You can hire an employee who does IT work, or engage an IT contractor, or engage an IT consultant. The difference between them goes beyond how much they cost and whether they are on your payroll or your vendor list. They have different skillsets and perspectives. Each is needed for certain types of IT work. Engaging the right kind of person to fit your needs can tip the scales for your projects. Read on to find out what each type of IT worker does best so you can make the right choices for your IT projects.

Employees versus Expertise from Outside

The difference is not just in how they get paid

Employees and people who work on a contract basis tend to have different perspectives. At its simplest, this boils down to:

  • Employees work for a business.
  • Contractors and consultants are in business.

Some people work on a contract basis to get by until their next “real” job. For them, this distinction does not quite apply–they never make the mental shift in perspective required to operate a business. But for the most part, it’s a useful guide.

Employees have someone else worrying about keeping the business alive, deciding what role they should have in the organization, lining up enough work to keep them busy, making payroll tax deposits, arranging any benefit programs… An employee only has to take care of a small slice of the business. The larger the company is, the more support the company provides for the employee and the narrower the view the employee has of the business. But an employee expects more job security than a contractor and can stay with the business for a long time.

That has many ramifications. Longtime employees become part of the institutional memory of a business. Their loyalty can be priceless, especially if they are part of a strong team within the company. However, even when they learn new skills, they learn to apply those skills in the style of their employer. No matter how good that style may be, it can be a limitation. They have a lot to lose by rocking the boat (future raises, promotions, pensions), so they become averse to taking risks, even when staying quiet means allowing the company to take a disastrous path.

People who work on a contract basis have to be self-starters. They must be able to fit themselves into an unfamiliar corporate culture and become productive quickly. They have to be able to live with risk because every contract (and every hunt for the next contract) involves risk. Because they go from client to client, they learn new skills and new styles at each one. Like honeybees, they can cross-pollinate their clients with a fresh infusion of techniques learned elsewhere. Since their lives are a series of projects more intense than most employees get, contractors often bring especially high levels of expertise to the table.

For this reason, the ideal team for an IT project is often neither entirely employees nor entirely contract workers. A well chosen mixture ensures that the IT project fits into the existing company culture, interacts smoothly with legacy systems, and takes advantage of the expertise, drive and flexibility of the contract portion of the team. When the project ends and the contractors move on, employees are the institutional memory about the project–they can not only maintain and enhance the new system, they can provide the next project with guidance about what worked (and what didn’t go so well) to make sure the next project uses lessons learned in the last one.

Which Kind of Outside Expertise Fits Your Needs?

If you don’t have the expertise in-house to do your project, you’ll need to either hire more staff or bring in specialists on a temporary basis. But what kind of specialists do you need from outside? IT contractors, or IT consultants, or both? Is a computer consultant or IT consultant no more than a contract programmer or software engineer with a fancy title and higher rate?

No, they are not the same.

For the right type of engagement, each is valuable. But engaging one where you actually need the other is a mistake–and you can’t necessarily tell which is which by titles on business cards. What they do will tell you the true category they fit. That in turn will clue you in about the roles that are appropriate for them.

What Contract Technical Workers Do

Contract technical workers are exactly that–people who work on contract and apply the technical skills that are their specialty. Telling them what to implement is up to you. A software designer has to be told what the software has to do. A contract programmer needs specifications for the software.

Good contractors are self-starters with excellent technical skill. They can produce superb technical work with less need for supervision and motivation than most regular employees. After completing your project, contractors leave without fuss. Whatever the project built is left for your employees to maintain.

Here is an example of wisely using contract technical workers. Let’s say that you want a new ABC system to mesh with a major change in business procedures. The business analysis has been done in-house. You have specified precisely the computer system you want to create. Your IT team is capable in most of the technical skills necessary. However, all their previous projects have been small. They have never designed and built a database system this big and complex. The tools and methods to cost effectively build and maintain a large system are new to them.

You contract with technical specialists to be the leading people in the project. They do the heart of the database design and construction, software design, source code control, and quality assurance tools and procedures. Your IT employees work under their tutelage, learning as they go. The project is finished sooner than your IT team could have done it on their own. Design, implementation, testing and deployment sidestep the kinds of mistakes that would occur if everyone on the team was new to the tools and methods they are using. By the time the contract specialists leave, your IT team’s skills have grown and they are able to carry on with maintenance and enhancements.

