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Consulting firm, job-based consultant, or hourly contractor?

by punch_card_don (Curate)
on Mar 16, 2007 at 19:49 UTC ( #605213=perlmeditation: print w/replies, xml ) Need Help??

Megalomaniacal Monks,

After 5 or so years with the same clients, something's in the wind that I should start expanding my client base.

So I'm wondering about current practices out there in the IT consulting world regarding the form of contracting.

My preferred working arrangement is as independent consulting firm. That is, I am a company that sells a service. I am ABC Perl Programmers, Inc. You tell me what you want, I quote you a contractual price and a timeline, I worry about resources, work schedule, etc., and I bill you. I get paid if I deliver. You worry about nothing - whether I'm one or ten, whether I work in my underwear or a hire my firm based on projects I can demonstrate online, proving my/our capabilities. Because we develop a long-term relationship, subsequent successes for you build up your confidence in me/us. This is how I've always worked so far.

Next to that would be as a job-based individual consultant. That is, I'm Fred Jones Consulting, Inc. You know it's just me, and you get to review my personal resumé in detail and test me if you like. But I still give you a firm quote for a job spec, work on my own terms and get paid if I deliver to spec.

Finally, and of least attractiveness, is the hourly contractor. I'm just Fred the programmer, hired at an hourly rate for a specified time period and expected to produce at a certain level. You probably determine my work hours and require me to work in your office.

Question is, what do companies think of these arrangements these days?

Are companies still hiring small IT firms, outsourcing their development? Or have they internalized everything and want only contract programmers?


Forget that fear of gravity,
Get a little savagery in your life.

Updated for spelling.

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Re: Consulting firm, job-based consultant, or hourly contractor?
by rodion (Chaplain) on Mar 16, 2007 at 22:49 UTC
    In my environment (a not-for-profit hospital), it's rare that the spec is clear and easy to write and the programming is hard. More often it's the other way around, or they are both hard. Worse, as is the way with software, either the spec or the programming looks easy at the beginning and becomes hard. Thus it's fairly rare to have a task where a fixed cost, known up-front, is a workable way to do business.

    Also, when I do have a task that's that clear and contained, it's often a treat to have something so straightforward to work on; so it's better to to let someone in-house have the benefit of doing it, if possible.

      OK, so one vote for the hourly programmer thing. I can see the logic - quoting is always a delicate area. Guess so far I've been lucky at finding projects that can be farily clearly defined - but it's true that I am always careful to be very explicit about the scope of a quote and upfront about ex-scope work being extra.

      Forget that fear of gravity,
      Get a little savagery in your life.
        And another.

        I prefer maintaining relationships with a few good consulting firms so that hourly programmers and technicians can be brought in as needed. Ideally, the contract should allow right-to-hire but that may not be in your interests (but the loss can be mitigated by charging finder's fees).

        It's obviously also in your best interest to engage with good clients with proper expectations and experience with consulting resources. For example: once a consultant has established him/herself with us we give them leeway such as flexible working hours and dress code. Although none has ever reached the pinnacle of working in their underwear :)

        We are also accustom to having contract resources working with our teams so once the resource is established, they tend to integrate well into the team and the lines between contract and employee resources fade away.

Re: Consulting firm, job-based consultant, or hourly contractor?
by gloryhack (Deacon) on Mar 17, 2007 at 18:03 UTC
    The first two forms you mention are still working just fine to keep me busy, but I've only been at it since '96 so I'm still new enough to it that I could make a ridiculous terminal blunder any time now. (I've been in the "high tech industry" for 27 years, but transitioned into my current gig in '96.)

    I believe that my business and yours are very much alike so I'll just approach the matter from that standpoint. My clients range from solo web designers or contract system administrators to Fortune 1000 corporations, with the majority being small companies whose annual sales are in the seven and low eight figures range. I've avoided the hourly consultant gig for the past nine years or so because I just don't like it, so I can't authoritatively address that aspect of the market.

    Most @VLCS have in-house talent but their staffing levels are anorexic so they occasionally outsource projects that are too important to leave undone but not important enough to divert their in-house staff. (Coincidentally, a fellow monk just brought me such a contract with his Fortune 1000 employer, although our common ground was unknown until after the initial contact. Thanks, $FELLOW_MONK!) Larger consulting firms won't touch those smallish projects except as necessary evils because they can't cover their overhead with them, so there's opportunity for us small fish there. I don't actively pursue $VLC business but when the right deal comes over the threshold I'll gladly take it.

    Non-tech start-ups and small companies (whose annual sales are in the $1M to $10M range) are my most profitable segment, and have been for right at six years now, ever since the dot-bomb. In this market class, you're more likely to deal directly with the executives and/or senior management, so you only have to explain your terms once -- if they're not comfortable unless they can see you every morning, you'll find out right up front and not waste a lot of time discovering that the relationship can't work. Most of my clients are referrals (made at that executive/senior management level), so they already know that I'm not likely to work in-house and any anti-small firm/one man band bias has been overcome before I hear from them. Usually they've already been sold on me by someone they trust, so they're not shopping around and they're not inclined to impose a bundle of restrictions upon me because they've seen what I've done for the client who referred them. And, eh, if it can't work out then it can't work out, thanks for calling and have a nice day.

