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Eric Wise

Business & .NET

Lobbying for change in the consulting industry

I think most people who have been in the IT industry for an average amount of time can agree with my perception that for the most part, the consulting industry is garbage. Consultants are expensive, usually on par or worse than your full time employees, and for the most part are willing to bend a client over the table if the opportunity arises. Here's what I perceive as the problems with the mainstream consulting industry and my thoughts on how to make things better.

Problem 1: Consultants don't have a large stake in your success.

One of the major problems with consultants is that they really don't have a large stake in the success of your project. They get paid whether or not the end result of the project is successful, and short of having their contract terminated pay almost no penalty. Hiring companies rarely check with your past project performance, and consultants regularily cover up assignments that didn't turn out all that well.

At the end of the day, if a project outright fails, the consultant moves on to the next gig relatively unscathed. It's not like in other fields like tradeskills where there are documented processes for complaining and a strong in-industry certification and review process. It's not like you can lose your developer license for doing shoddy work. You just need to locate another gullible employer willing to shell out a rate for you. To increase stakes in performance, I strongly believe that consultants should be offered incentives just like regular employees should be. If project deadlines and quality are met successfully and your FTEs get a cash bonus, give the consultant a bonus as well. Good consultants, like good employees are a relatively rare find and should be rewarded and incentivized.

Problem 2: Vague Scope of Work / Lack of penalties for non-performance

In addition, most contracts specify hourly or project rates, but rarely impose penalties for non performance or milestones. Corporate managers who are doing due diligence with hiring a contractor or firm must be careful to set explicit goals and milestones and demand monetary compensation if those milestones and goals are not achieved. Would you pay full price to a construction contractor who only finished half the job? You shouldn't pay full price to a contract worker who does the same. To be fair to contractors, however, this requires having very explicit goals and milestones, if you can't define these, maybe you should re-evaluate the need for a contract worker.

Problem 3: The old Bait and Switch

Bait and switch tactics are also fairly common with large consulting firms. With these firms the buyer is buying the services of the entire firm usually at standard hourly rates based on "duties". This means you'll agree to $105/hr for "DBA Work" and $95 for "General Development" etc etc etc. The reason I refer to this as a bait and switch is usually during the sale process the salesperson will bring out resumes and sometimes even bring technical workers with them who represent the best the firm has to offer. However, without the contract specifying who is actually doing the work, the client falls victim to the rather shady practice of the consulting company hiring inexperienced, desparate, and low ball employees so that the rate they're paying for the labor is much lower than what they are actually charging you. Just because you're paying $105/hr for "DBA Work" doesn't mean the person at the consulting firm doing the work is an $80k/yr dba with 10 years experience. You'll often find some kid fresh out of college, or worst case, an offshore worker doing the work without your knowledge.

Lesson to be learned? Demand to know who is doing what, and at minimum review their resume. Preferredly you should do a technical interview with any consultant who will be doing any work for your organization. Don't just trust that the consulting firm has your best interests in mind, like any other business, they exist to make money at as high a margin as their customers will put up with.

In Conclusion

Remember, you are paying a premium any time you hire a contract worker. The purpose of these workers is to improve your organization, not harm it. Contract workers are much less cost effective than your full time employees and it's very important that you ensure that you are getting value for your money. At the end of the day, a contract worker/firm exists to serve you, and they should serve you on your terms. With diligence, intelligence, and fairness you can ensure that not only does your project state improve, but the contract worker is clear on their goals and motivations and is able to supply you with outstanding service at a fair price.

Published Feb 12 2007, 09:59 AM by Eric Wise

Filed under: Business / IT, Rants, Patterns and Practices

Comments

Jason said:

While I have see many examples of this in the industry, it is not fair to paint all contractors with this brush. While most of what you talk about applies to large consulting firms, I've worked for two, it usually doesn't apply to small independent contractors like myself.

Also, you say "contract workers are much less cost effective than your full time employees". This is not usually the case, unless you have a very long term contact agreement that lasts more than a year. Full time employees means benefits. Health insurance, vacation, sick-leave, etc. are all more expensive in the short term. It can also be more advantageous on the books as it's much easier to just cut a check to another corporation than to track pay and tax withholdings for multiple employees.

By all means, if you are a large company with a dedicated software development staff, use them to there fullest and only rely on trusted contractors for work outside their realm. Use your employees to find people they know and trust to bring in. And above all, use it as a means to grow your employees.

If, however, you are a smaller company, contractors can be very beneficial but do your homework first and demand references.

