All About Using Consultants

By Carter McNamara, PhD

Reprinted from the Free Management Library located at http://www.mapnp.org/library

Situations When a Consultant is Useful
The following are typical situations when an organization might need a consultant.
1. The organization has no expertise in the area of need.
2. The time of need is considered short-term, e.g., less than a year, with a general start and stop time.
3. The organization's previous attempts to meet their own needs were not successful.
4. Organization members continue to disagree about how to meet the need and bring in a consultant to provide expertise or facilitation skills to come to consensus.
5. Leaders want an objective perspective, i.e., someone without strong biases about the organization's past and current issues.
6. A consultant can do work that no one else wants to do.
7. An outside organization demands that a consultant be brought in, e.g., a funder wants to ensure the organization is well suited to spend the funder's money.
8. The organization wants a consultant to lend credibility to a decision that's already been made (this situation would be looked at by many experienced consultants as highly unethical).

Where to Get Consultants
1. Contact professional associations, e.g., networks of organization development practitioners, facilitators, trainers, fundraisers, accountants, lawyers, computer users, etc.
2. Contact local large corporations; they often have community service programs and can provide a wide range of management and technical expertise.
3. Consult the local telephone company's Yellow Pages under the category "Consultant" and "Volunteering."
4. Call a local university or college and speak to someone in the college of Human Resources, Training and Development, or Business Administration.
5. Ask other organizations for ideas, particularly those that have similar services and head-count size, for contacts and references.
6. Nonprofits in Minnesota, see the "Directory of Services and Resources for Minnesota Nonprofits" from the Minnesota Council of Nonprofits (642-1904).
(Note that nonprofits can often get consultants to provide services on a pro bono basis. It's worth asking, especially if the consultant is in strong agreement with the community's need for the nonprofit's services.)

How You Can Make a Consultancy as Productive as Possible
(This section includes advice graciously provided by Barbara Davis, 317 South Hamline, St. Paul, Minnesota 55105)
1. Know what you want to do, and make sure your agency is prepared for it.
2. Try to reach internal agreement (board and staff) about the consultancy.
3. Don't become dependent on a consultant.
4. If possible, don't limit the consultant to recommending action; get the consultant involved in implementing recommendations.
5. Fix causes, not symptoms.

Getting and Hiring the Best Consultant
(This section includes advice graciously provided by Barbara Davis, 317 South Hamline, St. Paul, Minnesota 55105)
1. Give interested people the information they need to understand your needs by using a "request for proposal" (RFQ) or through direct conversation. (See Sample Request for Proposal.)
2. Get a written proposal from every interested party. (See Sample Proposal and Consultation Plan.)
3. Get a bid on the fee and reimbursable expenses.
4. Look at more than one proposal and examine them all carefully.
5. Interview the best prospects and check their references. (Consider their extent of expertise, listening skills, ability to adapt to the nature of your organization, ability to coach to ensure the organization can address the problem in the future, etc.)
6. Don't pick someone based only on price.
7. Write a good contract including (see Sample Agreement for Services):
· a list of "deliverables"
· a project completion date
· a payment schedule
· checkpoints at which you can evaluate programs
· a "bail-out" clause
· name of person in your agency who has the authority to agree to expenditures or approve work
· agreement on reimbursable expenses
· understanding on who will do the actual consulting
· (see the following section, Additional Advice, about considerations regarding IRS)

Additional Advice (orient consultant, evaluate project, avoid IRS penalties)
1. Help Consultants to Understand Your Organization:
There are a few basic techniques which can greatly help the consultant to understand your organization, particularly if they are brought in to work organization-wide and non-technical issues.

a) Help them understand your service(s), market(s) and stakeholder(s). For example, provide them copies of your strategic plans, budgets, policies, most recent annual report, organization charts, and advertising/promotions/sales literature. If there is a full range of these types of documents, your organization probably values careful documentation when making important decisions, and will likely prefer the same from the consulting project. If these documents appear to be very comprehensive and include a great deal of graphs, figures, and numbers, your organization probably highly values careful research, analysis, and conclusions, and will prefer the same in the consultation project.

b) Give them a sense for the overall nature of your organization, e.g., Are staff highly independent and work alone or do they prefer working in teams? Do you go for consensus on decisions even if it takes a long time to get or do you want timely closure on decisions? Are their strong traditions you require based on the diversity of your workforce? How does the staff feel about using consultants?

c) Give them a sense for the overall priorities of your organization, e.g., you might attempt to identify the general life stage of your nonprofit, e.g., start-up, developing/building, stabilizing, declining, etc. The stage will indicate your overall priorities, as well, e.g., getting any help you can get, grabbing market share and/or more clients and/or more revenue, developing a wide range of careful documentation, divesting resources while ensuring client needs are met, etc.

