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Software developers on a contract - how do you negotiate the rate?

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[OP]
Newbie
Aug 20, 2009
18 posts
4 upvotes

Software developers on a contract - how do you negotiate the rate?

Software Developers on a contract - how do you negotiate the rate with your agency? Any insider information is valuable. Agency is a firewall between you and the end-client. You never know how much an agency charges a client. All you know is how much an agency wants to pay you. How to figure out when the agency tries to cheat you or rob you? How to know what is the real rate an agency can pay? Example: The agency calls you about potential contract. The end client is looking for someone. You speak with the agency, and they say that they can pay maximum $55/hr, they say its the maximum what THEY can pay (they always point fingers to end-client), however, its the agency that doesn't want to pay you the rate. But you don't have a proof since you cannot communicate directly with the end client and ask them how much they pay to the agency. I had a situation when the end client was paying to the agency 120$/hr, but the agency was so greedy, that they lied to me saying that the maximum THEY (the end client) can pay is $55. That was a shameless lie. They, IT placement agencies, are shameless rats, they do that all the time. Totally corrupted system. Just don't know how to resist this absurd. Any advice is appreciated. The only answer I have is - know your rate and demand it. Yes, that is true, but it becomes difficult to determine the real rate, since I have seen posting about similar jobs, where in one company they pay $50/hr, but another one has no problem paying $85/hr. I am in this business for a long time, but wasn't able to figure out how get the truth. Maybe I am missing some specific techniques in contractor <=> agency communication / negotiation process? Since as a contractor I don't have any access to agency <=> end-client communication and agreement documents. Thanks.
Last edited by monstro on Sep 4th, 2017 8:53 am, edited 2 times in total.
19 replies
Deal Addict
May 16, 2005
2769 posts
160 upvotes
What type of development are you in? Do some research on Dice, Glassdoors, etc.. to see what the going rate is for someone with your experience. Also, network and spread your profile around. Talk to other contractors in your field, I've found most would be willing to share what their going rates is. The key is network.
Most of my contract work doesn't even come from agencies. They're from referrals from other consultants/contractors, vendors, past clients, past colleagues, etc..

My rule of thumb is, my contract rate needs to be at least double my annual salary rate. So I can work on a project for 6 months of the year, and make enough for the full year. If a potential project is paying less than that, then I rather not accept the contract, and I'll use the downtime to spend quality time on personal development/travel etc.... Since I already made enough for the full year. I have a value on my time, and if a gig is not willing to pay for that value, then I'll decline and look for another that does.
This only works if you are in an industry that is in demand, and you know what your value is.

Luckily,(sometimes I feel not so lucky), i've been able to find projects in my industry pretty quickly, haven't had any 'bench' time longer than 1 month in the last 10 years.
Lately, I've been looking forward to those bench times to use for my personal enjoyment.

My advice, expand your contractor networks and don't rely so much on the agencies to get you your gigs. And this goes both ways, when you are on projects already, and you have leads on a potential projects, share them with your network/friends/contractors. I've passed along many projects to my friends/acquaintances that were targeted for me, but timing wasn't right or I had no interest in them. Don't look at your fellow contractors as competitors to you.
Deal Addict
Jun 27, 2005
1051 posts
139 upvotes
Oakville, ON
My general rule is 40% of annual salary. So 100k salary + benefits = 140k contract = $70/hr.

You should only care about the rate that you will be receiving - it is too hard to know and negotiate anything else. The advice you've received is sound and you will become more aware of your value/worth as you continue with contracting.

