# IT Contracting



## SteelBlue05 (19 Dec 2005)

Hi,

I am considering going contracting next year in IT in the area of Web application development (ASP.Net),Database development (SQL Server) and Reporting Development (SQL Server, Crystal Reports). I would be focusing on systems development for small to medium sized companies, essentially in the area of MIS (Management Information Systems).

Leaving a side the whole area of tax issues or whether to set up a company for it or go as a sole trader etc does anyone here have experience of contracting in this IT area in Ireland (any region, not just Dublin). Contracting seems to be in demand and has been for most of this year but the rates seem to have come down a bit?

Obviously its a bit risky as I'll be leaving behind a fixed salary but do you feel IT contracting is going to be in demand in 2006? 

As I have a fairly hefty mortage I could probably only be able to afford to be out of contract for about 3 months and even then I dont exactly want to hit my savings to cover off this quiet period.

I suppose its hard to know if its a risk worth taking until I take it? If I found a 6-12 month contract I think I'd give it a go. Whats the typical lenght of most contracts?


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## Sol28 (19 Dec 2005)

Hi Steel Blue

I have been contracting in the MIS area for the past 3.5 years. I spent 1.5 as a sole trader and 2 as a company.

I got into it as after a short career break/long holiday a former site I worked on offered me an 8 month contract and I saw it as a way back in to the workforce. I am still in the same site - getting 6 month contract renewals with lots of projects still to come on stream. It can be beneficial - but if you cant handle the uncertainty of wages then its not for you. One thing to be really strict about is making sure you put your Tax away immediatly - and dont use it to supplement the breaks between contracts. You can easily get screwed at year end this way.

I didnt go thorugh an agency - so dont get all the contracts sent out to me - but occasionally I see something worthwhile. Its a game of chance - and playing the field - use your contacts where possible - and good luck!


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## car (19 Dec 2005)

contracts vary from rolling 6-12 mnths, or it might be for something specific, say 3-4 months.  If youre any good tho, contracts tend to roll as theyll keep you on for further work.  

minusses
Its up to yourself to keep yourself skilled up with courses etc. Youre not paid if you're out for sick/holidays/bereavement etc.  You may not be invited to company parties no matter how long youre there.  Theres no health/pension package.  Theres no bonuses.

Plusses
More in control of your destiny. Money _can_ be a _lot_ better.

notes:  Agree overtime rates.  Agree holiday/time off well in advance as while employers tend not to like being given short notice of time off from employees, my experience is that its even less so with contractors. "youre going on holidays again!! whens your contract up for renewal?"


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## SteelBlue05 (19 Dec 2005)

thanks for the replies.

I have spoken to some contract agenices and they will only go for contract work via a limitied company i.e. I would have to set up a limited company and contract through that. 

I understand a small amount about how to set one up but I have a question on payments. If I have a contract for say 6 months then the client essentially pays my limited company the agreed contract amount. Is this then subject to corporation tax before I get paid through the limited company? So even before I pay income tax the amount is already reduced?

And roughly how much per annum would you spend on accountants fees etc?

I suppose my question is if I was contracted out for 230 days a year (which is what I work at the moment i.e. 260 week days per year less holidays and public holidays) then how much extra would I have to earn from contracting to make it worth while.

Take this example, if I currently earn 50k per year, then would I have to make say 60k per year contracting to match that i.e. the 10k extra will be lost to corportation tax, annual accountancy fees etc before I get paid?


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## car (19 Dec 2005)

cant answer the question on the corp. tax, but on the other one, its something ive considered in the past.  
As well as your base salary, how about any training, health insurance, pension, life assurance, stock options, expenses etc? Add those to your salary.
Also put a price on having permanent job status, current job satisfaction and add those to your current salary too. 
after doing the above, how much would you have to make above that figure for you to be happy with losing them?

Personally speaking, if I was making 50k, Id put a price of at least c80k on a contract salary or else IMO it just wouldnt be worth it. But thats just me.

HTH..

edit:  dont forget contract rates fluctuate.  Ive seen rates go down from 600e to 250e and back to 400e a day in the last couple of years. (note, thats in my field, not sure of the rates for yours but the percentages would probably be similar)


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## SteelBlue05 (19 Dec 2005)

Yes I was suprised with the rates for my area, 280 to 300 per day which when you add in all the things mentioned above doesnt really make it very attractive.

