If it's a nice contract and solid company, then I would just consider the value of the points as a factor in the negotiations. Perhaps make an estimate of the total miles you'd earn, assign a value to that, and basically build in a "travel credit" for him in that amount.

It respects the fact that the client paid for the miles, but it also respects that fact that you're the butt-in-seat guy who should be able to apply them for your optimal use (such as upgrading those long flights).

As long as the client feels like he's getting a fair value, he'll realize that tracking and transferring miles is a tedious, wasteful activity. If he's still concerned, you could probably "true up" any differences at the end of the year with your actual miles earned.

I wouldn't kill off a lucrative business opportunity over a few grand worth of miles/points. Perhaps the client simply doesn't understand how the programs work - that you can't just log in and zap a couple hundred thousand miles to a buddy via Paypal.