That said you should know that most agencies will charge a premium of 25%-40% on top of the rate they pay you. This information is definitely useful for contract extensions and re-negotiations.
[OP]
Newbie
Aug 20, 2009
18 posts
4 upvotes
commie, in my 17 years working as contractor in software development in Canada, I have NEVER seen companies that can work with you without an agency. None. All contract positions I had were through agencies, there are no organizations that can sign a contract directly with you. I have not seen one in 17 years. Now you say the key is network. Meaning connections. That is actually a disgusting practice that I hate. It means that candidates are selected not based on their experience and knowledge, but based on who has deeper connections, who can kiss ass better, same as in ugly politics - deep pockets and connections. I am not a very communicative person, I don't kiss ass, and don't make so called "friends", the definition of this word in Canada is very different from definition in other countries. What I realized that a "friend" word means - someone who you can use for your benefit, you can pretend that he is your best friend while you can benefit from it, then, you can throw them away as garbage. I never built any "networks", I find it disgusting - the whole idea is totally corrupted and stinks very bad. I once tried to apply for a government role as Senior Software Consultant (you need to go through several interviews, tests, enormous in its insanity Skills Matrix, provide references, provide Security Clearance, etc...), but then I realized, that the position was fake, it was a lie. The position was already promised to some guy who is already working there and was deep ass licking subordinate of his manager. So all these job postings were fake. The position from the very beginning was promised to someone from inside. And these happen all the time! Nobody tells you that. They all keep these thing in secret, and lie to you. LIE - is the key word in this business. Your advice was to extend your contact network. Can you please elaborate - how exactly I should do this, currently not working looking for a new contract.
Note, I had some connections from the past. But then I contacted they, they said, that I must apply through the agencies, they don't work directly with contractors. Basically what I am trying to say is that I dream to get rid of agencies forever, since it's sarcoma, cancer of business relationships, parasites that lie to both sides to make money without doing any work. But honestly I have seen any contract offer that comes directly from end client, not an agency, never.
Member
Jan 10, 2017
235 posts
111 upvotes
It's a sketchy system and I wouldn't be surprised if there are some under-the-table benefits being siphoned off between the agency and "select" employees involved in the hiring process.

Your situation, while on the far extreme of hourly rates, is not all that different when you look at it from a numbers perspective. 120 bill-out / 55 paid = ~100% amount pocketed by the agency. This is turning out to be a norm for anyone on contract placement by a recruiting firm; the company hiring you through the firm is paying roughly twice the amount the person on a contract is getting paid.

This is a malicious waste of money; but, recruitment agencies apparently provide more value by identifying the right candidates, so companies are okay with shelling out this kind of money? It honestly makes no sense; nobody with money invested in the success of a company would do this; so, the only logical explanation I have is wide-spread corruption and embezzlement. The only proof I have is common sense, and your situation is pretty damn obvious. How a company can spend $240k for a 100k position is out of this god damn world.

The problem here falls back on the trust companies have for the candidates recruiters provide; because they "apparently" provide the best, the amount of jobs available outside of recruitment agencies is incredibly narrow. This is another huge problem that only increases the means for recruitment agencies to abuse employers with these outrageous rates.