Maybe if I could contract direct to a company rather than through an agency then the rates might be better.


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## darag (19 Dec 2005)

Corporation tax applies to the profit that the company makes.  Your salary will be deducted before that even applies.  In fact you will normally try to ensure that the company makes no profit as there is little benefit to having money sitting in your companies current account.


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## car (19 Dec 2005)

> Maybe if I could contract direct to a company rather than through an agency then the rates might be better.


Maybe, but in my experience 2 things should be noted, 1. companies are aware of market rates the same as an agency is.   and 2. a company that goes directly to the market for contractors could be trying to cut costs and may be offering even lower rates, which Ive seen evidence of, and has backfired as the calibre of staff they get isnt all that it should be.

In the end I decided contracting is for those who want to make a lifestyle choice, ie, you do a few months, save a few quid, go off and do whatever whatever you want with your time (travel, hobbies, kids) for the next few months and then go back contracting.  
When the rates were higher 2-3 years ago there was a definite financial benefit to contracing but Id say thats negligible if at all these days.  Unless of course youre at the top end of the market and have a real name for yourself and can hire yourself out for the bigger bucks.  
Good luck with it anyway.


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## SteelBlue05 (19 Dec 2005)

darag said:
			
		

> Corporation tax applies to the profit that the company makes. Your salary will be deducted before that even applies. In fact you will normally try to ensure that the company makes no profit as there is little benefit to having money sitting in your companies current account.


 
Right, that makes sense.


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## lukegriffen (19 Dec 2005)

At the moment there seems to be a big demand for business analysts, which is really the new term for systems analysts, and not so much for developers, so if you can tweak your cv & sell yourself in this capacity as well it might help your chances.
Accountants fees will be in the region of 2.5 to 3k per year. When I got work through an agency they insisted I set up as a ltd. company (setup cost = €340), they wouldn't accept sole trader.  I think Revenue Commissioners insist they do this. 

If you can get in with a big company, chances are you could end up being there for quite some time.   
Bear in mind that permanent salaries aren't shooting up like they used to, so if you're on a good salary now & go contracting, & in 6 months decide to return to a permanent role, it could be tricky to get a job at the salary you're on now.   But who knows what's ahead,


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## SteelBlue05 (19 Dec 2005)

car said:
			
		

> Maybe, but in my experience 2 things should be noted, 1. companies are aware of market rates the same as an agency .


 
I was thinking of cutting out the middle man! But what you are saying makes sense in that a company going direct to a contractor may in fact be trying to save themselves the agency fee so in the end it of no benefit to the contractor. But I am sure each situtation is different.


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## shnaek (19 Dec 2005)

I only started contracting today myself. I went through all those questions, but I really value my free time so contracting suited me. Also I have no time for office politics, which I find you need in perm jobs. I went through cxc who set up a managed company for me. It costs, but I don't have to worry about anything only expenses and time sheets. Not many companies are accepting sole traders these days due to European law- if you can be shown to be an employee then the co hiring you must pay prsi, sick pay, holiday etc.


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## SteelBlue05 (19 Dec 2005)

shnaek said:
			
		

> I only started contracting today myself..


 
Not too busy then posting here on your first day?


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## shnaek (20 Dec 2005)

lol - a day of installing for me. Visual studio 2005, msdn, sql 2005...


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## SteelBlue05 (20 Dec 2005)

If I was to earn say 60k contracting through my limited company then can I just pay that 60k as a salary to myself and essentially have 0 profit for the year and therefore pay no corporation tax?

I know I will have annual accountancy fees in preparing and submitting accounts but I was wondering does anyone know if I have to pay corporation tax first and then pay whats left as a salary. I understand corporation tax is payable on profits but can I just take all the companies revenue and pay it as a salary so to avoid paying corporation tax?

I will be talking to an accountant in the next few days but I thought someone would have an idea?


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## shnaek (20 Dec 2005)

You won't pay coporation tax but you will pay employees and employers PRSI.


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## SteelBlue05 (20 Dec 2005)

shnaek said:
			
		

> You won't pay coporation tax but you will pay employees and employers PRSI.


 
How much empoyers PRSI would you have to pay on say 60k earnings? I cant find what % you pay from the revenue site.


