The conversion clause cost me $9,400. I had read the contract.
Signed a two seat agreement with a VA agency in the spring. Two years later I wanted to bring one of them in house directly, and the exit cost was $9,400. I want to be clear that this was in the document I signed and I read it. The loss was in how I read it.
The clause: direct engagement of any personnel introduced by the agency, within 12 months of the end of the engagement, triggers a conversion fee equal to six months of the then-current bill rate. My then-current bill rate was $1,565 per seat per month after two annual increases. Six months is $9,390.
When I signed, the rate was $1,290 and I priced the clause at $7,740 in my head and decided that was tolerable. What I missed is that the fee floats with the bill rate, so the agency's annual increase raises both my running cost and my exit cost at the same time. The clause gets more expensive precisely as the relationship gets more valuable to me. Two more years and it would have been north of $11k.
The second thing I missed is the 12 month tail after the engagement ends. I had assumed, without any basis, that if I terminated cleanly and waited a while the fee lapsed quickly. Twelve months of paying nothing while your best person waits for you is not a real option, so the tail effectively means there is no path to hiring the person except paying.
Third thing, and this one is on the drafting rather than me. "Personnel introduced by the agency" is broader than the two people who worked for me. It covered candidates I interviewed and rejected. I don't know if that would hold up, and how a non-solicitation term is enforced varies by state and by how it's written, so that's a question for an attorney in your state rather than something I can tell you.
What it actually cost. $9,400 plus about six weeks of me not deciding, during which the VA got a competing offer and I had to move faster than I wanted to.
What I'd do differently. Negotiate the conversion fee as a fixed dollar amount at signing rather than a multiple of a rate that the counterparty controls. Ask for a step down, something like six months of billing in year one, three in year two, zero after that, which a couple of agencies will do if you ask before you sign and none will do after. And read the fee clause against the escalation clause together, because separately they both looked fine.