What to do if your Client Reduces your Day Rate Mid Contract
One of the downsides of working as an IT contractor is that your daily rate can be subject to unwanted attention. If a client is looking to save costs, either due to budget reduction or overspend, a common target is IT contractors. Contractors are not bound by such strict employment contracts as permanent employees, and it’s not uncommon for businesses to try and reduce the daily rates charged whilst a contract is underway.
Does the law allow them to do this?
This will depend on each contract. Some contracts include strict clauses around this, whereas others allow some variation under certain circumstances. This should always be clarified at the time a contract is agreed. Unfortunately, some clients will be reluctant to sign a contract that binds them too tightly to the agreed rates so it might reduce your likelihood of getting the work in the first place if you do this.
Seek professional advice
If the client announces a proposed reduction in the daily rate it’s always best to understand your legal position. Ask your lawyer to confirm what they are/not permitted to do before you take any further action. This may influence your decision greatly. It’s possible that they may be breaching the terms of the contract but remember that if this is the case, you may need to make a legal claim against them if things go badly wrong so try and consider legal action as a last resort. Taking legal advice is different to taking legal action.
Identify room for negotiation
The proposed reduction may be acceptable to your business plan. Alternatively, you may be able to negotiate fewer working days, shorter working days or an increased scope of work such that you protect your profit margin. In the case of the former options, remember that you might be able to back fill this assignment with other work. Another alternative might be to end the assignment sooner, saving them money overall by allowing them to purchase fewer days of your time. You should also establish whether the proposed rate reduction is linked to dissatisfaction with your work and this should be addressed as a priority.
Prepare the defence
Ensure that you are able to justify why your original rate was reasonable. Present evidence about the market rate and be honest about where you are in relation to this. If your rate is higher then you’ll need to demonstrate why you are worth more through your skills and experience. Prove to the client that he/she is getting value for money and try to persuade them that a reduction is not appropriate.
Make a claim – the last resort
If you really need to, then you should instruct your lawyer to take action. In many cases, a claim form or notice of intention to make a claim can be enough to make a client back down. You should always view this as a lost resort. Any such move is likely to damage the relationship with your client and is not to be taken lightly. Throughout the process, maintain outstanding levels of performance and professionalism and ensure that you continue to deliver on all your client’s requirements. Such a scenario can be distracting and if your performance suffers, it will encourage the client to use this as a bargaining tool.
Trying to prevent a rate reduction is an unappealing prospect for all contractors and the majority of rates remain unchanged for the duration of the assignment agreed. Nonetheless, particularly where large businesses are concerned, corporate accountants will very often drive these decision-making processes and you should ensure that you are equipped to deal with this if the need arises.
