. Unfortunately there's a good chance they'll just hire someone else, so that's a huge risk for you.
Finally, as soon as you put pressure on them for more $$$ they'll pass that pressure on to your employer. So if you end up with $90/hr but they're getting $20/hr (still about 19%) does that make you happier?

Be happy with your pay, don't worry about what the recruiter's getting. Whether their cut is $3/hr or $50/hr, it's still about your paycheck.

Philo

Philo
Thursday, September 04, 2003

In the semiconductor design contracting arena:

2000: billed out at $240/hour, paid $60/hour on salaried basis.
2002: billed out at $180/hour, paid $40/hour.

Mind you, this is salaried, meaning that when I had no contract, the employer paid me anyway.

Now, these are U.S. dollars, and I live in Canada.  Making $60 U.S/hour x 2000 hours/year (plus benefits), converted to Canadian $ was _very_ sweet so I was not complaining.

If you're getting $81/hour on a long-term series of contracts, then I wouldn't rock the boat.

David Jones
Thursday, September 04, 2003

Just another voice to say that 19% is actually pretty low. When my wife was contracted out, the margin was generally at least 33%, and very often 50% or more.

Don't fool yourself into thinking they do "no work" for that, just because they aren't writing code. They have an entire business to fund off the margin on those contracts. If you think you can do better, then quit, and do better. It's as simple as that. Nobody put a gun to your head, telling you to work for them.

Then you'll discover that a TON of value comes in the contacts and relationships that those places have, especially in times like now, when there is a whole herd of unemployed developers looking for work.

Brad Wilson (dotnetguy.techieswithcats.com)
Thursday, September 04, 2003

>>> I am actually happy with what I get paid but feel that $29 per hour, or about $1000 per week is too much for the agency, <<<

Rob, Sgt, et al, have a good point.  Why do you care how much the agency is getting?  Seems like you should be concerned with how much you are getting.  Would you be happier working for an agency that got you less money but took a smaller fraction?  Are there other agencies you could work with?

You need to think about why you are so upset about how much the agency is making.

Z
Thursday, September 04, 2003

> Don't fool yourself into thinking they do "no work" for that, just because they aren't writing code.

I agree with this, but I also think that most of the agency's work doesn't directly benefit you, the contractor. (This is especially true for me because I work corp-to-corp; the agency typically bills the client, cuts me a check and that's it).

Recruiting seems rather like fishing; there's a lot of waiting around, and chasing nibbles that don't turn into anything.

Some concrete suggestions:

* Can you buy the contract out? Some non-competes that I've signed had a provision to pay a certain penalty for working with the client directly. Typically, this is a large amount; but if this is a long-term gig, then maybe it's worth it.

* You can also offer to buy the contract out, regardless of what it says. As other people on the thread have said, I'm dubious about this even getting off the ground, but you can certainly try to negotiate for the whole enchilada.  Obviously the more leverage you have with the client, the better chance you have.

Peter Breton
Thursday, September 04, 2003

Peter:
==>I agree with this, but I also think that most of the agency's work doesn't directly benefit you, the contractor. (This is especially true for me because I work corp-to-corp; the agency typically bills the client, cuts me a check and that's it).

I suggest to you that the agency does a single huge thing that *does* directly benefit you. They got you the contract in the first place. Without the agency, you wouldn't be working this contract. If you could get the contract yourself, then why the heck go through the agency? Don't fool yourself into thinking that none of it directly benefits you.

Sgt. Sausage
Thursday, September 04, 2003

> I suggest to you that the agency does a single huge thing that *does* directly benefit you. They got you the contract in the first place.

Yes, I guess I found that too obvious to mention. You're correct, of course, and that's why I continue to work through agencies.

What strikes me as less than truthful are the attempts to justify the continuing fees because of all the work that the agency is supposedly doing on your behalf. In most cases, that's just not true; the game really is the way you describe it, one big hit up front, and a non-compete that prevents you from renegotiating when the balance of power is more favorable.

Looking at the Big Picture, what strikes me as fair is that the agency scale back its fees after the initial contract period, when they are simply not adding much value (ie, after that "single huge thing" mentioned above). Obviously I'm not holding my breath waiting for this to happen.

