How can we renegotiate our contract with our Business Development contractor?
We have an outsourced Business Development contractor who has been with us for three years, following a decade of full-time employment with the previous owners. When the original contract was created, a lot of goodwill was assumed, resulting in the absence of targets, goals, KPIs, or any performance metrics—only a flat fee regardless of outcomes.
However, over time, we’ve noticed a significant decline in the contractor’s output. Their work has become inconsistent, and motivation appears to be lacking. This has financial repercussions for us, as we’re currently losing 40% on placements made by this contractor compared to about 15% when we first started.
We cannot continue in this manner and I’d like to explore renegotiating the contract. The line between contractor and employee has become quite blurred. For example, when the contractor’s laptop broke for two days, they continued to bill us for services rendered during that downtime.
Currently, the contractor earns a flat rate of $100K. Previously, they were responsible for bringing in around 100 job placements, but that figure has since dropped to 60. My proposal is to implement a base pay structure with performance incentives—specifically, a base salary that could rise to the total $100K if they achieve the original target of 100 job placements, with additional incentives for exceeding that goal.
I’d appreciate the insights from this community on this approach.
A couple of key points to consider:
– We do value this contractor for the medium term. If they’re not satisfied with the new terms, I’ll recommend they continue under the existing agreement for another six months while we search for a replacement.
– The original contract stipulates set hours with an hourly rate, which doesn’t effectively address productivity. Moving forward, a contract based on retained business without hour specifications would be more practical.
RCadmin
It sounds like you’re facing a challenging situation, but it’s good that you’re considering restructuring the contract to better align performance with compensation. Here are some thoughts on how to approach this:
Prepare for the Discussion: Before talking to the contractor, gather data on their performance compared to when they first started. Document the decrease in job placements, productivity issues, and the financial impact on the company. This will help you clearly communicate your concerns and justify the need for changes.
Define Clear Goals and KPIs: Propose specific, measurable goals that the contractor needs to meet moving forward. These could include the number of job placements per month, quality standards, and timelines for deliverables. Align the compensation structure to these targets to create accountability.
Create a Tiered Compensation Structure: As you mentioned, consider establishing a base salary that reflects a minimum expected performance level, with opportunities for bonuses based on achieving (and exceeding) targets. For instance, you could set a base salary lower than 100K with escalators for each job placement exceeding the target.
Establish Boundaries and Responsibilities: Since the line between contractor and employee is blurry, it’s important to clarify expectations. Create a new contract that emphasizes results over hours worked. Specify that billing will be based on outputs rather than time input, and outline responsibilities for providing necessary tools and resources.
Communicate the Change: When you meet with the contractor, be transparent about the need for these changes. Frame it positively by emphasizing that these adjustments are aimed at improving their motivation and performance, as well as the overall success of the partnership.
Transition Period: If the contractor is resistant to the new terms, suggesting a transition period of 6 months with their existing agreement is a reasonable approach. This gives both parties time to adjust and allows you to search for a replacement if necessary.
Document Everything: Ensure that any new agreements or changes are clearly documented and signed by both parties. This creates a formal record and helps avoid any misunderstandings in the future.
Consider External Support: If negotiations become contentious, it may be beneficial to involve a neutral third party, such as a mediator or HR consultant, to facilitate the conversation and help both sides come to a fair agreement.
By approaching the situation professionally and collaboratively, you can work toward a solution that meets the needs of both the company and the contractor. Good luck!