Expat contractors who have impressed the client with their contracting skills at interview and been offered a contract, then have the challenge of negotiating favourable and lucrative contractual terms, either direct with the client or, more often, with the agent.
Agents and clients will generally make allowances for a contractor’s past business background and for cultural differences, but there are still some business practices that do not cross international boundaries.
For example, in some countries is it considered customary to provide gifts and elaborate entertainments to the decision makers during contract negotiations with a potential buyer or customer. In the UK, this would be treated with at best suspicion and at worst as an attempt at bribery. Either way, it would most likely lose a contractor the contract immediately.
Negotiate with the decision maker
The sale during the interview is to the decision maker, which is always ultimately the client. The agent has an important role to play in bringing together the contractor and client, but they do not play a part in the decision-making process – it’s the contractor and client who close the deal.
However, once the client has offered the contractor a contract, then the agent assumes a much more important role and becomes the key figure in the negotiation process. The key is for the expat contractor to remember that they are not an employee. So, this is not a permanent job offer with vague promises of future success and riches – it’s a business deal over a contract now, so contractors should accept this and negotiate to their best advantage.
Negotiating with the agent
Contractors should never mention a rate until the negotiations begin. An indication of the rate may have appeared in the advert for the contract, or the agent may have given a rate range, but contractors should never mention a rate, even if pressed by the agent.
The reason is that agents may then use the information to negotiate a better margin for themselves. It is even possible that the agent will not put the contractor forward for interview if they feel they can get a better margin through another contractor.
If the agent asks a contractor about rates before the interview, the contractor should bluff and talk about taking ‘the market rate’, without actually specifying a number. And the contractor should never agree to anything before meeting the client, as they will be in a much weaker negotiating position.
Once a client indicates that they want to hire the contractor, the situation is turned around and the contractor has the power in the negotiation. The agent will want to get the best deal, but they also know that they won’t get any deal if the contractor walks away.
Tactics for securing the best rate
Contractors should start high and let the agent negotiate them down. Because the client wants the contractor, and the agent knows it, then the agent has to do all the hard work now to find the rate the contractor will accept.
At the point when the contractor is close to closing, they should hold off, check the contract again to be sure that is it favourable (see below), and think the whole deal through again to be sure they are happy with it.
This is usually also an important point at which to seek professional advice on the contract and its IR35 implications. There is no point in negotiating a fantastic rate and then handing over a large part of it in tax payments, because the contract is found to be within IR35. Contractor Calculator has a number of IR35 calculators that should prove useful to expat contractors.
But once all this has been satisfactorily dealt with and the agent offers the optimum rate, then that is the point at which to agree verbally. And remember, in UK law that verbal agreement constitutes a contract, so expat contractors should never agree to anything they are not prepared to go through with.
Negotiating a good rate takes practice – if a contractor gets it wrong the first time, they should not worry, but learn from the experience and not make the same mistake on the next rate negotiation or contract renewal.
Contract negotiation is slightly different from negotiating rates, because it is the part of the process where the contractor tries to remove unfavourable terms in the contract and have more favourable terms added.
It is vital that expat contractors have a basic understanding of UK contract law, not so that they can handle complex negotiations by themselves, but so that they know when to ask for help from a professional legal advisor.
It is vital that expat contractors have a basic understanding of UK contract law, not so that they can handle complex negotiations by themselves, but so that they know when to ask for help from a professional legal advisor
Expat contractors are strongly recommended to engage the services of a specialist legal adviser in contractor contracts – this will incur legal expenses, but these are a good investment to prevent the contractor from accepting unfavourable terms. As mentioned above, any review should also include an assessment of the IR35 status of the contract.
Closing the deal
Once the rate has been verbally agreed and the contractor’s legal adviser has approved the legalities and IR35 issues, then the contractor can get out their pen and sign on the dotted line!
Having won their first contract, the expat contractor has to choose which trading vehicle they want to use so they can start trading and earning money quickly.