Peter Breton
Thursday, September 04, 2003

"Things the agency does for the money" - they collect from reluctant clients, carry liability insurance, deal with the administrative contract headaches (which includes negotiating renewals - few services contracts are longer than one year).

The agency negotiated a contract and receives a 19% commission. You are doing work for $x/hour, which you apparently think is fair, since you took the job.

Finally, if the agency's commission dropped after six months, then their goal would be to place someone who would work for six months. Since they continue to get commissions, it's in their interest to place a long-term performer and to manage the relationship.

Philo

Philo
Thursday, September 04, 2003


> "Things the agency does for the money" - they collect
> from reluctant clients, carry liability insurance, deal with
> the administrative contract headaches (which includes
> negotiating renewals - few services contracts are longer > than one year).

And none of these are worth the overhead they charge. I know, because I've done them myself. It really is as Sgt Sausage said: because they found the contract and know the client, they set the terms.

We're in violent agreement that the agency does *real work* to find contracts. It's only the fairy tale that it's all for the contractor's benefit that's objectionable.

And I find the its-overhead-to-stay-in-business-to-find-you-more-contracts reasoning a bit tortured. It's true, but there's no reason to be *grateful* to people for serving their own interests. They're doing it for their own reasons, just as you are doing it for yours.

> Finally, if the agency's commission dropped after six months

You and I seem to be thinking along different lines here. I'm suggesting that *if* there was a relationship between the effort that the agency exerts for you and their compensation, then this would IMO be a fair way to structure it. After all, the agency has been paid all that they initially expected for the contract, the contractor is free to leave after the contract expires, and the spot might be filled by someone from a different agency. I recognize that, as the game as actually played, this essentially never happens.

> You are doing work for $x/hour, which you apparently think is fair, since you took the job.

You seem to be confusing me with the original poster.

Peter Breton
Thursday, September 04, 2003

Sgt Sausage,

> without the broker, you wouldn't have gotten this contract

This is not true. The job would still be there if there was no broker. You would also get the full payment and have professional control over your work arrangements.

Brokers are *competing* against you.

ab
Thursday, September 04, 2003

Philo

It's not true that the recruiter won't budge. The recruiter will PRETEND he or she won't budge, but will do so if forced. They do this every day, remember, and are much better players than the average candidate.

For the recruiter, zero margin is worse than 10 percent, so they will come to the party. Second, it would probably be hard for them to find someone else at short notice, especially where the employer specifically wants you.

Also, it's simply not true that they will put more pressure on the employer to pay more. That is not how this game works. The recruiter has already put his or her maximum pressure on the employer, and now they put the maximum pressure on you, to squeeze the other side of the equation.

.
Thursday, September 04, 2003

To the guy who compared hourly rates of salaried employees with contract rates and concluded the contract rate was terrific, that is not the way it works.

Contractors have to pay for time between work, holidays, contingency, training, equipment, books and everything else that is covered by the employer of salaried staff. To compare contract rates with salaried pay, use a figure of about one third the stated contract rate. That is, a stated $80 per hour is equivalent to about $27 per hour for a staff job.

.
Thursday, September 04, 2003

Thanks for the input everybody, As pointed out, I made a typo above, the agency charges $100, I get $71, they get $29.  I've hit on them for another $9, they are pushing back as expected, if I don't get at least $4, I'll walk.

Thats my plan.

Today is negotiation day!

Cheers

Realist
Thursday, September 04, 2003

Way to go Realist. FWIW, I've found that actually walking is in fact part of the negotiating deal. They think you're bluffing. It's not till you actually start walking out the door they turn around and say: "OK."

.
Thursday, September 04, 2003

"It's not true that the recruiter won't budge. The recruiter will PRETEND he or she won't budge, but will do so if forced. They do this every day, remember, and are much better players than the average candidate."

Mind you, I said *my* experience was that they won't budge - most notably when I tried to get an increase for a year and finally walked, and they let me.

This was in the middle of a project during the dotcom boom. Of course, a later encounter with that same contract manager confirmed her to be a class A idiot.

Philo

Philo
Thursday, September 04, 2003

"Wah!!  Waaaah!  I'm only making $71 an hour in a down economy when I should be grateful just to have a job!  Waaah!  I'm being taken advantage of!  Waaah!  The agency is greedy!!"

The *agency* is greedy?  Fuck that - YOU are greedy.  It's incredible that you'd even make this an issue.  What a shit-kicker you are!

