Subcontracting

[Michael Breen]

I have been approached by a big consulting company to work on a project for one of their clients. It's a cool project and I would really like to be involved. I would never be able to land this type of client/project on my own.

I don't know this for a fact but I have a good idea this consulting company charges an hourly rate 2-3 times my normal rate to their client (a Fortune 500 company). The consulting company has asked me for my hourly rate and I'm not sot sure how to respond.

Should I be grateful for the opportunity charge my normal rate and be done with it?

Should I ask the consulting company what they will be billing my services out at? Do I even have a right to ask?

Does anyone have any experience as a subcontractor?

Thanks for the help.
Mike

[Robert Fischer]

Unless they are desperate to fill the spot on the project, you're not
going to get the rate they are charging their client -- after all, they
need to pay for all the overhead they're inserting between you and the
client.

My recommendation is to charge just a bit more than your normal rate and
take the gig.

Of course, there's no real harm in shooting for the stars unless you
*really* need the gig: most contracting firms I know will politely, if
somewhat incredulously, engage in negotiations if you drop them a crazy
high rate.

Robert Fischer
IT Firefighter
Smokejumper Consulting

[Michael Breen]

I have no intention of trying to get the rate that they are charging, I just want what is fair for both of us. There really is no overhead for the consulting firm (that I can see). They are handing over this part of the project to me. I will be managing the project, coding, etc. The only overhead for them is taking part in the weekly review conference call to make sure we are on track.

[Brian Hogan]

The contractor has to take your experience into account when they hire you.   If I contract work out to someone else, I am still ultimately responsible for what ends up going to the client.

Let's say I hire you to work on a site, and my client is paying me $100 per hour.   I might offer you $50 because of the following:

1. I don't know your work well yet
2. I don't know how much I'll have to rewrite in the end.
3. I need to spend time communicating with you and reviewing your work.

With all that in mind, I think you need to stick to your hourly rate.   The only advice I'd give on rates is that you shouldn't take a lower rate just to get the job in the hopes you'll get more work later.  You need to be the one to offer volume discounts.... don't let them do that to you. :)

[Robby Russell]

On Jun 13, 2007, at 5:42 AM, Michael Breen wrote:

> I have been approached by a big consulting company to work on a
> project for one of their clients. It's a cool project and I would
> really like to be involved. I would never be able to land this type
> of client/project on my own.
>
> I don't know this for a fact but I have a good idea this consulting
> company charges an hourly rate 2-3 times my normal rate to their
> client (a Fortune 500 company). The consulting company has asked me
> for my hourly rate and I'm not sot sure how to respond.

Charge what you think that your time is worth. if you're contracting
already, you should have a hourly rate already in mind. Even if you
feel like they're making a lot of money off of you, it's not the end
of the world. If you do good work for them, it's not unheard to ask
for a _raise_ at a later point in time. I've seen several
subcontractors do this in the past when working for us, and those
that were doing a good job... and making us money.. were almost
always greeted with a warm response.

There are a lot of other factors that come into play in these
situations as well. As a sub-contractor, you're not really liable for
anything beyond your work, while the company that landed the contract
is. (especially with a fortune 500 company).

If you're an employee, it's often the case that the employer is
charging a few times your hourly rate when you're working for
clients. This is very normal and allows the company to pay for
everything else involved (like marketing, project management, etc..)
that helps them land the bigger deals. I wouldn't focus too much on
the "they're making 2-3x off of me" point of view, because it should
really be about getting what you feel you're worth.

>
> Should I be grateful for the opportunity charge my normal rate and
> be done with it?

Ask for a little bit more, if you feel confident in it. Most
companies will negotiate on hourly prices of sub-contractors. For
example, I always negotiate rates and almost every contractor has
been flexible and several of them have come back to renegotiate later
on.

> Should I ask the consulting company what they will be billing my
> services out at? Do I even have a right to ask?

If you feel it's necessary, you should. At PLANET ARGON, we've had
sub-contractors ask in the past and we've always been open about this.

In a nutshell, charge what you feel that you're worth and don't be
afraid to let someone make money off of you. If you do that
consistently, that's _should_ be a mutually rewarding scenario.

Good luck!

Robby

--
Robby Russell
Founder and Executive Director

PLANET ARGON, LLC
Ruby on Rails Development, Consulting & Hosting

www.planetargon.com
www.robbyonrails.com

+1 503 445 2457
+1 877 55 ARGON [toll free]
+1 815 642 4068 [fax]

[Robby Russell]

On Jun 13, 2007, at 6:05 AM, Brian Hogan wrote:

> The contractor has to take your experience into account when they
> hire you. If I contract work out to someone else, I am still
> ultimately responsible for what ends up going to the client.
>
> Let's say I hire you to work on a site, and my client is paying me
> $100 per hour. I might offer you $50 because of the following:
>
> 1. I don't know your work well yet
> 2. I don't know how much I'll have to rewrite in the end.
> 3. I need to spend time communicating with you and reviewing your
> work.
>
> With all that in mind, I think you need to stick to your hourly
> rate. The only advice I'd give on rates is that you shouldn't
> take a lower rate just to get the job in the hopes you'll get more
> work later. You need to be the one to offer volume discounts....
> don't let them do that to you. :)
>

Brian,

Excellent points here and it echoes how we approach things at our
firm with sub-contractors.

