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Ask HN: Subcontracting – pressured to move from percentage to flat rate

9 points by dugong 8y ago

About a year ago I began taking on some data analysis clients as a subcontractor. The contract I signed has me receiving a percent of whatever hourly rate the firm I contract though bills that particular client. Six months into the gig, the firm asks if I would be willing to change from a percentage to a flat rate. I know that the rate they bill varies, considerably greater for short term contracts, so I said no and explained my reasoning. There was a little hemming and hawing, but they dropped the request. Well, they brought it up again this month. Again, I said no. They said they could have one of their full time people do the work. I said that was fine. They said they want to discuss again in the new year. So my question is: beyond increasing the margin they make off my work, why might they be so insistent on changing to a flat rate? And, any thoughts on how we might resolve this in a way that is mutually beneficial? From a negotiation perspective I don’t need the money. I’m more worried about being fairly compensated for my work.

ineedasername 8y ago
Companies, and often just about any type of business, will often seek to convert variable costs into fixed costs because they are more predictable and easier to plan for. It means they can project out over a given time frame and know what their costs will be. Variable costs are harder to plan for. It's not unreasonable that they are seeking to make such a change. It is unreasonable if they expect your net income to decrease as a result. If you can, determine what your average weekly/monthly rate was over the past year, and then try to negotiate a fixed cost that is at least that much. Maybe a little more: you can argue the justification that you're giving up the possibility of making more should the % split fall that way. This could make it a win-win situation, where in effect you both get the benefit of stability in planning on fixed costs, and in your case fixed income. Of course they may not be willing to negotiate, and then you need to decide if it's worth the possibility of lesser income, which of course depends on how easily you might find comparable work with comparable compensation.
- greenyoda 8y ago
  > Maybe a little more: you can argue the justification that you're giving up the possibility of making more should the % split fall that way. Another way to think of this is that the contractor would be personally taking on the risk of a cost overrun (which previously would have been borne by the customer, who would have had to pay more for additional hours of work). The amount they'd need to be paid for a fixed cost contract would need to take this risk into account. If I were doing contracting work, I don't think I'd ever take the risk of entering into a fixed cost contract for any non-trivial project, since I can't estimate programming work well enough to have any confidence that I won't end up doing the work at a loss.
  - dugong 8y ago
    Yeah, I'm guessing that the issue might be that they're trying/considering negotiating a flat rate(s) and/or monthly retainers, but I agree that it would be very difficult to do that profitably.
  - ineedasername 8y ago
    Ah, my interpretation was that the OP would be choosing between a % of the entire contract vs. a fixed hourly wage of some sort. A fixed price for the entire contract would indeed introduce complications of the sort you mentioned. And the one massive fixed price contract I've been involved with (on the client side, not the vendor, which was Oracle ::shudder::) went to sh#t when, despite the fixed-price contract, when there were cost over runs due to delays (roughly 20% blame on client, 80% on Oracle) the result was that Oracle took their ball and went home, virtually over night. A lawsuit ensued. (We won. We had a fixed price contract, they violated it)
    - greenyoda 8y ago
      On second reading, I think you're right.
DoreenMichele 8y ago
Instead of telling them straight up "No," a better response is to express your concerns. "So, if we do that, how does that impact my hourly rate?" Or counter offer with something that you think covers you. You should read a negotiating book. "Getting to Yes" is short and research based. Flat out turning them down without really exploring it is not a best practice.
- dugong 8y ago
  This is helpful. I haven't read "Getting to Yes." I should add, that neither conversation was particularly acrimonious. Just frustrating because no reason for switching to a flat rate, beyond that that was how they were doing it now, was given.
dugong 8y ago
I'd love to hear from people who work in consulting firms that occasionally pass work through to subcontractors. How is this situation typically handled?
- ineedasername 8y ago
  I know a small number consultants that work like this, and they actually end up negotiating various details of their contracts, including hourly rate, per-diem expenses when travelling, and the travelling expenses themselves.
seanwilson 8y ago
> They said they could have one of their full time people do the work. > why might they be so insistent on changing to a flat rate? It's cheaper for them? Why not just ask them?
sharemywin 8y ago
You could always say if you can guarantee me a certain amount of work per year then sure we can talk about a fixed rate per hour.

9 points by dugong 8y ago

ineedasername 8y ago

Companies, and often just about any type of business, will often seek to convert variable costs into fixed costs because they are more predictable and easier to plan for. It means they can project out over a given time frame and know what their costs will be. Variable costs are harder to plan for. It's not unreasonable that they are seeking to make such a change. It is unreasonable if they expect your net income to decrease as a result. If you can, determine what your average weekly/monthly rate was over the past year, and then try to negotiate a fixed cost that is at least that much. Maybe a little more: you can argue the justification that you're giving up the possibility of making more should the % split fall that way. This could make it a win-win situation, where in effect you both get the benefit of stability in planning on fixed costs, and in your case fixed income. Of course they may not be willing to negotiate, and then you need to decide if it's worth the possibility of lesser income, which of course depends on how easily you might find comparable work with comparable compensation.

greenyoda 8y ago
> Maybe a little more: you can argue the justification that you're giving up the possibility of making more should the % split fall that way. Another way to think of this is that the contractor would be personally taking on the risk of a cost overrun (which previously would have been borne by the customer, who would have had to pay more for additional hours of work). The amount they'd need to be paid for a fixed cost contract would need to take this risk into account. If I were doing contracting work, I don't think I'd ever take the risk of entering into a fixed cost contract for any non-trivial project, since I can't estimate programming work well enough to have any confidence that I won't end up doing the work at a loss.
- dugong 8y ago
  Yeah, I'm guessing that the issue might be that they're trying/considering negotiating a flat rate(s) and/or monthly retainers, but I agree that it would be very difficult to do that profitably.
- ineedasername 8y ago
  Ah, my interpretation was that the OP would be choosing between a % of the entire contract vs. a fixed hourly wage of some sort. A fixed price for the entire contract would indeed introduce complications of the sort you mentioned. And the one massive fixed price contract I've been involved with (on the client side, not the vendor, which was Oracle ::shudder::) went to sh#t when, despite the fixed-price contract, when there were cost over runs due to delays (roughly 20% blame on client, 80% on Oracle) the result was that Oracle took their ball and went home, virtually over night. A lawsuit ensued. (We won. We had a fixed price contract, they violated it)
  - greenyoda 8y ago
    On second reading, I think you're right.

DoreenMichele 8y ago

Instead of telling them straight up "No," a better response is to express your concerns. "So, if we do that, how does that impact my hourly rate?" Or counter offer with something that you think covers you. You should read a negotiating book. "Getting to Yes" is short and research based. Flat out turning them down without really exploring it is not a best practice.

dugong 8y ago
This is helpful. I haven't read "Getting to Yes." I should add, that neither conversation was particularly acrimonious. Just frustrating because no reason for switching to a flat rate, beyond that that was how they were doing it now, was given.

dugong 8y ago

I'd love to hear from people who work in consulting firms that occasionally pass work through to subcontractors. How is this situation typically handled?

ineedasername 8y ago
I know a small number consultants that work like this, and they actually end up negotiating various details of their contracts, including hourly rate, per-diem expenses when travelling, and the travelling expenses themselves.

seanwilson 8y ago

> They said they could have one of their full time people do the work. > why might they be so insistent on changing to a flat rate? It's cheaper for them? Why not just ask them?

sharemywin 8y ago

You could always say if you can guarantee me a certain amount of work per year then sure we can talk about a fixed rate per hour.