is it ethical/legal to raise the rate to a leaving customer

Question

I have been doing consulting for a customer at a low hourly rate with the purpose of building a long term business relationship.

The work consisted in learning, maintaining and modifying a big code base. Part of the reason I charged a low rate was to amortize over time the cost of learning the code. I have been working for this customer for over two years on and off.

Now the customer is leaving and wants me to pass knowledge to another contractor. (Apparently my low rate was not low enough).

Is it legal and or ethical to raise the hourly rate for knowledge transfer and support hours for the new contractor? We have no long term contract. It is agreed that the software belongs to the customer so in theory (and not only in theory) he can take all the source code and have the new contractor learn it. I have already passed all the credentials to the production server and source control to the customer at his request.

What do you think? How did you handle similar situations?

Answer 1

My personal opinion is even in that case of a coming divorce both parties should remain civilized and in no case do any nasty things to each other, like holding back documentation, passwords or something.

Having said that, I think you could raise your rate, not tenfold of course. If you have no long term contract fixing the rate, then technically and legally nothing prevents you from doing that.

You can justify the rate increase by having to do a different type of work which you do not particularly like, in that case introducing a new person to the project and mentoring him.

Answer 2

The legality really depends on what contract you have with the customer. I would argue, though, that the nature of your business has changed with regards to this customer so you are entirely within your rights to renegotiate the rates - i.e. you're no longer maintaining the codebase, your role has changed into a mentor. Again, I must stress that this depends entirely on the nature of the contract, and what roles it states you will be performing in there, so I'd seek legal advice on that.

Answer 3

In general, AFAIK there's nothing illegal or unethical about raising your rate at any time as long as you're not pulling some kind of bait-and-switch (such as advertising a low rate to get somebody in and then going, "Oops, rate just went up!"), you're not showing any kind of illegal preferential treatment ("You get the hetero discount!") you're not violating you contract and it's not some dick move where you've intentionally put them in an awkward situation. Apparently it's not even your actual job to train this guy, so if you feel it takes a little extra to make it worth your while, that's fair. They asked for a service, you quoted a price, they can evaluate whether it is worth it to them. That's business. I'd say your main concern should be whether it will piss this customer off and whether they have friends who might be less inclined to give you money in the future.

Side note, to state the obvious: I'm not a lawyer, don't know all the laws where you live, don't know all the details of the situation, don't take this as legal advice, etc.

Answer 4

In my experience the majority of new business comes from previous and existing customers; if you feel you will be burning a bridge by raising the rates then you may wish to reconsider. That said, your customer cannot expect your rates to remain unchanged for over two years. An option would be to give them notice that your rates will change for all customers effective some future date X so that they do not feel singled out.

Answer 5

Let's do economical calculations. You're contractors, not divorcing spouses, so you should think in business terms. Your customer must only pay you more money if his expenses would decrease if you do the job.

So, what would the customer lose if he just switched off to another contractor without you passing the knowledge?

1. The consulting outcome would dramatically decrease at the beginning of a new contract.
2. Notwithstanding the new contractor will be working harder to gain the knowledge you already had, so the costs would be increased or the quality could be less.
3. Some knowledge, perhaps, will not be deduced at all, and its absence may later lead to incorrect decision and money loss.

Summing this up, these are serious reasons to consider passing your knowledge as a task that prevents unnecessary expenses. So it should cost more money. Of course, if the opposite wasn't the initial agreement.

Answer 6

You've had two years of business from the customer, which is well above the odds. Define a specific transition period, be incredibly graceful and helpful during that transition, and count on being able to reference the client later. This is good for you personally, and professionally.

If I were the client and you hiked up your rate right at the end, I'd feel like you were holding me to ransom and would not have nice things to say if you ever tried to use me as a reference. I'd also probably keep the transition period artificially short, and if the new contractor ever needed help (or, frankly, needed to be replaced because they didn't meet your standard of work), I wouldn't look to you again, I'd go for a third party. If you did that and I reacted that way, you would almost certainly regret your behavior at some stage. Some aristocrat somewhere said that no one ever regrets being polite, one only regrets being rude.

So both from a touchy-feely karma perspective, and a hard business perspective, it's well worth being as graceful and helpful as possible.

There are perfectly valid things you can do within the terms of grace and helpfulness. For instance, you can say that you're only available half-time as of some date (not "today," give them notice) because you need to dedicate time to finding new clients. If presented calmly and reasonably, no client can complain about that when winding down a long relationship. Also, after the defined transition period, if the new contractor needs help and they need to call you in, naturally short-term rather than long-term rates apply, that again is perfectly reasonable.

It's always worth leaving on good terms. You've spent two years building this relationship; you could tear it down with a single phone call. I'd avoid that.

Answer 7

To answer your question succinctly: nothing is illegal or unethical about raising your rates now. If you don't have a long term contract, you can just tell them your rates are going up, with no explanation.

But it ain't a good business idea. I don't see a great way to do this without risking to damange your reputation with them.

If you raise your rate, you need to have a conversation about it with them. You have to have a good story to tell. This justification can be the changing nature of the work, the short-term nature of it, or something else. But it needs to be communicated carefully and well: There's a possibility that they will feel like you are exploiting the situation, bitter, or something else.

If they do come out of it with a negative impression, this will reflect on you badly, whether they skimp on "transition" hours you would otherwise get, don't call you back later, or don't refer you to their friends.

From what I know of the situation, I say don't risk it. Be graceful and profession and it will come back to you, if not with them, with someone else.

Since you don't need to have a discussion about your "new rate", you have a great opportunity to talk to them and reflect on the relationship. Without money on the table, you can more easily discuss why they are hiring someone else. What did you do well and what was hard for them? Do they have other projects? etc. It can be a much more positive conversation, and if it does lead to more work, a higher rate is easier to get in from the beginning.

Answer 8

Regardless of what you do, I would make sure to keep the client... work your but off to keep them around! Repeat customers are gold!

Answer 9

Be up front about where you stand. It doesn't sound like your idea of a long-term commitment matches the client's. What they thought was a discount rate when you started this project has changed in light of the cheaper offer. If you are forced to go look for other work so you can recoup your losses, they'll have to pay the new/cheaper firm to get up to speed. Ask for a fair rate hike, so you can stay on board, but don't gouge them for reasons other mentioned (bad reference, etc.).

In the long run, they may not be happy with the "bottom feeder" and if you took advantage of them, they'll look for someone else entirely.