Word Rates, Schurd Rates!
I'm a writer, a graphic designer, and an illustrator.
Personally, I think the idea and practice of "word rates" is ludicrous. I think that's especially true from an editor's perspective. Word rates mean that someone who uses breezy, repetitive, and/or sloppy style usually gets paid
more, even with decent editing. I've seen books published in the industry where a writer was certainly rewarded for just this thing, because of word rates.
To me, the same thing applies to paying a graphic designer or artist by the hour. Both situations create incentive for a product to be overworked and take longer.
I think the best solution in any situation is for a game company (or any company, for that matter) to select from a pool of freelancers, including new ones. Either make the freelancers bid on the project in a
flat fee manner, or the company does its homework and gives what it's willing to pay up front in a flat fee. Royalties can be added to this flat fee, but there needs to be a guaranteed payment. A company can use its preferred word rates to estimate the value of a piece of work up front, and give that value to the writer, with a maximum and minimum word limit.
Why a flat fee? Flat fees are better because it encourages the freelancer to work in a smaller time frame, because he or she makes more money per unit of time the quicker the project is done. If the work is bad because the freelancer hurried, the editor sends it back to the freelancer, and says, "fix this". Real pros will turn out work that's just fine, and end up making more money per unit of time.
UPS uses this model. A UPS manager drives a package delivery route, so the time to complete the route is estimated by UPS staff. Then they figure what the driver should get paid for that time. The driver gets
that amount of money, even if he finishes the route early
every single day. It's incentive to be fast and professional. If the driver takes more time, he's paid an hourly wage for the overtime, but is expected to take extra time seldomly, and usually only when there's a rush, like Christmas.
In the case of game companies, this model's first part works. Because you limit the freelancer's word count, you don't have to worry about the overtime part, unless you actually want to buy a freelancer's extra work. That can be negotiated after the fact.
My understanding is that some publishers already limit word counts, and then pay word rates. I assert that setting a word minimum/maximum to ensure page count, and then paying a flat fee, is better. Setting the min/max at all makes word rates work a bit better, though.
[EDIT] On topic: If you sign a contract with Larry and Curly for each of them to supposedly do half of the work, and one shirks his duty, you can pay one less. Write the contract to say that each is paid based on percentage of work done, and one or the other can take over from a lazy partner. Also write the contract to say that neither gets paid until the manuscript is at a certain "final" stage. That gives both the incentive to work and hold up their ends, and forces a one to pick up the other's slack if that other doesn't do the work. The contract could (and should) penalize an author who doesn't complete the assigned work. That penalty is given to the one who had to pick up the slack.
I, personally, wouldn't ever sign a contract to work in this way with someone I didn't know, unless I got rewarded for picking up the loose ends.
Separate contracts also work. One for each contributor. If one contractor breaches, you can assign his or her work to another author. You may end up with a release delay, but not a useless book.
Allowing one of your contractors to subcontract is okay, though you should be aware of the situation. How much the contractor pays the subcontractor is really none of your business. If the product is good, it doesn't matter if you pay Curly 3 cents per word, and he turns the whole project over to Larry, who gets paid only 1 cent per word. Graphic designers subcontract printing and photo work this way all the time.