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## Lauren (20 Dec 2005)

Actually my understanding is that you DO NOT have to pay employers PRSI, only employees PRSI if you are the only recipient of a salary from the company. Perhaps someone else can confirm for me?


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## SteelBlue05 (20 Dec 2005)

Lauren said:
			
		

> Actually my understanding is that you DO NOT have to pay employers PRSI, only employees PRSI if you are the only recipient of a salary from the company. Perhaps someone else can confirm for me?


 
I think that is correct if you are marked as a director of the company, just read that somewhere.

So if my limited company earns 60k I can take all that out as a salary and pay the usual employees PRSI and income tax and not pay employers PRSI or Corporation tax? Seems too easy!


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## Lauren (20 Dec 2005)

Given the skills you mentioned however, make sure that overall you are earning more than 60k (not sure if you were simply using that number as an example or not). To compare properly make sure you take into account any extras you might be entitled to as a permanent employee like bonus schemes, "lifestyle" allowances, gym memberships, pension contributions, VHI etc not to mention considering that you don't get paid holidays, public holidays etc.


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## SteelBlue05 (20 Dec 2005)

Yeah just using those figures for example, one agency quoted a contract that I could do for 280 per day which really isnt worth it compared to what I would be leaving behind and taking into account all the extras you mention and the risks off having periods of no work.


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## Sol28 (20 Dec 2005)

You asked a few questions in the previous posts. I am in the same boat.

I have a company: Say for agruments sake I get 50K per year.

Each month I pay myself a salary of 1/12 of 25K (my salary is half my expected earnings)

On that I pay PAYE and PRSI of 25k as per an employee - As a director I am class S PRSI and I dont have to pay employers PRSI for me. I also dont get the Employee credit (~2000ish) because I am a director.

I pay myself some expenses too - Phone bills and the like - I submit my expenses on an excel spreadsheet mothly as if I was a regular employee to the company (ie I just create a record of my monthly expenses) and pay myself these expenses monthly. Tax free (and only legit ones!).

So say my expenses amount to 5k a year.

By the end of the year - I have withdrawn in sqlary and expenses 30 of the 50K. I also pay the Accountant his 2k and other company expenses - Office setup etc - Say this is 5k in total

Thus out of the 50 - 30 goes to me, 5 to the company expenses. And at close of the year - I pay any outstanding debts/taxes and work out what cash is left - in this case 15K. I then pay myelf a supplemtary salary for 15k for the 12th month - Call it a bonus if you like - and on this i pay PAYE and PRSI as normal. So in effect - I have earned 40K salary, 5k Expenses. Company cost 5k. Company Net profit = 0, Corporation Tax = 0

As per going direct or through an agency - the rate tends to be the rate - ie is a skill earns 100 per day - you will get 100 per day - The agency charges the customer a percentage on top of this. Vat is also on top of this. 

Large companies can allow for rolling contract - I will be in mine for 4 years at the least. But withour an agency - you are dependednt on the customer paying the invoices. I aways get paid - but sometimes the invoice is lost, or slow to be processed. Agencies tend to pay the "salary" on the same day each month. So they are the one waiting on the cheque - not you.

Hope this waffling post helps!


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## Lauren (20 Dec 2005)

Great explanation! Wish I'd had it before I started my own research a few months ago!


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## Sol28 (20 Dec 2005)

Lauren said:
			
		

> Great explanation! Wish I'd had it before I started my own research a few months ago!



So do I. The key think I see is to visualise the seperation between you as a person and your company. The Company is a legal entity in its own right - all monies earned are the companies, so how does a standard company pay you as an employee. Through Salary, Bonuess and expenses. Salary and Bonuses are taxable, (Real) Expenses aint!

Dont forget things like the fact you can give your employees a tax free bonus in vouchers or non monetary value of 250 per year. And you are an Employee! So buy yourself a Xmas voucher if not done so already this tax year!! You deserve it I am sure!

Other than that - ITs all been trial and error - and reading this site regularly!


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## SteelBlue05 (20 Dec 2005)

Thanks Sol28, thats the kind of insight I was looking for.


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## Brouhahaha (20 Dec 2005)

Sol28 said:
			
		

> Dont forget things like the fact you can give your employees a tax free bonus in vouchers or non monetary value of 250 per year.