What IT / Computer Consultants Do

Many contract technical workers do exclusively technical work. Among the best contract programmers who once worked for me, one said outright that he didn’t care to learn what the equipment ought to do when our software sent commands. He would be glad to write software so long as I would tell him what software I wanted. He wanted not to have to pay attention to anything else. He especially wanted not to have to deal with people to find out what they wanted. He wrote good software, and I let him focus on what he did best.

That’s the big difference between a contractor and a consultant. He is a classic contract programmer. A consultant has a much larger scope. Typically, Information Technology consultants begin as contract technical workers. The consultant develops some expert technical skills (design, programming, testing) and is likely to have at least some ability across a wide swath of the skills needed in the entire birth, life and eventual death of a system.

But the consultant’s professional growth goes beyond adding and polishing technical skills. The recipe for an IT consultant looks like this: Begin with computer capability. Add hefty doses of business acumen, common sense, and ‘soft skills.’ Bake in the oven of experience, and you’ve got an IT consultant.

Scope Matters

A formal computer related project begins by analyzing what the business needs in order to go from what it is doing now to what it needs to do instead. Everything else in the project springs from that analysis. On the technical side, this includes functional specifications and detailed specifications, design, implementation, testing, source code control, training, and technical support. On the human side, what people must do in their jobs will change, and people must be taught their new procedures. Each task in the project is done by people with specific roles, titles and skills. Many of them may do their entire piece of the project without clearly seeing the overall picture.

A good IT consultant sees the entirety–business problems to be resolved and objectives to be met, revisions to human procedures, ‘big picture’ IT systems involved, and essential details required to make it all turn out right. The frame of mind that can do this is unlike a contract programmer, and it requires as much skill in dealing with people (extracting information, negotiating, coping with internal politics and accounting for people’s feelings) as it does in dealing with technology. Not everyone can achieve it.

This is among the reasons a consultant is worth higher rates.

Confusion in Usage of the Terms

In other fields, consultants provide expert guidance to clients. The client is responsible for implementing the consultant’s recommendations.

In information technology, this line is not so sharp. Many contract workers claim to be computer consultants or IT consultants when they primarily offer implementation, not guidance. That is not consulting in the sense that the word is used elsewhere. Good ‘computer consultants’ frequently offer a blend of expertise and service beyond fitting computer systems to business needs. From the best, you get a hybrid of business consultant and IT consultant.

At the full service end of the spectrum, the IT consultant goes well beyond the advisory role filled by consultants in other fields. An elite IT consultant deals extensively with people, investigates equipment issues, and pays attention to logistics–even details as small as the height of workstations or the clearance forklifts need to turn a corner.

You can contract with an IT consultant for expert guidance. However, unlike consultants in other fields, as an alternative you can hand a project to a top level IT consultant and let the consultant run it, ‘from soup to nuts.’

My IT consulting companies provide services along this entire spectrum. But if you ask what we do, my answer shows a consultant’s viewpoint. Where computers are used to help make money instead of count it, we help our clients make more money. That’s our forte. When you need a top tier IT consultant, look for a similar focus on improving business effectiveness, and lack of emphasis on specific technologies.

Contract technical workers are the people who need to be expert with the specific technologies. The consultant needs to be expert at pulling everything together into a neatly fitted whole.

Remember to Use Each Appropriately

As I mentioned earlier, contract technical workers and IT consultants are each valuable when brought in for the right assignment. You don’t want to use a contract programmer where you need a consultant, because the contractor has a narrower focus. You also don’t want to waste money by saddling a consultant with programming chores that could be done by a lower-cost programmer. Move your business forward faster, better and more cost effectively by using each type of contract worker for their respective strengths.

Independents versus Agency Workers

When looking at websites that claim to provide IT contract rate information, bear in mind that most IT people working on contract are not independent–they are working through a staffing agency. The agency keeps a percentage which can be substantial, especially if the worker is collecting a regular paycheck (on W2 status in the USA, on PAYE in the UK).

For example, a contractor may honestly report a rate of $50/hour to the survey when the client is paying $85/hour or more. Be careful about interpreting survey results. If you are an independent who does not work through agencies and bill $50/hour based on the survey results, your rate will not allow for all the extra overhead you must cover–administrative and marketing costs that the agency is covering for the contractor who works through agencies.

How Do Pay Rates Differ?