# February 12, 2007 11:51 AM

sergiopereira said:

I think what you've just said make some sense, but it's not a problem with software/IT consulting specifically. Replace that with any contractor (carpenter, painter, lawyers, accountants, etc) and you'd get the same result and problems. The issue is intrinsic to the contracting business, the client has to share some of the blame for not weeding out the bad stuff, that we know is a-plenty.

# February 12, 2007 11:59 AM

Eric Wise said:

"Full time employees means benefits. Health insurance, vacation, sick-leave, etc. are all more expensive in the short term."

Health Insurance, lack of vacation, etc are all figured into a contractor's hourly rate. It's not like contractors are doing without these things. Most contractor pricing covers everything a normal employee would get and then includes a premium for being temporary and expendable... after all, that's what you're really paying for.

Of course, if you're referring to a FTE who joins the company, milks it for a few months then quits, then yeah, a contractor is probably more cost effective, but that's not a typical scenario.

So the question I usually kick around in my mind, is how can the industry do a better job of self regulating its workers to raise the confidence of employers that they are getting a quality worker, contractor or not? The current certifications are lacking imho and there's little in the way of mentoring or a 'tradeskill' approach.

# February 12, 2007 12:23 PM

Don Demsak said:

Eric, I have a worksheet that I've published that helps people convert between consulting rates and FTE Salaries. It has been around for a couple years and seems to stand the test of time. I recently wrote the blog entry, A Guide To Information Technology Consulting Rates ( http://donxml.com/allthingstechie/archive/2007/02/04/A-Guide-To-Information-Technology-Consulting-Rates.aspx ) that walks you thru the translation process for an average .Net consultant in New Jersey. You can use your own numbers for your area, but the formula is the same.

IMHO, you are confusing consultants with contractors. Contractors are brought in to solve temporary staffing issues. Consultants are brought in to supplement the skills of your FTEs. They are really 2 different jobs, and should not be confused. For most companies, it is not cost effect to have an FTE that is a technology specialist. These people tend to leave firms to become consultants, because the have very specific skills that the average developer does not have the time to master.

The best way to avoid the ol' bait and switch, is to avoid the big consulting firms, and go with small niche consulting firms. With all the overhead of the big firms, they can't keep good developers any better than the average firm. Niche firms have smaller overhead (which means they can pay their consultants better), and rely on their customer relationships more than the big firms.

# February 12, 2007 1:52 PM

Dan said:

This artciel is a HUGE generalization and not at all in line with my experiences at a large consulting company. Sure, I saw some of this in the mid 90’s, but as more and more consulting companies came into play – and drove price competition – when you were dealing with the big companies, these companies didn’t let you get away with these things because they didn’t have to – there were other fish in the sea.

As for point 1, I will argue that from what I have seen – especially now that I’ve left consulting – it is the “contracting” companies that throw untrained bodies at IT shops and have less of a vested interested in your success. Large consulting companies live and die by long term relationships with clients, repeat business, and/or long term outsourcing contracts. If when I was in consulting I threw the resumes that I am getting from contracting shops in front my clients, I would never have received repeat business.

Most of point 2 exists everywhere. My current (non-consulting) company – and many of the others that I consulted at – did a horrible job of defining realistic goals/milestones. Also, in consulting, there was a trend to have contracts established between clients and the consulting companies in which the consultants get “encouraged” to do good work – valuing sharing. If I can save you a $1 per transaction, you are going to pay me 3 cents for every dollar for the next X years. Likewise, even if you signed a 10 year, 1 billion dollar outsourcing deal, it would be up for review every 3 years and you had SLA penalties.

On Point 3, I have seen it done and yet, in the 2000’s, when we put resumes in front of the clients, we DID give them those people. The clients demanded it. Now, theses were very large clients and, per my arguing in point 1, you wanted to make them happy because you needed their long term relationships, so you made sure you gave them these people. And heck, I have this problem when I hire people directly into my curernt company – its hard to confirm that the people I hire are really as good as their resume states or that they will work out in the long run.

My summary: the author has a very small view of what consulting companies are like. Contracting companies, perhaps, but not consulting companies. And there is a huge difference.

# February 14, 2007 9:11 AM

Michael Flanakin said:

# February 15, 2007 2:17 PM

David Ander said:

You have touched a rather sore spot that I have dealt with for many years as a consultant. I wouldn't call for lobbying as you have stated,, but rather a 'police'ing that needs to occur. Who would you lobby to anyway??

I have been in the IT consulting field as an independent or as an employee of many consulting firms for more than twenty five years. I have had contracts lasting 8 years (which is almost unheard of in today's market), and one that lasted for one month. There has been some great contracts, some not so great,, some very successful, and some failures.