Is that 250 figure correct? I got this from a FAQ on revenue's site:

*35. How many incidental/small vouchers can an          employer give to an employee in the year?*
         Just one, up to the value of €100. The small          benefits relief applies to a one off benefit. If an employer is providing          small benefits on an ongoing basis, e.g. €25 voucher on a quarterly          basis, the first voucher under €100 may be ignored but PAYE/PRSI          must be applied to all subsequent vouchers given to the employee in that          year.


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## Sol28 (20 Dec 2005)

Brouhahaha said:
			
		

> Is that 250 figure correct? I got this from a FAQ on revenue's site:
> 
> *35. How many incidental/small vouchers can an          employer give to an employee in the year?*
> Just one, up to the value of €100. The small          benefits relief applies to a one off benefit. If an employer is providing          small benefits on an ongoing basis, e.g. €25 voucher on a quarterly          basis, the first voucher under €100 may be ignored but PAYE/PRSI          must be applied to all subsequent vouchers given to the employee in that          year.



It is now - Changed in Last years budget - 100 pre 2005, 250 from 2005 ->


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## SteelBlue05 (20 Dec 2005)

So Sol28, in an example of 50 earnings through your company you are saying you would get 40k (subject to income tax and PRSI) and another 5k expenses - would this be subject to income tax or is that 5k net?


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## Sol28 (20 Dec 2005)

SteelBlue05 said:
			
		

> So Sol28, in an example of 50 earnings through your company you are saying you would get 40k (subject to income tax and PRSI) and another 5k expenses - would this be subject to income tax or is that 5k net?



Well the 5 k is cost associated with the business - My personal mobile phone bill which is used for business - I apportion out the business costs. etc etc

So yes the 5k is Net, Like Mileage expenses is Net.

So 40 K subject to tax and PRSI - Say Net 20K (50% approx rate) + 5k Net

Let me state - I am not an accountant and would advise one - just for some of the crap associated with a company - but this is what i have found of having the company for 2 years.


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## car (20 Dec 2005)

Sol, Id nominate that post as a sticky on IT contracting.  Great post.  Makes a few vague notions on the whole thing clear for myself too.


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## Sol28 (20 Dec 2005)

car said:
			
		

> Sol, Id nominate that post as a sticky on IT contracting.  Great post.  Makes a few vague notions on the whole thing clear for myself too.



Glad I could help - I remember trying to work all this out 2 years ago when i formed the company - The sole trader route was a lot handier - but now that I am used to the company - I think its more profitable as I can charge expenses i didnt before - and in some ways its safer as you are paying PAYE as you go along - So you dont have a whopping huge tax bill.

One thing - Companies do have to pay preliminary corporation tax - but "unfortunatly" my company hasnt had a net profit yet - due to the salary paid to the director(s). Hence preliminary tax on €0 is €0. So you dont really need to worry - unless you are leaving mony in the company for future growth. Which really isne necessary for something like IT contracting.


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## Sol28 (20 Dec 2005)

One last tip for this evening.

For Salary software - Go to Payback.ie - they have a demo version there which is excellent - Irish based - will do all your forms for you. Your accountant should do all that for you too - But I like to keep track of it myself as well. Its free for companies of 4 employees or less. Obviously the money is made as companies expand and take on more employees and you are so used to the software that you upgrade.

I find it excellent.


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## Brouhahaha (21 Dec 2005)

Further to this I would recommend registering for http://www.ros.ie as it makes tax and VAT payments much more manageable


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## SteelBlue05 (21 Dec 2005)

What daily rate would you expect for a SQL Developer with 5 years experience (thats SQL Server as opposed to Oracle which is usually a bit higher)?

I've been quoted between 240-280 which I thought was low, I'd expect 330-ish according to salary surveys I have seen on recruitireland.com etc.


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## Capaill (21 Dec 2005)

Steelblue

Take salary surveys with a pinch of salt.  They are usually conducted by recruitment companies who will have a vested interest in "encouraging" people to submit their CVs due to the rates they perceive are available.

If you have been quoted the above rates from a number of sources then that to me would imply that is what the going rate is. 

C


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## SteelBlue05 (23 Dec 2005)

A few more questions:

1: Would my limited company be contracted to work for the recruitment agency or directly to the client?

2: What is the story with VAT, I assume my limited company needs to pay it? But then do I have to add VAT onto the daily rate for the contract?


