Note: This article is named "Contractor or Consultant? What's the Difference?" and was previously published on About.Com's "Focus on Java" section. Unfortunately, the new editor of the java.about.com site has chosen to gut the older content of the site, and so this article is no longer available there.
An Introduction
The terms "contracting" and "consulting" have an aura of glamour about them that many employees in our industry relish. After spending a day in meetings kowtowing to their immediate management, or being asked (told!) to work through the weekend for yet another fire drill, who wouldn't want to call the shots in their own career? Every "Office Space" movie cliché comes to mind.
In this article we'll clearly define the differences between contracting and consulting in the IT industry and how these roles are commonly misinterpreted. We'll also explore the most important tradeoffs to consider if you choose to work on your own.
What do the Terms Really Mean?
Contractor
A contractor is a vendor and an independent operator: expendable on a moment's notice. The term "contractor" radiates a definite blue-collar image due to close association with the building trades. In any industry it's simply a label for a certain type of working relationship. (Note: if you don't like the term "contractor", just substitute the equivalent phrase "freelancer" throughout this piece. They mean essentially the same thing.)
A definition: A contractor is anyone who performs services for a client, in exchange for fees, but who is not an employee of the client. A contractor is also someone who solely determines the way in which his work is delivered to the client.
The above paragraph (simplified greatly) spells out the basic criteria by which the U.S. Internal Revenue Service allows a worker to be treated as a contractor instead of as an employee. A contractor is generally regarded as a vendor: expendable on a moment's notice.
The expendable nature of contractors is in contrast to the usual employment relationship. An employee's work is considered to be supervised by the employer, and the employee works for the employer on an ongoing basis.
Now, enter an ambiguity: One may well be both an employee and a contractor. This is commonly the case in instances when an employee is employed directly by a contract agency, who in turn hires her out to a customer of the agency. To the customer, she is a contractor, but she is also an employee of the agency.
Consultant
The term "consultant" is far more nebulous than "contractor" and has no rigid legal status in most instances.
A consultant is generally considered to be a subject matter expert who delivers advice and expert implementation guidance to his clients. A "real" consultant in the classical sense does not perform much or any actual implementation, unless it is to create an example or reference implementation for the benefit of his clients.
Many, but not all, consultants are self-employed and, therefore, also operate as contractors. Some employees have a title of "Consultant" and are regarded as such within their employers' organizations. Yet other consultants are employed by contract agencies or consulting companies.
The point is: The term "consultant" defines a functional role, not a legal nor financial working relationship.
So What is in a Name or Title?
The term "consultant" has suffered some devaluation over the years, particularly in the IT industry.
The most common error is to treat consulting and contracting as one and the same. They are not. A consultant may be an employee for "the man" and may have little autonomy or control in her work life, while a contractor often has considerably more freedom. (PS: There is nothing the matter with engaging in verbal shorthand with someone by calling all freelancing relationships "consulting", but make sure you both know what is really being discussed--especially at the negotiating table.)
A second point of confusion is caused by viewing contracting as beneath consulting in the pecking order, as more blue-collar. Contracting itself is simply a legal and financial arrangement. A savvy contractor may well out-earn a less streetwise consultant.
A third point of confusion lies in the functional role of a consultant. Unlike in management consulting, few in the IT industry are paid to stroke their beards sagely and render advice. The term "consultant" in the IT industry is used more casually than it is in management circles. It is taken to mean an expert implementer, designer, architect and/or mentor.
Finding Work as a Contractor or Consultant
If you are reading this article, you are probably interested in contracting as a career option. Secondarily, you may be attracted to the allure of being respected as an "independent consultant" (or contractor). (I will not cover working as an "internal consultant" for one's employer.)
In the past few years, both roles have become extremely difficult career options, but perhaps no more so than pursuing an appropriate full-time position in technology.
There are two distinct contracting roles that are commonly accepted by both the business community and the human relations agency industry: IT contractor and independent consultant. A description of each of these two roles follows.
Working as an IT Contractor
- Contractors are utilized by the IT industry as substitute employees.
- Contractors are, more or less, regarded as a commodity by clients, only differentiated by buzzword skills.
- You will usually work through a contract agency. You will generally work as their employee, or sometimes as their contractor. The most effective agencies find ways to recruit suitable contractors within the client businesses' hourly rate requirements.
- If you don't work through a contract agency, you will find and negotiate your own projects directly with client businesses.
- You will generally work for hourly fees, negotiated in advance.
- You will usually work on the client's site, under the same general expectations as their employees.
- As a contractor, your physical office and office furnishings may be lacking, and access to resources such as a desk phone or the corporate network may be limited.
- Most businesses bend the usual definition of "contractor" by actively supervising their IT contractors and holding them to the same standards (both technical and attendance) that they hold employees.
- Marketing for an IT contractor is almost identical to looking for a full-time position. You must have a resume, you must keep it updated, and you must display similar attributes that employers seek in employees.
- Your marketing will consist of meeting the perceived needs of clients for specific technical skills. Buzzwords (and not talent) will matter most. If you don’t know C#, and C# is the language that the client wants, then you will be at a disadvantage.
- Launching yourself as an IT contractor is a matter of finding a contract, usually through an agency. It's more or less like looking for a job. Landed a contract? Congratulations, you're a contractor!
- The market for IT contractors is very strongly tied to the IT job market. If companies are having no problem finding permanent employees to do (say) programming, then the market for contractors will be weak. The reverse is also true, as it was in the late 1990s.
Working as an Independent Consultant
- Consultants are generally utilized in the IT industry as subject matter experts and as implementation experts.
- Consultants who have done their marketing correctly tend to be regarded as having important and unique value--not as commodities.
- You will usually find your own projects. If you deal with a contract agency, it will only be for the duration of particular projects.
- You may work for hourly fees or you may work toward a defined project goal that results in lump sum payments.
- You will probably work off-site, at your own office.
- You may be treated provisionally as a member of the client's senior management hierarchy. You may even be privy to high-level gossip. WARNING: You are a visitor, and your special role is a privilege, very easily lost.
- You will probably manage the project yourself. Your client will likely know very little about the particulars of what you’ve accomplished for them. They will generally only see an end result.
- Most important: Independent consultants market themselves actively, as experts, and they work with prospects who have advanced needs, or who have no internal management structure to deal with IT projects. Marketing for an independent consultant is similar to building a practice in any professional field: your reputation must precede you. You probably won’t use a resume as a consultant, but you should have some published articles, a brochure, and/or customer testimonials, at a bare minimum.
- Your marketing will generally target either specific business needs of clients or a particular type of specialized technical challenge. Buzzwords may or may not matter but an impression of impeccable credibility will matter.
- Launching yourself as an independent consultant consists of building a reputation, a clientele, and a set of specialties. In some cases, it can take months, or even years, to realize the income that you had as a full-time employee.
- The market for independent consultants may be closely tied to the general economy and the IT industry economy, or it may be entirely decoupled from either. It just depends upon what your specialty is and who your clientele is.
Conclusion
This article is a sweeping overview of a significant segment of the IT industry: temporary professional services. This career choice is not for everyone. The risks can be higher than full-time employment but the financial upside can make the risks attractive. But if you want more control over your career, consulting or contracting may be an option for you.
About the Author
Don has worked as a consultant and contractor in IT since 1993. Don has been working in the engineering and software fields since 1980. He has over 25 years of commercial software development experience. Don has a Bachelor's in Electrical Engineering from the University of Dayton. He has been instrumental in the release of several hardware products and commercial software applications in the DOD and commercial sectors.
