Preparing and negotiating an assignment renewal
Contractors have fixed length assignments with a start and end date.
It is common for clients to ask a contractor to extend their existing assignment and continue to supply services for them.
When an assignment is ‘extended’ you have the opportunity of renegotiating the assignment terms, to obtain more preferable assignment terms and potentially a higher rate.
Read on to learn more about the assignment renewal process, and factors and strategies to help maximise your negotiations.
“Extension” or “Renewal”
The client or agent might refer to an ‘assignment extension’, to give you the impression that the only option available to you is to extend under the terms of your existing assignment, including rate.
This terminology is a little misleading, because in reality you are entering into negotiations for an ‘assignment renewal’ whereby you can renegotiate your position, as though you were negotiating for the first time.
Common renewal objectives are:
- Obtaining a first renewal, particularly if the first assignment is 6 months or less. You want to ensure you can demonstrate to potential future clients that you have staying power.
- Increase the rate if the market has risen, or maintain the existing rate if the market has dropped.
- If negotiations are unsuccessful, resulting in you not renewing, then ensure you leave on a good note without burning bridges.
The role of the agent
Factors to consider regarding agents:
- Agents put their client’s needs first and foremost before the needs of the contractor.
- The objective of the agent will be to get your assignment renewed with minimum hassle for both them and the client. i.e. No rate increase and no renegotiation of terms.
- Agents receive about 10% commission on their profit margins. And their margin is typically 20%. Thus, a small rise in the rate represents very little in the way of extra commission for the agent.
To summarise, agents have little motivation for helping you get what you want.
Effect of market demands
In a market with huge demand for contractors (like the late 1990’s) an agent and client will be working together to desperately hold onto the contractors they have and ensure that they do not leave to get more money elsewhere.
When the market demand favours the buyer (like the early 2000’s) the client and agent will be working together to get the most for their money, by keeping rates low and picking the best talent.
Who to negotiate with – client or agent?
Negotiating solely with the agent is not a sensible strategy, since their loyalties side entirely with the client.
It is difficult to negotiate solely with the client, since they will ask that you speak to the agent, who they are paying to get them the best deal.
Remember, both the client and the agent want what is best for the client, not what is best for you.
A good strategy is to keep both the agent and the client involved in all of the negotiation communications. This then avoids any miscommunication by any of the parties.
Pitch to the decision maker
If you are trying to get a rate rise then ensure you pitch your reasons to the client, and not the agent.
Remember the golden rule in sales: ‘Always speak to the decision maker’.
There is little point trying to convince the agent why the client should raise the rate.
The agent probably won’t understand the subject matter, and you cannot guarantee they will pass your reasons onto the client. If they do rely on your reasons to the client, a second hand sales pitch by someone not on your side with a thin grasp of the subject matter, is unlikely to make much impact.
Thus, it is imperative that you pitch your reasons for a rate rise to the client.
Justifying a rate rise
If the market has dropped since your last renewal (or first assignment) then a rate rise is highly unlikely. After the dot com bubble burst, contractors found themselves negotiating rate decreases. If you are overpaid, then your best strategy is to keep quiet and hope that you can renew at the same rate.
If the market has risen then the fact that you can negotiate higher rates elsewhere is a strong bargaining point and should be stressed. If the client is sensible they are unlikely to want to incur cost of replacing you with someone who will command the same increased rate.
If the market is unchanged and you have not increased your skill set then the only justification for a rate rise would be the cost of replacing you. This is the classic ‘hold up’ and is not recommended at all. You should keep your clients happy and earn yourself good references.
If the market is unchanged, but your skills have increased and are worth more in the market, then you have good reason to request a higher rate. Tread carefully though, because from a perception standpoint clients are unlikely to agree with this. In this scenario to get a higher rate might mean moving on.
Normally the assignment renewal process is not started until one month before your current assignment end date.
If clients anticipate a risk that a contractor might not renew resulting in a project schedule being affected they might try to get a contractor to consider an early assignment renewal.
If you have not heard from either the agent or the client at the start of that four week window then you should start the process yourself by asking both the client and agent if they are interested in offering you another assignment.
Maximising your return in the negotiations is dependant on the strength of your bargaining position, and your sales skills.
The strongest bargaining position for you to have is ‘I don’t care – I will not renew unless you meet my demands’. This can occur if you already have another offer elsewhere.
If you don’t mind leaving the client and believe you can do better elsewhere then try and line up an alternative assignment. [You can even hint to your existing client/agent that you are seeking alternatives. This tends to get things moving!]
Seeking alternatives to strengthen your position is not unethical, and not disloyal to your existing client. It is simply business – playing the game.
If you are happy to stay at the existing client for the same money and terms, then avoid laying those cards on the table, otherwise you can consider yourself trumped! There is no point holding a begging bowl and entering into negotiations saying ‘I’ll work for the same but please give me some money!”
Negotiating an assignment renewal is similar to negotiating an initial assignment, with the added factor that the client might not wish to incur the cost of replacing you.
Having an assignment renewed looks good on your CV. It shows you have staying power and that clients like you. If this is the first renewal at the client then it might be sensible to renew, unless you can get significantly more money elsewhere.
If your negotiations fail and result in no extension of your existing assignment, then try to ensure you leave on good terms.
So in summary…
Negotiating an assignment renewal is pure sales. You must know the strength of your position, play your strategy accordingly, and finally ensure that you keep the client happy.