My point - you're not alone; yes, it's not fair; but, recruiters are in the business of legally pimping professionals. They are your pimp; does it matter how much the recruiter is billing their cleint/your employer IF you would not otherwise have the job? This is the way you're supposed to look at it; however, a certain amount of ethics needs to be analyzed when you're looking at gouging businesses >100k annually. These same businesses that will fight you to the bone when negotiating salary increases. It paints a really dark image of how employers value employees.
[OP]
Newbie
Aug 20, 2009
18 posts
4 upvotes
Sociology1. Totally agree, and that is what I was trying to say as well. Regarding agencies providing candidates - its absolutely clear at least to me that agencies - are those parasites that make undeserved money. So in their biggest interest is to find ANY candidate that will ask the least amount of money (the lowest rate), so that the agency can pocket the rest. And the cheaper the candidate, the more they pocket. That's why they always ask you - how much do you want, instead of telling how much they can pay, which is logical thing to do. They hope that you underestimate yourself so badly that you will agree to sign a contract for the miserable rate, so that they can pocket as much as possible, thus robbing you shamelessly. But if I say I want $300/hr, and then, they first lough. So I am asking them - what the **** are you laughing at? You said the rate is open, you didn't say how much you can pay, you asked me... Then, they say, ohhh, thats too much, we can max pay $70 . So why the hell all these stupid games if at the end they will tell me how much is the limit. And now think about all these candidates that Do get the contract, the ones that agreed to sign the contract for miserable rate. They are definitely not the most professional or knowledgeable. Professional knows what's he worth. Week people can work for any rate. So, my point is that agencies here are pure parasites that DO harm only, they practically steal money from both - the end client and the contractor. I think many client companies are just dumb, the ones that work through the agencies, they are really dumb, unless there is a corruption involved here. As an example I once worked through Keen Consulting for Insurance Bureau of Canada. So the hiring manager was a close friend or a relative of a director in Keen Consulting (they still are). So they simply money laundered using contractors, someone told me that IBC payed around $150 for each contractor hour, while I got only $65, if I remember correctly. So called business relationships :(
Deal Addict
May 16, 2005
2769 posts
160 upvotes
slishnevsky wrote:
Sep 5th, 2017 1:09 pm
commie, in my 17 years working as contractor in software development in Canada, I have NEVER seen companies that can work with you without an agency. None. All contract positions I had were through agencies, there are no organizations that can sign a contract directly with you. I have not seen one in 17 years. Now you say the key is network. Meaning connections. That is actually a disgusting practice that I hate. It means that candidates are selected not based on their experience and knowledge, but based on who has deeper connections, who can kiss ass better, same as in ugly politics - deep pockets and connections. I am not a very communicative person, I don't kiss ass, and don't make so called "friends", the definition of this word in Canada is very different from definition in other countries. What I realized that a "friend" word means - someone who you can use for your benefit, you can pretend that he is your best friend while you can benefit from it, then, you can throw them away as garbage. I never built any "networks", I find it disgusting - the whole idea is totally corrupted and stinks very bad. I once tried to apply for a government role as Senior Software Consultant (you need to go through several interviews, tests, enormous in its insanity Skills Matrix, provide references, provide Security Clearance, etc...), but then I realized, that the position was fake, it was a lie. The position was already promised to some guy who is already working there and was deep ass licking subordinate of his manager. So all these job postings were fake. The position from the very beginning was promised to someone from inside. And these happen all the time! Nobody tells you that. They all keep these thing in secret, and lie to you. LIE - is the key word in this business. Your advice was to extend your contact network. Can you please elaborate - how exactly I should do this, currently not working looking for a new contract.
Note, I had some connections from the past. But then I contacted they, they said, that I must apply through the agencies, they don't work directly with contractors. Basically what I am trying to say is that I dream to get rid of agencies forever, since it's sarcoma, cancer of business relationships, parasites that lie to both sides to make money without doing any work. But honestly I have seen any contract offer that comes directly from end client, not an agency, never.
I guess I should've been more clear with my definition of agencies....I try to cut out those 'pure' placement agencies. I prefer to work directly with the consulting firms that are in charge of running the projects. The Accenture's, Deloitte's, IBM, Oracle, SAP, Google, Amazon's of the world. I've always contracted out directly to them corp-to-corp, instead of going through another layer of agencies. I know some consultants/contractors do use agencies to subcontract to these firms.

You've made networking sound like a dirty word. Instead you need to embrace it. And its not as bad as you said.
If you are starting up a project, who would you want on your team? Of course people that you know who want do the work, or people you trust that refers people they know that can do the word. That is networking.
Getting yourself into the pool of qualified candidates for potential jobs. Its a small world, in every industry, people will want to hire/work with people they know and trust.
If you think networking/connections is all about ass kissing, then you are doing it all wrong.
Member
Jan 10, 2017
235 posts
111 upvotes
slishnevsky wrote:
Sep 5th, 2017 2:08 pm
Sociology1. Totally agree, and that is what I was trying to say as well. Regarding agencies providing candidates - its absolutely clear at least to me that agencies - are those parasites that make undeserved money. So in their biggest interest is to find ANY candidate that will ask the least amount of money (the lowest rate), so that the agency can pocket the rest. And the cheaper the candidate, the more they pocket. That's why they always ask you - how much do you want, instead of telling how much they can pay, which is logical thing to do. They hope that you underestimate yourself so badly that you will agree to sign a contract for the miserable rate, so that they can pocket as much as possible, thus robbing you shamelessly. But if I say I want $300/hr, and then, they first lough. So I am asking them - what the **** are you laughing at? You said the rate is open, you didn't say how much you can pay, you asked me... Then, they say, ohhh, thats too much, we can max pay $70 . So why the hell all these stupid games if at the end they will tell me how much is the limit. And now think about all these candidates that Do get the contract, the ones that agreed to sign the contract for miserable rate. They are definitely not the most professional or knowledgeable. Professional knows what's he worth. Week people can work for any rate. So, my point is that agencies here are pure parasites that DO harm only, they practically steal money from both - the end client and the contractor. I think many client companies are just dumb, the ones that work through the agencies, they are really dumb, unless there is a corruption involved here. As an example I once worked through Keen Consulting for Insurance Bureau of Canada. So the hiring manager was a close friend or a relative of a director in Keen Consulting (they still are). So they simply money laundered using contractors, someone told me that IBC payed around $150 for each contractor hour, while I got only $65, if I remember correctly. So called business relationships :(
Government organizations are inundated with temp/contract workers.

