We rely heavily on specialized fractional contractors who are now using AI to complete their work in a fraction of the time, yet they are still billing us their standard hourly rates. How do we restructure our contractor agreements and Accountability Chart to capture these efficiency gains?

Question

Tyler Smith · Accepted Answer

When contractors use AI to speed up their work, hourly billing works against you. You are essentially paying a premium for their access to automation, while they pocket the efficiency gains and use their extra time to take on other clients. To protect your margins, you must shift your contractor relationships from buying hours to buying outcomes.

First, review your Accountability Chart. Any seat currently filled by a fractional contractor must have clear, measurable measurables. You need to define exactly what acceptable performance looks like for that seat, including volume, quality, and turnaround time. Use the GWC framework to ensure your contractors fully understand and can deliver on these new expectations.

Second, renegotiate your contracts. Move from hourly rates to flat-rate, project-based, or monthly retainer agreements. Your agreements should be tied to the delivery of specific outcomes, not the hours logged on a screen. If they can complete the work in five hours instead of twenty using AI, that is fine, as long as you are paying a fair price for the completed asset and the quality remains high.

Bring this to your next Level 10 Meeting and use the IDS process to identify which contractor relationships are costing you the most under the hourly model. Assign a Rock to your operations leader to transition these vendors to fixed-price agreements over the next ninety days. This aligns your costs with your actual business value.