Norrick
Thursday, September 04, 2003

Norrick, I think the issue isn't the actual money.

It's the level of deceit involved, and the fact that the broker treats the guy who earns the money as sh.t. The original poster is probably trying to make a moral point. That's what it's always been for me. I would happily donate the extra to charity rather than to some scumbag that's lying to me.

.
Thursday, September 04, 2003

Sorry to offend you so much Norrick.
For what it's worth, if the agency would agree to give the $9 to a charity, that would make me happy too.

Realist
Thursday, September 04, 2003

"Deceit"? Was there a contract clause regarding the cut the agency was taking? It's none of his damn business. Remember - he is working for the AGENCY, *not* the client.

Still much ado about nothing, IMO.

Philo

Philo
Thursday, September 04, 2003

Clearly some people think that once you have accepted a given rate it's wrong to argue about the amount the agency gets.

I disagree, I provide a service and get $71 for it. It is not reasonable for a non participant to get $29 or 41% of what I earn for doing the work. For the past 8 months I have been earning $29 an hour for the agency, also I have long term prospects in the role I have placed myself (remember the agency placed me 4 job roles ago).

This is a pure business transaction, if common sense would prevail then the agency would hand me a few extra bucks for being a good boy on a platter, but because of the nature of agencies they want to 'milk' it for all it's worth. Some comments on this thread demonstrate why techies get screwed over time and time again.

Forget all the noise about $71 per hour being lots of money, everything is relative, and for some people (agents for example) this is not big money by any stretch of the imagination.

Realist
Thursday, September 04, 2003

If you can get an extra $9 from your agency, that is great. 

However, agencies exist to make money off of the bodies they place. That is all. This is what agencies do. They aren't placing people in jobs for the goodness of their own heart.

I think most of the comment that were of the "shut up, $71/hr is not bad" variety (aside from Norrick's) were because normally, an agency is taking a FAR LARGER cut than 41%. Usually the agency is billing out something like $175 /hr and paying the placement $40/hr. 

I'm actually wondering what agency you are working for that only takes out $29 out of every $100...

rz
Thursday, September 04, 2003

"Usually the agency is billing out something like $175 /hr and paying the placement $40/hr"

Not true, maybe in the 80's with Arthur Andersen and such like, but in my 16 years of contracting, for most contractors, the numbers you quote are simply wrong.

Realist
Thursday, September 04, 2003

To anyone here who believes that the markup that agencies charge above the contractor's rate is irrelevant - here is yet another opinion by a certain recruiter who absolutely hates contractors who have the balls to question the standard order of things:

http://pub21.ezboard.com/fopenitforumfrm8.showMessage?topicID=256.topic&index=21

You really want to enrich someone like this? Who thinks that the contractor is "product"?  The fact is that contract recruiters in IT are generally contemptuous of our abilities.

Contractor Who Thinks Recruiters are Pond Scum
Friday, September 05, 2003

"Usually the agency is billing out something like $175 /hr and paying the placement $40/hr"

Not true, maybe in the 80's with Arthur Andersen and such like, but in my 16 years of contracting, for most contractors, the numbers you quote are simply wrong.

**********************

I agree. They're far, far too low.
http://www.bearingpoint.com.cn/solutions/public_services_solutions/pdfs/adp_services.pdf
Page 29

Let's check out "Technical Architect": $250/hr. I'm fairly certain those guys aren't getting paid $500k/year. How certain? Let me think... Oh yes - I interview for that position with them last year. They balked at paying $110k.

Philo

Philo
Friday, September 05, 2003

Philo - I'm not saying it doesn't happen, we all know it does, in my experience though it is certainly not the norm.

If I look at the 30 or so contractors in the room with me now, nobody is getting billed at $250 and getting paid $110.

Not that the recruitment agency wouldn't do it if they could.

Imagine this - I am getting criticised by software developers who think that it's ok for somebody to make $29 per hour (about $46,000 per annum) for doing nothing.

Actually, I accept that an agency needs to make money, I even think it's good, the question is how much?

All it takes is for good people to do nothing and then the situation you describe will become the norm.

Realist
Friday, September 05, 2003

Philo, re your comment that the contractor is working for the agency, not the employer, bear in mind that this is actually a technicality imposed by the recruiter for the benefit of the recruiter.