We all know that getting a budget increased involves serious leg-work; and in most cases, requires the sign-off of the PM and/or Premiere; considering the amount of public scrutiny over budget increases, there is A LOT of incentive for Finance Officers to do whatever it takes to keep their budgets solid and avoid unnecessary slashes.

The easiest fix is having temp agencies fill niche roles with people doing basically nothing but keeping budget space on their area. I have first hand experience in this; I was a temp worker on a contract with a team of 5. All of us were paid around $20/h, but were getting billed out at between $50-$60/h. The core of our jobs involved data-entry. You give me a computer and $60/h, I'll do however much data-entry you want... but, we know that will never happen in the real world, because that would be INSANE. How many government contracts do you think are out there? I think it's fair to say that we are talking about hundreds of millions of dollars being wasted away here.

This has been going on for years - yet, nobody (voters) bat an eye. You are all guilty of this (even me)...

What you don't see are the people that are making bank off this waste; clearly recruitment agencies are in bed with government employees to get this scheme to work. It's legal on paper - but how these positions are identified and filled is illegal. Yet, where is the witch-hunt outing everyone involved in this malicious game that's defrauding the all municipal, provincial, and federal governments of countless millions each year?
Deal Fanatic
User avatar
Mar 23, 2008
9557 posts
5969 upvotes
Edmonton
I don't know where you're at, or where you find your recruiting agencies. My approach... I deal with agencies I know. Here in Edmonton, most of the recruiting companies know about most of the opportunities out there, it seems. At least for the big sites, like government, O&G, etc.

I tell the agencies what rate I'm expecting when I sit down with them when I'm looking. That way, nobody wastes any time asking me if I'm interested in a contract for a fraction of what I've been making. If a new vendor approaches me off LinkedIn or something, we have the rate discussion very early in the process, again in the interests of not wasting anyone's time. I'm not their guy if they want a senior resource with a junior rate.

How much they bill the client is their business. I've had one agency offer to show me the contracts they sign with their clients, and how much their margin would be, and I appreciated that honesty. They told me how much of a markup they try to make, and it didn't seem unreasonable.

Not sure where all your frustration and anger comes from... Personally, I haven't experienced any of those issues here. But maybe it's just different markets.

C
Member
Jan 10, 2017
235 posts
111 upvotes
CNeufeld wrote:
Sep 6th, 2017 1:49 pm
I don't know where you're at, or where you find your recruiting agencies. My approach... I deal with agencies I know. Here in Edmonton, most of the recruiting companies know about most of the opportunities out there, it seems. At least for the big sites, like government, O&G, etc.

I tell the agencies what rate I'm expecting when I sit down with them when I'm looking. That way, nobody wastes any time asking me if I'm interested in a contract for a fraction of what I've been making. If a new vendor approaches me off LinkedIn or something, we have the rate discussion very early in the process, again in the interests of not wasting anyone's time. I'm not their guy if they want a senior resource with a junior rate.

How much they bill the client is their business. I've had one agency offer to show me the contracts they sign with their clients, and how much their margin would be, and I appreciated that honesty. They told me how much of a markup they try to make, and it didn't seem unreasonable.

Not sure where all your frustration and anger comes from... Personally, I haven't experienced any of those issues here. But maybe it's just different markets.

