Outsourcing

Consulting independence


In my previous post, Employee vs. contractor (and in the discussion that followed) a distinction was made between two different kinds of contractors: those who work as employees of a contracting firm, and those who are independent. Perhaps a third type would be those who are independently subcontracted.

As a consultant, I've always been an independent contractor. I have occasionally subcontracted work out (with client approval), and I know several colleagues who work as employees of consulting firms. What are the pros and cons of each of these arrangements?

Obviously, you take on quite a bit more risk if you're an independent. First, you've got to find your own work -- so you're automatically in sales and marketing. If the client doesn't pay on time, nobody's going to cover your expenses for you. And if the project really goes south, guess whose grass will be under the client's lawnmower. On the other hand, as an independent you may also have more power to make things right. In sixteen years I've only had a couple of projects that didn't work out, and even then I was always able to come to an amicable arrangement with the client such that nobody thought about suing. (If you're a client of mine and you secretly did think about suing, it's OK to say so. I won't be hurt -- unless you're still considering it).

Subcontractors may partially share the same risks. If you're subcontracting, you need to understand how each of these eventualities might impact you. Does your contract (you do have one, don't you?) stipulate that you get paid for your hours on a regular schedule, regardless of when your client's client pays? Does it shield you from legal action by the end client? And what degree of freedom/responsibility are you given to handle situations that start getting out of hand?

As a number of last week's commenters pointed out, subcontractors and employees of consulting firms share a common risk: If the end client begins to abuse the terms of their contract, you may have less power to do anything about it. For instance, if the client demands the addition of a feature (at no additional cost) that was not included in the original agreement ("but of course that's what it should do, so the fact that it doesn't is a bug"), the right thing for you to do is to insist on additional compensation with the express or implied "or else" of terminating the contract. But if the contract is controlled by your employer and they refuse to do anything about their client's abuses, then "walking away from it" probably includes losing your job and all the future work that goes with it. The end client may care a lot less about you leaving, since they still have your employer over the barrel -- so your threat of doing so provides little leverage.

I guess that explains why I like being independent. It's not just that I like to live dangerously -- I also value having the freedom to control my own engagements.

About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

22 comments
Gunner4c
Gunner4c

Does any one have recommendation on how to break out of the employee role and into the independent contracting business?

walter
walter

I recently started working as an IT consultant. I love making my own schedule, the flexibility of being with family, having time to work out, rest, take a long lunch...it's geat. The draw back to it is the fact that you ARE on your own. But then again if you plan ahead and work hard, you can make sure work is secure and lined up so that you don't have down time between clients. I plan to stay on top of my client database, my constant eye out for new potential working connections and new clients. So far; it's the job of my dreams. I just have to stay on my toes. W.

Marcus A. Noel / ZentreCorp Consulting
Marcus A. Noel / ZentreCorp Consulting

I've noticed a few franchised IT operations lately that seem to be geared for independents. Names that come to mind are: Concerto Networks Computer Troubleshooters WSI International They are not intended to be of the Geek Squad variety, but more of a Business-Oriented IT resource model geared to Small & Medium-sized Businesses. The main advantage said to be offered to the Otherwise-Independent IT Consultant would be: Matketing Branding Support Proven IT Consultant Business Model I would be interested in knowing how other independent or contract consultants view the franchised operations that I am referring to. Especially, if anyone has any experience with any of them, I would interested in hearing your comments. - Marcus A. Noel

