Contract renewals – Should you ask for a contract rate increase?

After you have been in a contract for a while, and assuming all has gone well, you may be offered a contract extension. These are typically negotiated some weeks before the initial term comes to an end.

If you have been doing a good job and have established yourself as a valuable member of the project team, you may be in line for a rate increase.

However, there are a number of factors you need to bear in mind before negotiating an increase with your agent (or end client).

1. Market Conditions

As with all industries, the health of the general contracting market will have a strong influence on your chances of a rise. If the general market is booming, chances are good. In less favourable times (such as after the dot com crash, during 2003-4, and the more recent recession), you may be better to extend on your current rate.

2. Market for Skills

Overlapping the general demand for IT Contractors will be the associated demand for your particular skillset. Again, if your skills are in high demand at renewal time, you could well be in line for a rate rise.

3. Agency Cut

It is always a good idea to find out what your agent is charging your client as a fee. The percentage cut can vary massively, although 20% wouldn’t be uncommon. The end client will be paying your contract rate + the agency fee, so if you feel that your client is unlikely to accept a higher overall rate, you may need to negotiate for your agent to take a cut in his commission rate. The agent would rather take a cut than to lose the contract entirely if you don’t renew.

4. Timing

Although there are no firm rules on how often you should try to negotiate an increase, on longer-term projects, an annual negotiation is often seen as the done thing, even if you renew your contract at six-monthly intervals. Clearly, if you are so project-critical, and the market is red-hot, more frequent rate rises will be more easily stomached by your client.

5. Pitching it Right

You shouldn’t tell your agent that you’ve been looking at other contract roles unless you really are willing to walk away from the job if you don’t get a rise. They might just call your bluff, especially in an uncertain market.

At all stages, you need to keep your client and agent on board. Play the renewal game with the health of the market very much at the front of your mind. Find out from other contractors what the current market rates are for your skills, and be prepared to compromise!

Partner Contractor Accountants

Last updated: 3rd March 2021