C
It's different in the accounting/finance world - but I don't agree with the rates they bill the government. This just feeds the inefficiency you read about; it's wasteful spending and a complete disgrace to ethics. Everyone involved should be held accountable and face prison. It's basically people writing their own paychecks on the taxpayer's dime.
Deal Fanatic
User avatar
Mar 23, 2008
9557 posts
5969 upvotes
Edmonton
Sociology1 wrote:
Sep 6th, 2017 3:02 pm
It's different in the accounting/finance world - but I don't agree with the rates they bill the government. This just feeds the inefficiency you read about; it's wasteful spending and a complete disgrace to ethics. Everyone involved should be held accountable and face prison. It's basically people writing their own paychecks on the taxpayer's dime.
Again, don't know about your market... But here in Alberta, I haven't taken a government contract for awhile because their rates were lower than private sector work (O&G, financial). Even going through the same vendors for both sectors, the government rates were lower.

C
Member
Jan 10, 2017
235 posts
111 upvotes
CNeufeld wrote:
Sep 6th, 2017 3:44 pm
Again, don't know about your market... But here in Alberta, I haven't taken a government contract for awhile because their rates were lower than private sector work (O&G, financial). Even going through the same vendors for both sectors, the government rates were lower.

C
Yes - In Alberta and Ontario. The rates with the government are absurd; i would also say they are up there with private work as well; most $20/h work is getting billed out at $35/h (and this is in the private sector); public sector is well over 100%; my own situation, $20/h and I was billed out at $55/h in a government setting. Insane.

Honestly - I do not understand why employers use recruitment agencies. If you are willing to pay $35/h, then pay $30/h and attract top talent for that pay-grade and keep them on contract.
Deal Fanatic
User avatar
Mar 23, 2008
9557 posts
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Edmonton
The vendors I've used are around a 17% markup at my rate level. I'm fine with that.

C
Sr. Member
Nov 6, 2015
699 posts
293 upvotes
Guelph, ON
Frankly, it's none of your concern what the end-customer is paying. Your customer is the agency, you are a sub-contractor for them. You negotiate what your rate is with the agency, and if you don't like it you just don't work for them.

If you want to get the prime rate that the agency is getting, then go independent. And it's BS that you can't, plenty of people do it. Thing is, you have to learn other skills other than the pure technical ones for the actual job if you are independent. You need to be able to present yourself as a professional, know how to put proposals together, keep track of hours, etc. And yes "networking", which isn't about "kissing ass" but making work relationships. Here's a simple example - you are a programmer and you know a guy runs a small business selling and servicing printers, maybe you use him for buying toner. You let him know what work you're doing, maybe one day one of his customers asks him "hey you know any good programmers" maybe he'll send them to you. You might do the same for him. There's no "kissing ass" there, just using contacts you already have and expanding to new ones.

The other thing about networking is that you can expand the work you can take on. Maybe there's a project you want to bid on but although you are confident you can create a great user interface, they use some back-end system you've never worked with. But with your networking you know someone who is an expert on that, so you ask him if he would subcontract the back-end work. You negotiate what his rate is to you, and then you negotiate your rate with the end-client. And of course, as per my first point, it's none of your sub-contractor's concern what you are charging the end-customer, it's only the contract between you and him that matters. That's really what businesses are about, chains of contractors to sub-contractors to sub-sub-contractors, etc., and the only contracts that are of concern to you are the ones you are directly involved with. What rates are set up or down the chain are not your business.
Sr. Member
Sep 18, 2008
522 posts
83 upvotes
Woodbridge
Use cheaper agencies, some agencies only charge few dollars an hour. Also build relationships with clients, if they call you back and have work for you later, go to these cheap agencies negotiate 3-4 bucks for invoicing and get the contract signed.

Also most banks these days use Allegis, and with it agencies have very limited control, they cannot be as greedy as they used ti be.
That is why most agencies hate allegis, but most of banks IT jobs come through it.

Government contracts are different, no allegis in between, so still old wild west in there.

How to negotiate?

Only way is know the market rate and don't go lower. How much agency is making you have little control. After a year if client wants to give you another extension try to negotiate few bucks, very hard to do, but not completely impossible. Agency may just give you few bucks to have you another year.

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