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## darag (23 Dec 2005)

Very few (generally small) clients will deal directly with your company.  Most will want to deal with an agency.  Many big companies have "preferred suppliers" which will include one or more agencies and simply never hire contractors directly.  Also, apparently there is a fear that directly hiring a contractor directly (for contracts longer than 3 months) in theory could allow the contractor to be considered an employee.  This has (as far as I know) never happened but it would mean the contractor could claim employee rights or revenue could chase the hiring company if the contractor fiddled their taxes.

VAT is very simple.  You add it on to the total on each invoice and then pass the charged VAT back to revenue every two months.  Daily rates are always quoted exclusive of VAT.


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## SteelBlue05 (23 Dec 2005)

darag said:
			
		

> VAT is very simple. You add it on to the total on each invoice and then pass the charged VAT back to revenue every two months. Daily rates are always quoted exclusive of VAT.


 
Thanks, I didnt know that this is how it is done, so it is generally expected that I add the VAT on top of the quoted daily rate at the end of the month?


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## Sol28 (23 Dec 2005)

SteelBlue05 said:
			
		

> Thanks, I didnt know that this is how it is done, so it is generally expected that I add the VAT on top of the quoted daily rate at the end of the month?



All rates quoted by agencies and companies are ex Vat

So if you see a rate for 100 per day. You will charge them 121 - of which you will repay 21 to the VAT people ever 2 months (less any VAT the business has paid on supplies etc). 100 will go into the company accounts


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## SteelBlue05 (23 Dec 2005)

Thanks Sol28 and Darag for that.

So the norm would be that my limited company would be contracted to the agency rather than the client?

Also as it is a contract and the client wished to stop the contract after say 2 months of a 6 month contract would I still get paid for 6 months work?


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## SteelBlue05 (23 Dec 2005)

Capaill said:
			
		

> If you have been quoted the above rates from a number of sources then that to me would imply that is what the going rate is.
> C


 
I've been quoted 3 different rates for the 1 contract (I talked to 3 different agencies about one particular contract), and quoted 2 different rates for another one. So it seems to be quite variable, probably a case of the agency offering as low as they think they will get away with. Seems negotiable anyways.


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## Capaill (23 Dec 2005)

SteelBlue05 said:
			
		

> Thanks Sol28 and Darag for that.
> 
> So the norm would be that my limited company would be contracted to the agency rather than the client?


Yes



			
				SteelBlue05 said:
			
		

> Also as it is a contract and the client wished to stop the contract after say 2 months of a 6 month contract would I still get paid for 6 months work?


Your contract is with the agency so it depends on what the terms and conditions are regarding that contract.  But I would guess that you would get paid for the 2 months and then whatever notice period if any in the contract with you and the agency.

C


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## SteelBlue05 (23 Dec 2005)

darag said:
			
		

> Very few (generally small) clients will deal directly with your company. Most will want to deal with an agency. Many big companies have "preferred suppliers" which will include one or more agencies and simply never hire contractors directly. Also, apparently there is a fear that directly hiring a contractor directly (for contracts longer than 3 months) in theory could allow the contractor to be considered an employee.


 
Why wouldnt a client deal directly with my limited company as the relationship is between the 2 companies rather than the client company and the contractor. 

I understand that something like the above scenario may happen if the client hired a contractor directly who was a sole trader maybe.


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## darag (23 Dec 2005)

> Why wouldnt a client deal directly with my limited company as the relationship is between the 2 companies rather than the client company and the contractor.


I'm a sole trader so I'm not an authority but as far as I know you are not a normal employee of your company.  Your company doesn't pay employers PRSI for you for example so you have a somewhat different status in the eyes of revenue than a regular employee doing work for a client.

As I said, this fear has never, as far as I know, been realised whether with a sole trader or owner/director but companies seemed to become conscious of the potential for revenue to interpret Irish law along these lines during the IR35 controversy in the UK.   Big companies are just being very careful/paranoid.


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## RainyDay (23 Dec 2005)

SteelBlue05 said:
			
		

> I've been quoted 3 different rates for the 1 contract (I talked to 3 different agencies about one particular contract), and quoted 2 different rates for another one. So it seems to be quite variable, probably a case of the agency offering as low as they think they will get away with. Seems negotiable anyways.


This could indicate that the client has a fixed budget in mind, but the different agencies are deducting varying margins from that budget, resulting in the 3 different rates you pay.


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