In actual fact, the contractor is doing work for the employer.

As I've mentioned before, you could take the broker out of this equation without changing anything, except the contractor gets more pay and has more say over things. The reason this doesn't occur is that brokers work to stop it occurring, and in IT at least, most contractors aren't experienced enough to dispute this state of affairs.

.
Friday, September 05, 2003

Philo,

how many hours do they manage to place the TA at that rate? Most of the people I know in the Big consultancies are still on their bubble prices, but are spending most of their time in the paddock, binging in 0$.

Just me (Sir to you)
Friday, September 05, 2003

Realist,

>> I am getting criticised by software developers who think that it's ok for somebody to make $29 per hour (about $46,000 per annum) for doing nothing. <<

Don't confuse "ok" with "fair". Of course it's ok - that's how business works. It may not be fair, but who said business had to be fair?

>> Actually, I accept that an agency needs to make money, I even think it's good, the question is how much? <<

As much as they can extract from you and the client. If you don't like it, then negotiate. If you *really* don't like it, then walk. You seem to want to force the agency to be "fair", but without having the courage to walk if necessary.

I'm currently negotiating a 10% rate increase - this may or may not be fair on my client and the agency. But my family has a lifestyle to maintain, so I'll do whatever it takes (within reason) to get the increase, regardless of "fairness".

Mark
----
Author of "Comprehensive VB .NET Debugging"
http://www.apress.com/book/bookDisplay.html?bID=128

Mark Pearce
Friday, September 05, 2003

the trend i notice these days is that thought companies are paying pretty much the same rate, that they have been paying for the past 2 years,

the middle man tells the contrator that the market sucks, too many resumes, yada yada, and gets the rate reduced making a bigger cut than usual...

"You never get paid what is fair, you will always get paid what you negotiate" - forgot who quoted it

Prakash S
Friday, September 05, 2003

Realist, Mark - sure you can negotiate. But I believe that trying to negotiate from a point of view (even if unvoiced) that "the recruiter's margin is too much" is a losing proposition. You *must* keep focused on the central issue - YOUR take-home pay. You're getting paid $71/hr, and you need to justify raising that.

And I'm pretty sure the recruiter (who knows the job market pretty well) knows if he/she can say "fine - you want $80/hr? Go make it somewhere else"

Philo

Philo
Friday, September 05, 2003

Philo, the proposition is that you're getting screwed. Start from there.

.
Friday, September 05, 2003

Then quit and get a job that pays more.

Philo

Philo
Friday, September 05, 2003

I did that years ago.

.
Friday, September 05, 2003

Philo - basically you are saying that I need to accept a
"My way or the highway", "Take it or leave it"  negotiation stance from a recruitment agancy, fortunately I can afford to demand fairness - so I will.

On my side:

I am critical to the project that I am on, it has a $10M budget, of which $6M is already spent, without being too dramatic, if I leave the $6M may have been a waste of time, that's how strong my position is.
I say this because it is a fact, I do not intend to hold the company I work for to ransom over it, all I'm asking is for the recruitment agency to give up a few dollars.

I have expressed a desire to continue in the project, the company know that I really "want" to work for them. They are extremely keen to keep me.

The company is a multi national (top 20) , the agency will want to keep on their right side.

On the recruitment agency side:

It's an employers market, opportunities are scarce.

If I leave, I am only one of many, the impact on them is negligible compared to the impact on me.

.....

"If not me, then who? "
"If not now, then when?"

Realist
Friday, September 05, 2003

PS - not a single communication from the agency in the last 24 hours...the game continues...

Realist
Friday, September 05, 2003

If the company is willing to the sponsor you directly then I do not beleive the agency should be involved.  I would ask the HR manager to negotiate on your hehalf a deal with the agency, i.e. enough is enough, give him up or we won't work with you again.  As an indiviudal your potential to bargin is limited.  But the organisation as a client has the option to use many different services provides.  I do not believe the agency is justified in continuing to take a fee, long after its added value.  Where is the value it provides at the moment, i can't see any.  Is this a relationship that would hold up with a vendor of yours?  Where is the value?

phaedon
Monday, March 15, 2004

Realist,

Nobody is indispensible in this world. If you walk, they will and can find someone to replace you. 

bewell
Thursday, April 01, 2004

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