I am a temp,, no question about it and I'm proud of it. I do not get politically involved, EVER!!. My clients wishes are my commands. I am there to do a job, do it well, teach them the ropes until they know it, leave documentation to that effect, and be available if called upon again.

Bottom line, I am hired for my programming skills and systems knowledge which I utilize to work into and fit into the client's systems to fulfil their wishes. I have to follow their standards, methodologies, and business practices. I can only suggest new or different policies and procedures. It is their choice and their decisions that set presidence, not mine. And all of this has to be done in a professional manner, communicated from the start of the project,, until it is successfully completed and finished,,, ontime and on budget.

Regardless of my stated position at the client site, I represent the company that I work for, and I alone am responsible for my actions and take all the heat for my actions or non-actions. I have no union to support me or bosses who will cover for me. The perverbial buck stops here.

The idea or perception that the consulting industry "is garbage" as you have stated, is extremely erronius. Consultants are being paid fair wages for their knowledge, skills, and services that their clients do not have or possess. In most cases, the client does not want to pay a full time employee for these skills and services plus bene's. This is the reason why they hired ME.

Each and every consultant on a contract holds a 'stake' in the finished outcome of a project regardless of their status on a project (ie PM or DBA or programmer or data entry). The consultant that doesnt realize this will not work in this field for to much longer. And, I am certain that this is true for any kind of contractual work in any line of business. The penalty is NO FUTURE WORK,, PERIOD!!

Now, IF the client does not investigate the background of the company or consultant that they will be contracting with,, I would say that that is their problem. I certainly would not jump into a contract without investigating the legitmacy and past performances of a contractor. A consulting companies NAME alone is NOT justifiable cause to jump into a contract with them. Background checks and market analysis is smart business practices on behalf of the company that is thinking about contracting work out.

As you stated "good consultants, like good employees are a relatively rare find and should be rewarded and incentivized." As a consultant, my incentive is to continue to work by getting more contracts in the future. The big monetary rewards go to the client's management after the project is successfully completed and my contract is done. What the market will bear is what I will be paid and I can live with that.

# April 17, 2007 11:36 AM

David Novick said:

I have maintained my business process management consulting practice for over 5 years. I started this practice when I was laid off from a startup company where I was director of information systems... a job I thoroughly loved. I started my practice as an interim solution to getting through the economic downturn, after all, it was 2001.

So, I have worked both sides of the aisle, so to speak. I've been a manager and leader in a position of decision making authority, hiring employees and outside resources. And, I have been the outside resource. Early on, I realized that the cost of an outside resource was not as important as the value that outside resource provided to my company.

Over the past 5 years I have had to decide what my value as that outside resource should be. Am I a mere contractor... someone who simply comes to the client site, works as directed on series of tasks with or without any end? Or, am I a consultant... someone who comes to the client to open its eyes to new perspectives and ideas, leads it down new paths, new ways of doing things, prepares it be self-sufficient in these new ways and leaves it better than it was before I arrived?

I am a consultant. And, in my line of consulting, business process management, my goal is to help my clients leverage business process as a competitive advantage... a way to get and keep more loyal customers... rather than merely a set of activities and tasks that shuffle work from a to b. And, if I can do that, I, as consultant, am successful and my "value" will have been fully realized by the client. It is of no value to my client, and, to my own reputation, if I cannot leave my client in better shape than when I arrived.

And, from day one, I work to plan my own obsolescence. Any good consultant wants his/her client to be self-sufficient over the long term. That does not mean that there won't be additional projects with the client. It just means that each project has a start, middle and end to it. And, the end has to justify the value.

And, just as important as it is for a consultant to know his/her value to a potential client, the client, itself, has to know what it wants in an outside resource. Is the client looking for a contractor to perform task-based activities or is it looking for a consultant to make it perform better? If the client doesn't know what it wants, there's no way for it to establish any goal or measurable objectives. And, it leads the client into open-ended relationships with an endless stream of outside resources, wandering aimlessly.

Bottom line.... clients need to set goals and expectations for its outside resources... know what its getting and what its not getting for the money its going to spend and be OK with it. Likewise, consultants and contractors, alike, need to know their own strengths and weaknesses and what they can and cannot offer a potential client. If both sides understand and accept the expectations and limitations of the other and the criteria by which all is measured, then, using a contractor or a consultant can be a "valuable" experience. If not, then, the relationship for both is destined to fail.

- David Novick

# May 3, 2007 3:32 AM