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The Age of Outsourcing

A friend of mine sent me this Dilbert cartoon today and thought it described my current working environment.  I agree that there is a close similarity and it really bothers me. http://www.dilbert.com/comics/dilbert/archive/dilbert-20050929.html

Even though people keep throwing work my way, I can't seem to find work that I'm comfortable with.  Unfortunately, outsourcing is the new trend these days.  A couple of friends get together and start a consulting company.  They bid on projects and contracts like any regular consulting company, but they don't have any w2 employees on staff.  Once they win a contract they outsource the work on corp-to-corp or 1099 to an independent consultant.

The Good for Consultants
flexible hours, work remotely, multiple projects and clients

The Bad for Consultants
no stable income, unknown collection periods,  no benefits, no 401k, no vacation, and administrative overhead for invoices and tax purposes. 

The thing I don't understand is how come so many people are doing this type of work and why they think it's such a good job?  I understood the benefit back in the days when an independent consultant could charge 80-120 themselves. These days outsourcing companies are charging out at the normal consulting services rates of 80-120 per hour, but only paying their outsourced consultant 40-55 per hour on 1099 or corp-to-corp.  It's easy to see how these outsourcing companies are making their money, but what's in it for the companies and consultants?

Years ago before companies really enforced the 1 year max contract, companies kept w2 contractors on staff for years.  Now our government is cracking down on companies to force them to create more jobs and convert more contractors to employees.  In reality, companies are laying off contractors after their contracts end and replacing them with outsourced consultants.  Unfortunately, all companies see is that they can get the same work done for less money.  They fail to see the loss in value that they are getting by replacing contractors that understand their policies and procedures with outsourced independent consultants that have no benefits, management, stability, or standard quality of service.

Personally I see the value in a w2 contractor, but it seems that our government, the workforce, and outsourcing companies don't agree with me.  The general rule for an independent consultant is to charge 40% higher than w2 rates to account for risk, self-employment tax, and your own benefits plan.  Typical w2 rates are 35-55 per hour.  By these rules, an independent consultant should be charging 50-80 per hour, but that's not what the outsourcing companies are offering.

Now that the cost of living is increasing due to war, the economy and natural disasters, contractors are forced with many difficult decisions.  Do we take a full time job that under pays us and fails to fully utilize our skills?  Do we take the outsourcing 1099/corp-to-corp work at w2 contract rates to do that same jobs that we did for the last 4 years as a w2 contractor?  Do we start our own company?  Do we open up our job search, move away from friends & family, and pull our children out of their schools to move to the right full time jobs?  These are the decisions that we face in this age of outsourcing...



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# re: The Age of Outsourcing

>>A couple of friends get together and start a consulting company. They bid on projects and contracts like any regular consulting company, but they don't have any w2 employees on staff. Once they win a contract they outsource the work on corp-to-corp or 1099 to an independent consultant.

Actually, this is true of most big consulting firms as well, especially in the Midwest. They all bid on the job and post the EXACT SAME job, hoping to get someone in the area to step up or someone to move to the area. Sometimes you apply for the position only to find out that it is speculative. I also know several people who work as independent contractors for firms that do the same thing - promote their company as the supplier then oustource it third (or is it fourth?) party.
9/30/2005 5:13 AM | Scott Miller

# re: The Age of Outsourcing

This thread hits home.

A tangential issue is that many consulting companies insist on paying you on a W2 but don't provide any benefits or any 401 - so you are essentially just stranded.

10/24/2005 1:01 PM | Susan

# re: The Age of Outsourcing

Due to the populartity of this post, I decided to replicate it as an article. Now that I'm working for Microsoft Consulting, I'm not sure whether I'll get a better or worse perspective on Consulting, but I surely post more about it. 11/20/2005 9:21 PM | Eric Johnson