2. Include Frequent Evaluations, Including Project Follow-Up
The extent of the consultant's and clients' participation in evaluating the project is often an indicator of how much they really see themselves responsible for the overall, long-term quality of the consulting project.

a) The consulting project should be evaluated regularly, including briefly at the end of each meeting (about the process used in that meeting), at mid-point in the planning effort, and at its end. Specify in the contract that certain deliverables (e.g., tangible products, such as reports, presentations, project reviews, etc.) be delivered during the project. Ideally, the project is evaluated at three months and six months after completion of the project, particularly about whether the consultant's recommendations were implemented or not and whether the project's goals were reached or not.

b) Establish criteria early on from which the overall consulting effort can be evaluated at the mid-point and end of the project. Establish criteria by having you and the consultant specify what constitutes a successful consulting project and process. Get descriptions to be as detailed as possible to later know if the project was clearly a success or not.

c) Don't base evaluations mostly on feelings. Avoid this mistake by specifying, as much as possible, behaviors that will reflect a successful consulting project.

3. If IRS Disagrees Service Provider is "Independent Contractor," You May Pay Penalties and Taxes
The Issue
A major, recent issue found during IRS audits is nonprofits arranging to use what they term as "independent contractors," but what the IRS concludes are "employees." In these cases, the IRS demands the nonprofit pay back taxes and penalties. Consequently, a client must be very careful when entering into a relationship with a service provider to ensure the relationship will be deemed an "independent contractor" relationship by the IRS.

Background
As background, one aspect of the arrangement between a client and consultant is that the client typically does not have to pay benefits and workers compensation, match Social Security payments, and withhold income taxes. Consequently, the IRS is quite concerned that clients accurately classify their service providers as "employees" or "independent contractors." There appears to be no clear distinction between the two in the law, and each situation is settled on a case-by-case basis. However, there are certain guidelines a nonprofit can follow to minimize the likelihood that IRS will deem a service provider to be an employee.

Guidelines to Minimize Likelihood of IRS Penalties and Taxes
Whether a service provider is an employee or an independent contractor depends primarily on the extent of control the client organization has over the service provider: the less control in the relationship, the less likely the IRS will deem the service provider an employee. Consider the following actions when attempting to define the relationship with an independent contractor:
1. Carefully specify your relationship with the service provider in a written document.
2. The terms of the relationship (specific services, fees, project start and stop dates, etc.) should all be specified in the contract.
3. Attempt to arrange fees to be based on results or tasks, rather than on time.
4. In the document, specify the relationship to be with an independent contractor who is responsible to pay their own taxes.
5. The service provider should have all or considerable discretion in how services are carried out, including the process and scheduling.
6. The service provider should be responsible to obtain and pay for their own training to carry out the services.
7. The service provider should not be required to carry out his or her services at the offices of the client.
8. The service provider should have or be making obvious efforts to advertise and retain business with other clients.
9. The service provider should have their own place of business.
10. Note that the more a service provider appears as a manager (i.e., makes operating decisions, supervises people, is responsible for resource allocations, etc.), the more likely the service provider will be deemed an "employee" by the IRS.

Related Library Links
Business Contracts
Employee Law
Personnel Polices, Handbooks and Records
Staffing, which includes:
- - - Workforce planning (including succession planning)
- - - Specifying Jobs and Roles (analysis, description and competencies)
- - - Recruiting (sourcing and advertising)
- - - Outsourcing (having services performed by non-employees)
- - - Screening Applicants
- - - Selecting (Hiring) New Employees
- - - Retaining Employees
- - - Outplacing and Downsizing (laying off employees)
- - - Exit Interviews

On-Line Discussion Groups, Newsletters, etc.
There are a large number of on-line discussion groups, newsletters (e-zines), etc. in the overall areas of management, business and organization development. Participants, subscribers, etc., can get answers to their questions and learn a lot just by posing the questions to the groups, sharing insights about their experiences, etc. Join some groups and sign up for some newsletters!
References to major egroups, newsletters, etc.