We've had to rewrite code written by sub-contractors in the past...
and if we didn't have some breathing room in the price difference,
we'd have been an a very precarious situation. On that note... if
you're hiring a sub-contractor... always keep a very close eye on the
work that they're producing, until you get comfortable with them.

-Robby

[Anthony Eden]

Overhead is much more than direct project-related overhead. Overhead covers the cost that went into securing the original contract, the cost of maintaining the contract (i.e. managing the client so the contract stays in place), the cost of all of the non-direct charge employees (upper level management and their staff), office operating costs, etc. Granted those costs may seem high to you but they are a necessary evil of doing business as your company grows. And above all of that the consulting company is still in business to make a profit I'm sure. :-)

V/r
Anthony

On 6/13/07, Michael Breen <har...@gmail.com> wrote:

--
Cell: 808 782-5046
Current Location: Melbourne, FL

[Warren Seen]

On 13/06/2007, at 11:26 PM, Robby Russell wrote:

> There are a lot of other factors that come into play in these
> situations as well. As a sub-contractor, you're not really liable for
> anything beyond your work, while the company that landed the contract
> is. (especially with a fortune 500 company).

I'd be careful in assuming anything with regards to the extent of
your liability in case things go really bad. You don't want to find
yourself in a "joint and several liability" suit from a big co as it
means you'll have to fight the lead contractor to prove what amount
of damages, if any, your work was liable for. I get shivers just
thinking about how bad that could be.

As always, I would make sure to get a clear definition of what you
are and aren't liable for, and ideally some level of indemnification
from the lead contractor (hey, I can dream...)

Good luck.

Warren

[Mike Gunderloy]

Others have covered the financial aspects, but there's more than that
to think about. You should ask for and evaluate a copy of the
contract with the prime contractor that you'll be working under. Off
the top of my head, you need to understand:

- Whether you're working as someone's employee or as a true
independent contractor (this has tax implications, of course)
- What code ownership, if any, you retain
- Whether your getting paid is contingent in any way on the ultimate
client paying their bills (it shouldn't be)

Subcontracting can be fraught with issues that do not come up in
regular contracting arrangements, because you can get caught in the
middle of power struggles. It works best if you know the people
you're working with well, and trust them. Otherwise I've seen -

- Subcontractors being told by the prime contractor to pad their
hours because the ultimate client is too dumb to recognize what a job
should cost. This leaves you in the awkward position of being told to
participate in fraud.
- Subcontractors being told by the ultimate client to do A while the
prime contractor tells them to do B. This gets to be a problem when
the lines of authority aren't clearly drawn.

Also, you should recognize that the client's contract with the prime
contractor almost certainly contains a clause that prohibits the
client from attempting to hire away any subcontractors for a period
extending beyond the completion of the contract, probably a year or
more. So taking the subcontract will likely rule out your working
directly for the client for some time to come.

Mike Gunderloy
http://afreshcup.com

[Jon Dahl]

Lots of good advice on this already. So I'll just say this: if your rate is low, use this opportunity to bring it up to market levels.

And here's a story. I run a Rails contracting shop with several employees under me, and we usually contract directly with clients. We subcontracted on a project through a big consulting firm this winter, and worked on a gig for a well-funded startup. We got a rate that was about 25% lower than we normally charge. Then the startup ran out of money, and guess who took the hit? Not us. We got paid, since our contract was through the consulting firm. But the consulting firm lost quite a bit of money on the failed contract.

On 6/13/07, Michael Breen <har...@gmail.com> wrote:

[Myles A. Braithwaite]

I have had just the opposite results. Recently a company I was being subcontracted though went bankrupt and I didn't get paid at all. I haven't done allot of subcontracting but the majority of if has been bad.

--
Myles A. Braithwaite
Monkey in your Soul - http://miys.net/
my...@monkeyinyoursoul.com

[Michael Breen]

Thanks everyone for taking the time to answer. There's some great info here that will certainly help.

I'm not really concerned with how much the firm bills me out at. I understand that they also have a business to run. I'm not trying to be greedy either, I really want what's fair to everyone involved and I want to request an hourly rate that reflects that.

Thanks again everyone, I truly appreciate the help.

Mike

[Jon Dahl]

Good point - it can go both ways.

[Robert Dempsey]

> I'm not really concerned with how much the firm bills me out at. I
> understand that they also have a business to run. I'm not trying to be
> greedy either, I really want what's fair to everyone involved and I want to
> request an hourly rate that reflects that.

"Fair" is a highly relative term depending on which side you are on.
Keep a target rate in mind and negotiate from there. As said above,
read the sub-contractor agreement carefully (and you want one to make
sure you get paid), and if you are going to do a lot of contracting or
get your own clients, make sure you sign ALL documents as an officer
of your company, and look into liability insurance (for reasons stated
above).

Good luck!

Robert Dempsey
http://www.techcfl.com
http://www.railsforall.org