techrepublic
techrepublic

You said: "I have occasionally subcontracted work out (with client approval)..." The contract should stipulate whether or not you can use subcontractors. If subcontracting is not mentioned in the contract you, as an independent, are free to do as you please. You don't require your client's "approval", or even their knowledge or consent. This whole "approval" thing sounds like employee thinking to me. If you were an IT Manager and contracted out work to one of the "Big Five" consulting firms and they sub-contracted out the work, would you even know? But there is another question: Are you operating as an on-site contractor working cheek-by-jowl with the client's employees? Or are you *truly* independent, working for several clients simultaneously from your facilities, using your own resources? Do you guarantee results? Did you negotiate the contract as an equal entity or did the client hand you one of their "standard" contracts and ask (demand) that you sign it? You can bet your bottom dollar that the "Big Five" negotiate their contracts in a true business-to-business relationship where neither party has dominant power. Do you? This is the most important distinction between a true Consultant and a mere contractor. One more thing. Is your area of expertise a rare commodity or is the market rife with many others who could do the same kind of work you do? What makes your business distinctive and therefore, in greater demand? Because if you're a dime a dozen, and they know it, you may as well just become an employee and avoid the risks of an uncertain income. But if you're one in a million than you are in the catbird seat and *you* call the shots. This, of course, is very rare. So, you see, there are a lot of factors defining what is and what is not true independence.

Sterling chip Camden
Sterling chip Camden

Are you an independent, a subcontractor, or an employee? Why do find that arrangement beneficial?

Sterling chip Camden
Sterling chip Camden

It is a great way to work -- it's the old adage, "with freedom comes responsibility."

Sterling chip Camden
Sterling chip Camden

... but it WOULD be nice to not have to deal with all of the peripheral business issues.

Sterling chip Camden
Sterling chip Camden

For most of my clients, I produce my own contract for them to sign. A few bigger companies required that I sign their standard contract, and after reviewing them and finding nothing objectionable I didn't fight it. I work in my own office, hardly ever on-site. I am considered an expert in my particular niche. So I'd say I'm pretty independent. The reason I always ask my clients for approval for subcontractors is because I am the expert, and that's what they're paying for. I want them to know up front when someone else is doing a portion of the work, because it's good business to be up front with your customers and keep them happy.

walter
walter

I have worked as a contractor before, with a company representing me for the insurance and the payroll, so that I did not have to worry about doign it myself. I did not like the fact that if they decided to be incompetent and delayed my paychecks, or if they make errors during my hours and such, I was still at the mercy of someone else's mistakes. I am now a 1099 employee for a new company, and I like the idea of making my own schedule, claiming what I know I can claim in taxes quaterly, I know that what I charge my clients, extra fees, anything at all; I have to live with so I decide if I will give them a break or simply charge more. It's nice because I know what my work is worth, I know the quality of work I provide my clients, and I charge to mirror my services. With the other company, I was paid by the hour and I sometimes found myself, working way more than the hourly rate was. Not good! I love my new arrangement. I set my own rules, hours, if I need to meet with a client I do at MY convenience, as long as all my ducks are in line! I simply love it.

apotheon
apotheon

I was employed by a small consultancy in Florida. Now, I'm independent -- though my relationship with my prior employer is such that he can still reach out to me from time to time to subcontract. I've also redirected him to other contractors he can subcontract when I feel that someone else I know would be a better fit for a given job. I actually received a request to work on something not long ago, relayed it to another independent consultant who I thought would be a better fit, and was offered the opportunity to subcontract through him if things work out that way. I'm still waiting for the final word on that one as the two parties involved negotiate their business arrangement. I tend to prefer independence, all things considered, especially because it doesn't tie me down to a specific sort of "job function". My career can evolve as I desire, and I can guide my work in directions that interest me. That's really the biggest benefit to independence, for me: it's not so much about being able to negotiate directly with clients as it is about being able to choose and develop my own preferences in areas of expertise. Working independently, I get to define my career more freely. Of course, since I've started writing regularly for the TechRepublic IT Security weblog, I'm also doing work that looks supsiciously like being a subcontracted employee on retainer for a larger business, but I ended up doing that in part because the flexibility of my working circumstances allowed me to direct my career in that direction. Writing about what I know is often as rewarding as using it directly, as long as I keep using it so I don't fall behind the "power curve" in terms of what I actually know.

walter
walter

There is light at the end of the tunnel. I just picked up another client, with lots of potential and an awesome network for me to manage!! If you keep your eyes open, you will see them all around, and if you know how to approach and talk to people, you will gain a client in no time. Business owners are hungry for quality, straight forward IT Consulting services, from people who are honest and willing to own a situation.