Not All Rate Surveys are Equal

As a general rule, the salaries employees get are lower than contractor and consultant rates when you look at them on an hourly or daily basis. However, the employee salary is only part of what an employer pays for a worker. The employer must also pay its portion of employment taxes (Social Security and Medicare in the USA, National Insurance and other mandated tax in the UK), plus benefits such as paid holidays and sick leave, plus overhead. In addition, the employer is usually expected to be responsible for finding work for the employee to do–the employee is still on the payroll during slack time between projects.

Contractors and consultants are responsible for taking care of those taxes and overhead costs themselves out of the rate they receive. When they work through an agency, the agency covers at least the legally required items from the percentage it takes out of what the customer pays. When they work independently, they cover it all directly. Nobody pays them when they are between projects, so they have to bill enough during projects to allow for the cost of looking for new work and to cover expenses when they don’t have a full load of billable work.

This makes it tricky for you to use rate surveys as a guide. You need to know whether the survey is about employees, agency contractors or consultants, or independent contractors or consultants. You also need to know whether the data is a representative sample, because if it isn’t the data is too limited and/or biased to rely upon.

Unfortunately, Janet Ruhl has retired, so her Real Rates Survey is no longer available as the gold standard for reliability in a rate survey. When you look at rate surveys for guidance, look for surveys that echo her standards.

Janet started compiling the Real Rates Survey in the CONSULT forum in CompuServe, a virtual coffee shop for many of the best and brightest independent IT consultants in the country. As a result, she developed a well established stable of regular data contributors. These included independents and people who work through agencies, and she distinguished between them. You want to be able to tell in a survey whether you are looking at rates for employees or for contractors through agencies or direct rates to independents, and you don’t want those mashed together.

Janet also did not filter out the outliers. RealRates data for IT contractors and consultants tended to be accurate, albeit USA-biased. Many online rate survey sites do not accept data at the low end, which skews the statistics you get from them. You do not want incomplete or skewed data.

Books About IT / Computer Contracting and Consulting

This book was originally produced by the Independent Computer Consultants Association, a non-profit group of top notch IT consultants. Several ICCA members contributed chapters, resulting in a wide-ranging collection about several ways in which IT consultants are distinct from contract IT specialists. The book includes chapters by the Gerald A. Weinberg (legendary for his insights) and Steve Epner (founder of ICCA, Innovator in Residence at St. Louis University). The book is valuable for anyone who either wants to be an IT consultant, or wants to engage one and needs to know what to look for.

DISCLOSURE: I edited this book, so I am biased. But even with all my experience and reputation, I learned from this book. Weinberg's chapter in particular came along just in time to show me what had gone wrong in my business relationship with a client, and how I needed to address it.

The book qualifies for Super Saver Shipping at Amazon. But if you want the book and Amazon isn’t running a sale on it, here is a special discount for you. Go directly to the publisher by clicking here and use the discount code F94Z35FJ at the checkout. You’ll get $4 off–that’s a 20% discount!

I've noticed that many of the people who read my articles on this subject already work in IT, and want to learn how to step up to the consultant level. Peter Meyer interviewed several highly regarded IT consultants extensively before writing this book. (I know how intense his research was because I'm one of the people he interviewed.) He also had an appropriate specialist review each section of the book before publication to make sure he got it right. If you are making the move up to become a consultant, this is good place to start.

Janet Ruhl is well known among top tier IT consultants for the quality of her publications for people who want to get started in the profession. Until her retirement, she also gave back to the IT consultant and contractor community by providing one of the most usable sources of rate information on the Web. I’m only showing a link to one of her books here, but all of her material is excellent.

I am the author of this book. When WorldCom was on its way into bankruptcy, my small consulting firm had people on contract for a project there. My firm was reputedly the only one on its floor of the systems engineering building that was getting paid on time. We did not lose a dime when WorldCom went under. Companies that were owed money had to wait a couple of years for the bankruptcy proceeding to award them about twenty cents on the dollar, if they were still in business.

Most consultants I know (IT and in other fields) have at least one horror story to tell about the customer who didn't pay on time, or didn't pay in full, or maybe didn't pay at all. If you want to engage IT consultants, expect them to do what I describe in this book–expect to pay for what you get from them. If you want to be an IT consultant, this book will help you defend yourself against the occasional bad apple that tries to get your work for nothing.

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