The fee agreement should be simple shouldn't it?  I mean it should be as simple as, A agrees to do this for B and B agrees to pay X to A for the service rendered PERIOD.  

Unfortunately, life isn't that simple but it's not terribly complex either.  There are only a finite amount of things can actually happen to potentially derail an otherwise successful placement.  So lets discuss what a good fee agreement, in my opinion should be made of, the DNA, if you will.

The fee agreement.  We all have them (unless there are those of you who are naive enough to work on a hand shake).  That little signed document lets us feel secure that the work we do for our clients will be rewarded once we do our part and we hope that they will in turn do theirs by paying us our rightful fee.  All the more is this important for a new client with whom we do not yet have a history or working relationship.  So what should be in this all important fee agreement and what does yours look like?  Do you have a 90 day guarantee and a prorated refund or replacement?  Do you have adequate protection against possible mishaps?  Do you even know what mishaps might be lurking around the corner?  Who should bear the burden of risk?

Believe it or not, there are people out there claiming to be recruiters who have.... dare I say.... appalling versions of what they insist is a fee agreement.  I've seen them with my own two eyes!

Aside from qualifying the client (which to me is the most important aspect of our jobs), the second most important aspect of recruiting, is the fee agreement and that's what this posting is about.  This document will provide parameters of responsibilities, liabilities, payments, and structure the fee so that if anything "bad" should happen you have something to take to court that is about as iron clad as you could get it to be.  Nobody really wants to go to court but at the same time you want the threat of if there to deter any potential wrong doing.

Let's begin.

The DNA of a perm placement fee agreement should have the following parts.

1. Header naming the parties: including dba, official corporate name, and address of the place of business and the names and titles of the people authorized to sign this document and make payments. 

I find it critical to describe with specificity the parties involved.  Why?  There are many companies that sound alike.  How many Technical Staffing, IT Staffing Resources, Staffing Resources, companies are there?  Just google some of your client's names and don't be surprised if there are others with the exact same name.  At the end of the day, you want it clear who the contracting parties are.  Include the address, corporate name, main headquarters, the type of business the client is in, website address, etc, anything that distinguishes them as the party discussed.  

2. Introductory paragraph identifying the work to be done in a general manner.  Kind of boiler plate here.  Any contract should talk about permanent placement, set fee, etc.

Parties A and B herey agree to engage in a ...etc.

3. The agreement or "body of the agreement"

The parameters of the agreement and the limits of liability.  If there is a hire, the person starts working and then the client eliminates the position in 30 days, are they still liable for the fee?  The full amount or a prorated amount?  If the economy suddenly tanks and the department is eliminated, downsized or moved out of state, who is liable?  If the candidate quits after 60 days, who is liable?  Do you owe the fee back to the client?  If the candidate refers someone else to the client and the client hires them for a position you didn't know about, do they owe you a fee?  Believe it or not, you better stipulate these details because they will come up and guess who will usually lose out in a dispute if it's not written down?  Yeah, you will because the courts will ask you "if it was so important, why didn't you write it in there?"  To which you will not have a suitable answer.

4. The payment terms.

Net 30 upon start is pretty typical.  However, feel free to negotiate.  I do this all the time because who the heck wants to wait 30 days to get paid?  It's been 30 days since they gave me the job and the guy didn't' start until his 2 week's notice was up so by the time I actually see the check it's been 75+ days since I began working on the job or more for a difficult one!  That's a long time to be working on something without seeing a gosh darn nickel!  I try to negotiate net 10 days.  Usually, it actually works!  Sometimes, I am able to negotiate a payment plan where the client pays 30, 60, and 90 days 1/3 of the agreed fee.  I have many other creative solutions as well but those are a couple for you to use if you come across an opportunity where the client is a hard negotiator.