TLComp
TLComp

Some of the previous discussion sounds as though you are talking about working for just one client at a time. That is a very real part of the contracting world, but I don't work that way at all any more. Currently, I have two primary clients and a bunch of others. As has been mentioned before, I love the freedom, I run my own schedule, I handle my own arrangements with the client when they need me on-site, I am always available by phone to answer a question, I can login remotely to check on a server or network, my part-time bookkeeper takes care keeping the cash flow straight (and lets me know when I need to put in a few more billable hours) and above all, I set my own rate. If I'm not worth it, I can't charge it. But if I am doing a good job, and I am worth it, I can charge it. I have fired clients that I don't like, and I make the clients happy that I do like. Contracts? What's that? That's why God gave us hands to shake. (I smell more discussion coming with that one.) :)

techrepublic
techrepublic

Chip, Just to be clear, my comments and questions were of a rhetorical nature and were not directed at you personally. My comments were designed to point out some elements that constitute business independence. I also note that you choose to inform your clients when you use sub-contractors as part of your approach to client relations. I pointed out that it was not specifically required but, as you said, it may be a good idea to do so in some cases. I wish you much luck in your career. Joe

Sterling chip Camden
Sterling chip Camden

Good point, I missed that benefit in my discussion. I try to devote several hours a week to working on what I think I'd like to learn or explore -- much like the Google employees' 20% time. It keeps me on top of my game (client projects can sometimes get rather narrow in focus) and it keeps work fun.

walter
walter

Thanks Sterling, I appreciate that. We are coming upon good times in the IT field i think. Lots of people who got themselves in trouble 5 years ago, biting more than they can chew when they tried to setup their own networks, are coming around realizing that it's not going to happen. The good about that; is that they will turn it over to IT professionals, and this is going to make the market better for us all! Hooray for people making mistakes. Without mistakes, we would not have opportunity for improvement.

TLComp
TLComp

That's the way I am and that's the way my clients are. I work with them and they work with me. If they need me to do something, they ask, I do it, I bill them, they pay and everyone is happy. It's a Win-Win. I contend that contracts often create a Lose-Lose situation in which no one is happy.

Sterling chip Camden
Sterling chip Camden

... cause I haven't. Oh sure, I've meant lots of people who mean well. But when push comes to shove and they desperately need something, if you're on "friendly" terms they're going to lean on you. And maybe if you're truly friends you'll go the extra mile for them just because. But if you don't want to be taken advantage of, then it's good to have a contract that shows that your relationship is and should be conducted professionally.

TLComp
TLComp

... a contract -- it's the lock that keeps honest people honest. On the face of it, I disagree with that. An honest person will be honest no matter what. If a person easily falls to the temptation to be dishonest then that person by definition is not an honest person. I would however, agree to the statement "a contract -- it's the lock that keeps dishonest people honest. People who are dishonest, tend to assume that everyone else is dishonest, and so contract is necessary. People who are honest, tend to assume the best of other people until proven otherwise; and there comes the rub. So it's very important to know the character of the people that you're dealing with. When you're dealing with some companies or clients, who are known to be 'business-like' (nothing personal, it's just business) in their dealings, then a contract is probably necessary. But I would argue that when you know that your client is honest, and they know that you are honest, a handshake contract is adequate.

Sterling chip Camden
Sterling chip Camden

I've almost always had at least two active at a time, and sometimes as many as five in one month. But I always have a contract -- it's the lock that keeps honest people honest.

Sterling chip Camden
Sterling chip Camden

No offense taken -- you made some very good points. Thanks for adding to the discussion. Good luck to you as well.

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