Negotiating Client Contracts
Although negotiating client contracts by necessity requires an understanding of complex topics such as indemnities and leverage, don’t be fooled into signing agreements without carefully reviewing them. That’s how today’s TechServe 2017 session on client contracts started off, and it continued to deliver terrific tips and tactics.
Co-presenters Bill Josey and Chris Walters led an interactive discussion to educate attendees on contract risks and raise their IQs on conducting one-on-one negotiations with clients. As Bill put it, “Only if you eliminate clients and consultants in staffing can you eliminate risk. Most of the time things go well, but when they go bad, they can go very, very bad and literally threaten your existence.”
In Search of Leverage
It all boils down to leverage. When negotiating, you have two angles to consider – the legal angle and the business angle. Examples of low leverage: when an existing client is transitioning to an MSP or when you’re trying to break into an approved vendor list at an enterprise client.
In those cases, the experts suggest jumping on the chance to review contract terms as soon as possible, especially if you have good people on assignment that your client needs to perform. Once you sign the contract, you may never have the chance again to negotiate.
How do you make the most of a bad situation? One participant suggested showing MSP contracts to the hiring managers and explaining, “This is what they’re asking us to do and it’s unacceptable.” Another says there may be room to negotiate your own markup, even within an MSP scenario. You may be surprised at what clients will accept. As Chris says, “Negotiations stop when both sides believe the other is done.”
Of course, both Josey and Walters have seen some bad deals in their days, and some “commercially unreasonable” client requests. You have to consider how much you’re willing to fight, and whether you’re willing to walk away. As Walters says, sometimes it’s better to be rich than right. Just don’t get your lawyer on the phone with their procurement department. That doesn’t work.
Here’s a few scenarios that may be likely to blow up in your face:
- One-off deals outside of your wheelhouse that require special handling
- Payrolling at a low margin that doesn’t reflect the “ridiculous” amount of work that’s sometimes required
- Struggling firms that seek to use your staffing firm as a bank, e.g. get an advance and labor with no intention of paying their bills
- Business that comes in out of the blue without any effort or personal connection
In response, make sure your credit check practices are up to par. A D&B should be your first course of action, or with smaller companies, ask for a financial statement. One participant shared their practice of requesting trade and bank references – and following through with calls to get as much information as possible. Another asks for upfront payments from high-risk firms.
In addition, the session covered conversation terms. When you get less than 6 months, it “gets absurd.” Converting people all the time ruins your recruiting rhythm and the extra margins won’t make up for your inability to grow headcount.
Gussying up staffing agreements to look like SOW contracts to get around procurement is also something to watch out for. For example, watch out for inappropriate language such as:
- Supplier warrants that the work performed will be free of defects and conform in all material respects to the requirements of this Agreement.
- Supplier warrants that the work performed will be in substantial conformity with Client’s Specifications.
A final word of wisdom from our presenters: when negotiating with clients, you are on your own, and you are required to keep it that way. Happy negotiating!
Attorney at Law
William (Bill) Josey has over 25 years’ experience advising the staffing industry, including service as General Counsel of Kforce Inc. for 14 years before returning to private law practice in 2014. Today, Bill provides staffing firms with practical guidance and advice in the areas of employment law, wage/hour, contracts, insurance and risk management, noncompetition agreements, and compliance.
Vice President LRS Consulting Services
Chris Walters is Vice President of LRS Consulting Services, the staff augmentation group within Levi, Ray & Shoup, Inc. (LRS), which is headquartered in Springfield, Illinois. As Vice President, Walters is responsible for all aspects of the group’s sales, recruiting and delivery activities.