Option year rate escalations

If you negotiate a rate on a sub-contract with multiple option years, you may be wondering if you are stuck with that rate for the duration of the contract.

The answer is...no.

Typically, there are built in rate escalations for option years. Say your rate is $100/hour at the start. If you have a 2% rate escalation built in, the next year your rate will be $102/hour, the following year it will be $104.04, etc.

Before you sign the sub-contract, you should make sure this is included. I made a mistake recently where I didn't pay attention and the escalation was excluded. Annoying!

You can also try negotiating a higher rate escalation. I did this with my recent GSA MAS award and with the higher inflation rates recently, it's not unreasonable to ask for a 3% increase rather than a 1 or 2% increase.

I'd also say that you can just straight up try to negotiate a new rate. If you become increasingly valuable to the government client, your prime will do what they can to keep you. This means you have leverage to get a higher rate.

So no, you're not stuck. Just make sure the escalation is built in and take the opportunity to negotiate a new rate once you're more valuable.

Want the full playbook? Check out Going 1099.