Rajah Lehal

Software Development/Master Services Agreements Part V: Compensation Levers

October 03, 2016

Links from this article: here

**SUCCESS FEES AND DISCOUNTS **Fees discounts and/or success fees may be applied and this can either be formalized or discretionary. For example a discount may be applied in the event that the transaction or engagement does not proceed beyond a certain point. Alternatively, a success fee may be applied in the event that the engagement is completed on schedule. Other mechanisms for discount/premium could include a variance (for example a plus or minus of 5% of fees charged) that is based on customer satisfaction.

RATE CARD As noted previously, fees quoted on a time and materials will require a rate card i.e. an hourly rate for each individual working on the client engagement. It is fairly common to provide a rate schedule for members of the contractor’s team who are working in different roles on the team, or with different levels of experience. The customer may negotiate that certain (for example low-level) work will only be performed by team members with a specific role or at a certain pay level. Furthermore the vendor may wish negotiate a blended rate for their entire team that takes into account a mix of junior and senior level contractors, which makes the task of recording and calculating time administratively easier. Language is often included that allows for an increase in the rates on the rate card periodically (e.g. once per year), which is intended to account for inflationary pressures on the cost of living.

FEES FOR ONBOARDING REPLACEMENT STAFF Fees for the onboarding of staff on the project, specifically replacement staff, may be a point of negotiation. Naturally, a fixed fee scope would address this from the customers perspective, but on a time and materials/fee estimate or fee capped engagement, the customer may not want to pay for the onboarding time for key personnel replacements, and may request a reduced rate for staff during their training or onboarding period. The vendor may address this by building a solid transition process to keep the downtime or overlapping staffing on a project, or learning time, to a minimum.

RESEARCH TAX CREDITS Government tax incentive programs may allow for reduced expenses related to technology-related staff and expenses, where innovation is occuring. The vendor and the customer can negotiate to decide who will be benefitting from those tax credits. A vendor that is able to capture the credits may be able to grow it’s team more quickly as a result of tax incentives. No matter who ultimately decides to claim this benefit, it can be used as a bargaining chip for potentially reduced rates.

To continue reading additional articles within this series, click here.

Commercial Activities
Master Services Agreement
Software Development

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.