5. Late fees

Don't be squeamish about talking about late fees.  To me, this is one of the most important pieces of the fee agreement.  This ensures you get paid on time.  Just be straight forward.  It's not about wanting to gauge them or stick it to the client for being late.  As a matter of fact, I wish to NEVER charge a late fee.  Nothing can sour a relationship more than a disgruntle client who had to pay a late charge but its still a necessary part of the agreement.  It serves as a deterrent.  You just want them to be motivated to pay your invoices and on time.  You only want to use it if you absolutely have to and your back is up against the wall.  

Engage in a professional discussion about it up front and remind them again when it gets close to the fee being due if you haven't heard a peep from them.  It's possible they got so busy they plum forgot about the fee and your reminder will be received with great appreciation for helping them avoid a major mistake.  On another note, you can waive the fee after some qualified discussion and hemming and hawing to let the client know its not normal practice, to maybe win them over.  Say something like "I value your business so much that I'm willing to forgo the late charges" but be careful not to overdo it otherwise the threat of it will lose its effect and the client will soon figure out you are just using it as a bait.  Just like in the cold war, it was the mere threat that saved us all so make sure its something the client knows is a one-off decision you made to show good will.

6. Coverage of the unknown / ambiguities.

ALWAYS have a paragraph talking about ambiguities.  You just never know how things are interpreted.  What seems straight forward to you might get twisted around by some sly lawyer on the other end to mean something else.  I was once confronted with this very problem.  I worked with a  client who was more savvy and sharp dealing than I gave him credit for.  He was a shark disguised as a dolphin.  Let me just say I paid the price and learned a valuable lesson.  The client walked away with 3 placements and zero fees because of a minor glitch in my contract.  He had paid for other placements but I had neglected to mention contractor hires.  I could have pursued him and won but it would have been costly and time consuming and he knew it.  I gave it up because at the end of the day, it just wasn't worth it.  Cover yourself.  ALWAYS make room for uncertainty in your writing and stipulate how it is to be handled.  General boiler plate statements about "how it is commonly handled in the staffing community" or business community might be enough.  Something along those lines anyway.

7. Duration

Most fee agreements are 1 year.  If you do not have a date on it, I think by default it might be 1 year.  However, there is no reason you wouldn't date your agreement.  In a sense its good to have that limitation because its another opportunity to negotiate better terms.  In some cases its also an opportunity for the client to negotiate really tough terms which means sometimes you have to walk away.

8. Signature.

Yeah yea.  Self explanatory.

Simple, straight forward, complete, and totally unambiguous and easy to understand.  That's my way of writing a fee agreement.  I have seen staffing firms (of colleagues and friends) with multiple subparts and maybe 6-7 pages.  I don't know about you but my business isn't that complex and I really don't understand why it needs to be that complicated for a perm placement agreement.  On the other hand there are giant corporations that want you to sign their fee agreements, which by the way, no surprise, is usually very difficult to read and usually the terms are set in to be unfavorable to the recruiter who normally ends up bearing a greater risk than necessary.

One major rule of thumb.  Please don't negotiate a lower percentage fee as your go-to first point of conversation when negotiating with your clients.  Give in other areas before you go straight to cutting your own livelihood.  It's a huge disservice to our entire profession and pulls down the fees for everyone.  Once you go down that path as the low cost leader its tough to get the better juicier fees.  Also, what does that say about your work and the value you provide?  Just don't do it except as a last resort and make sure they give you something in return like exclusivity when you can get it or more favorable terms somewhere else.

Happy headhunting.  Be the professional I know that you are.  Don't fold like a cheap suit under the heat of battle and most importantly protect your assets!  Those clients might seem nice and friendly but they are sharks.  Don't let them fool you.  If you let them smell fear or blood, they'll come and devour every last morsel of flesh from your bones.  :P

Views: 771

Comment by Tim Spagnola on June 6, 2012 at 1:22pm
Good post Joshua- is your current agreement one page? I always appreciate the 'keep it on point' direct type of agreement.
Comment by Joshua Lee on June 6, 2012 at 1:54pm

I have 4 standard agreements in place that I like to use based on the client.  They average between 3-4 pages but that's usually 12 point font and adequate spacing and so forth. 

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