Follow-up: Microsoft gets $25M annually from vendor ‘chargeback’ program

microsoftlogoMicrosoft has been pulling in about $25 million a year through its unusual practice of charging its vendors for occupying space on its campus while working on Microsoft projects, according to the real estate firm that manages the program.

That total was before a planned rate increase that goes into effect in July, as reported by GeekWire earlier this week. The description of the $25 million program, included in a CB Richard Ellis employee profile, confirms the underlying economics of the program and the financial impact on the company’s vendors.

Microsoft implemented the cost-sharing program in 2009, charging vendors a monthly fee for the space and services used by vendor employees at Microsoft facilities.

Some vendors complain privately that the fee puts undue pressure on their businesses. Oftentimes vendors effectively pass these extra costs on to workers when setting compensation.

Earlier this week, Microsoft informed its vendors that the “chargeback” rate is going up from $450 per month ($5,400 per year) for every workstation to $510 per month (or $6,120 per year) starting on July 1 in the Seattle region. The company says the rates vendors would pay for their own space in the real estate market have risen, and the rate increase is an effort to stay on par with the market.

The company said in the message, “Microsoft highly values the work and services these companies provide, and housing all of these individuals comes at a significant cost. This rate increase will result in companies continuing to share this cost with Microsoft, and will ensure that our office space is being used efficiently by vendors and Microsoft employees.”

  • Guest

    That is a lot of FREE soda!

  • recuiter

    Smoke and mirrors….vendors end up just bumping their rates to include the chargeback or they cut the pay to the vendor employee which also might reflect in a weaker skillset for the vendor employee. Got to give them credit for creativity- if you can’t be creative with products…might as well be creative with accounting and procurement.

  • http://www.facebook.com/InklingBooks Michael W. Perry

    The “free soda” comment is interesting. As an independent contractor, I worked out of a Microsoft office for a couple of months in the late 1980s. They not only didn’t charge me rent, for the first few weeks I took a bit too much advantage of those free drinks, leaving work very fruit-juice saturated. Eventually I learned that free didn’t mean I had to drink that much.