Just like a bank charges a higher interest rate for a riskier loan, its not unreasonable for you to charge more if a client’s form of agreement requires you to take on additional risks and obligations. This post is about putting yourself in the best position to have a meaningful conversation about the real cost of a client insisting on its form of agreement.
The colorful example I like to give goes like this: Suppose your client wants a fancy new website. You do the research and pitch the job — it will be $25,000 under normal conditions. Now suppose that the client wants you to do the same work only this time, the client’s form contract requires that your desk be perched above a pool of sharks…with “lasers”. Even though the deliverables are the same, would you charge the same amount for the job?
Of course not. If you are forced to take on extra risks, you need to be compensated for those risks.
Contracts are just risk allocation tools. But instead of sharks with lasers, the risks have names like indemnity, limitation of liability, and Net 60 (or worse). To set the stage for a conversation about these risks, include something like the following in your draft proposal or fee estimate:
The proposed fee assumes that our form of Master Services Agreement is used as the contract for our relationship. If terms materially different from those presented in our MSA are required by your team, the fee in our proposal will be adjusted accordingly.
Now, when the client’s procurement department (its always the procurement department) insists on certain excessive terms, you are in a position to say:
“We can certainly consider these changes, though as mentioned in our proposal, our proposal assumed use of our standard form of MSA. Your proposed contract requires us to accept additional risks and costs so the proposed fee will increase by X%.”
This isn’t a threat and it isn’t hiding the ball. Quite the opposite. Its being up front about how client demands affect price. And it allows the client to make choices about whether insisting on its form of agreement or crazy contract clause is worth paying the extra money. As an additional benefit, you are having a meaningful conversation with the client about important aspects of the relationship at the best time: before problems arise.