    So, while market forces might be driving some of our peers into suboptimal situations, there's still some opportunity out there to work the way I do and as I assume you do.

    I gotta wonder about that "get paid if I deliver" bit. How's that working out for you? Have you not been stiffed by a shady client yet?

      Yes, does sound like similar business situations and similar stages in life. Fifteen or so years in R&D followed by this past decade in contract web development.

      I've had the luck these past 5 years of having a small stable of regular clients in that small-to-mid-sized category you mentioned. So no issues with shady clients. But in general my quotes include a payment schedule where interim payments are based on achieving a demonstrable technical milestone. On any sizeable project there is always a deposit and interim milestone payments, so that the finished product is never delivered with more than ~20% of the contract value remaining to be paid. Clients like the milestone system because they see progress, and know they only pay for what's been produced. I like it 'cause I can never get stiffed for much. Everyone wins.

      Referrals are always best - but are a problem for me. My particular clients seem more interested in keeping me to themselves. But they've grown to the point of probably making the leap to those large consulting firms soon - so it's time to start expanding my horizons.

      Good to read that the smallish job-based web development contracting company formula is still working for others. Also good to read confirmation that others in the same boat are finding their business in the same kind of target market. I'll be pursuing that first...

      Forget that fear of gravity,
      Get a little savagery in your life.
        My clients, too, for the most part try to keep me to themselves. But only for the most part -- there's one in particular who is one of those social/business networking types who sends referrals my way to ensure that I'll stay in business for the next time he requires my services.

        I wonder: Is there anything keeping you from growing your company's ability to match your client's increasing requirements?

Re: Consulting firm, job-based consultant, or hourly contractor?
by rinceWind (Monsignor) on Mar 17, 2007 at 12:48 UTC

    I am employed by a consulting firm, and I have been on site, on the same site for 4 years. The client regards me as a contractor, and treats me the same as if I was a one-man-band contractor.

    I'm charged out on a day rate, as are other contractors I work alongside. I'm currently the only one from this firm at this client, but there were two of us at one stage. I'm being hired to do "Application Support", looking after one of the client's critical business apps; I was originally taken on with a view to supporting the application while in-house developers rewrote it under new architectures. This went the way of most pie-in-the-sky projects - horrendously over budget, and cancelled with much embarrassment, leaving me in an extremely good position as an expert on this live application which has had its lifetime extended indefinitely.

    Besides this type of contract, placing individual staff on site, my employer is keen on offering managed teams to work on projects, on site and off site. We also offer "managed service" packages, tailored for the client's needs.

    In terms of my future, I'm quite happy with my present employer, and think they are exteremely pleased with me. I know that my client boss would love to take me on as a permanent employee, but I'm not sure that this fits the direction I want to go. I'm considering launching my own business, and offering part time consultancy as one of my activities.

    Watch this space, and watch my use.perl journal for updates.

    Update: Company name and weblink for the consultancy removed at the request of my employer.

    Apprentice wetware hacker

      I did that for several years for a contract research firm back in my last years as a physicist. I was 100% pure lab-rat techno-geek until I found out they were billing the client ~ a half-million/yr for my time, of which I saw only a tiny fraction.

      I quit, went back to school for an MBA, bought a suit, and started a web development company....

      Forget that fear of gravity,
      Get a little savagery in your life.

      updated for grammar

Re: Consulting firm, job-based consultant, or hourly contractor?
by talexb (Chancellor) on Mar 21, 2007 at 18:56 UTC
      Are companies still hiring small IT firms, outsourcing their development? Or have they internalized everything and want only contract programmers?

    I guess the answer is, it depends. :)

    It depends on what the client's most comfortable with. Certainly the ideal (in my mind) would be your first choice, where you and the client agree on a project and a payment schedule, and all they do is pull out their cheque book at appropriate times and after suitably successful demonstrations.

    Your second and third choices are lower on the totem pole: you are Some Guy With Needed Expertise that's either working on the client project at home or at their office.

    It also depends on what associates you can draw into the mix. If you have a good network and can pull in the required experts to get a job done, even meet en masse with the client, great -- that's your first choice again, even if everyone's a contractor. A virtual corporation is fine as long as the client is happy and everyone gets paid.

    And now a brief tangent: My cousin's father, a retired mechanical engineer, once told me something very profound. His speciality was researching patents, and at one point he was working freelance with one client exclusively. He woke up one day and realized that with just one client, he had all of his eggs in one basket.

    So he started diversifying, getting more clients, making contacts, and when that 'major client' suddenly stopped providing him with work, he barely felt it.

    I tried to learn from this important lesson during the Internet boom when I was self-employed, but working with just one client. It quickly became apparent that I didn't have a clue how to market my services as a web backend developer, so I joined up with a marketing partner. This worked fine until he messed up our first project and refused to pay me my cut. I managed to get payment for me and my subs directly from the customer, but that was a very painful lesson.

    To wrap up, I think the higher level a relationship you can have with your customer, the better.

    Alex / talexb / Toronto

    "Groklaw is the open-source mentality applied to legal research" ~ Linus Torvalds

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