Is a longer contract always better?

Sep 3, 2014 12:00:00 AM · by David Kushan

Consultants who work primarily on a contract basis know that there will come a time when their “job” will come to an end, and they’ll have to look for a new one. Even though there are many benefits to contracting, this is the one aspect to which contractors do not look forward.

Specifically, they don’t look forward to the process of finding a new contract. And at the end of the day, for most of them, I don’t think their attitude comes down to the process they have to go through as much as the fact that they’re in a state of the unknown — the unknown of where the next contract will be, how long will it be, and, most of all, if there will be an extended amount of time off in between this contract and the next.

So, what I find is that most contractors will favor a one-year contract over anything for a shorter period of time. What I want to do with this post is suggest another perspective for this same circumstance.

First of all, a one-year contract is not a guaranteed one-year contract.   When a contract is written up for one year, the year is a timeframe that the client believes they’ll need the services of the contractor. All contracts I’ve been associated with that are longer than 60 days have an early termination option. Some can be terminated at any time with zero days’ notice and some require a much longer period of time. So, the true guarantee of the length of any contract is equal to the length of the termination clause. As an example, what would you consider to be more of a guarantee: a one-year contract that can be ended at any time with one week’s notice or a 90-day contract that can be ended at any time with a 45-day notice? Do you see the point?

Here are a couple of other real-life examples:

We currently have a client that has a number of our consultants on a project; the consultants were all planning to be with the client though the end of the year. All of the consultants started with this client at the beginning of the year on one-year contracts. A couple of weeks ago, I received a call from the client saying that they’re running over budget for the year and are going to have to let two of the consultants go within the next three weeks. As a result, they’re going to be pushing the go-live date from early in the year to the middle of the year. Once they get closer to the end of the year, and get into budgeting, they’ll evaluate if they will need to bring a consultant or two back.

Because the client did their budgeting projections for multiple consultants a year out, the margin for error, or at the very least the probability of something changing, is much greater than if they were budgeting only for one consultant for three months.

As another example, we have a client who will put a consultant under contract for a maximum of only four months at a time. The client may know that they will need the contractor for a year, but when they’re writing up a Statement of Work, they put a limit of four months. However, this client will write the second four-month contract two months into the first contract. This client is actually looking at their budgeting more often, which gives a higher probability for the completion of the contract once it’s put in place. What this means is that the consultant will know two months in advance if the second contract will be put in place. More importantly, the consultant will know two months in advance if another four-month contract will not be put in place. This will give the contractor a two-month head-start in finding their next contract.

As you can see, for the consultant who’s concerned about finding their next contract, the latter scenario I described, although it’s for a shorter period of time, will actually give the contractor a much higher likelihood of having little to zero downtime in between engagements.

You may also like: Reasonable Non-Compete Clauses

General, Consulting, Corporate Culture, David Kushan


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