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AllAboutUsingConsultants

Written by Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.


Copyright19972006.

SectionsofThisTopicInclude:

SituationsWhenaConsultantisUseful:

Thefollowingaretypicalsituationswhenanorganizationmightneeda
consultant.
1.Theorganizationhasnoexpertiseintheareaofneed.
2.Thetimeofneedisconsideredshortterm,e.g.,lessthanayear,withageneral
startandstoptime.
3.Theorganization'spreviousattemptstomeettheirownneedswerenot
successful.
4.Organizationmemberscontinuetodisagreeabouthowtomeettheneedand
bringinaconsultanttoprovideexpertiseorfacilitationskillstocometo
consensus.
5.Leaderswantanobjectiveperspective,i.e.,someonewithoutstrongbiases
abouttheorganization'spastandcurrentissues.
6.Aconsultantcandoworkthatnooneelsewantstodo.
7.Anoutsideorganizationdemandsthataconsultantbebroughtin,e.g.,a
funderwantstoensuretheorganizationiswellsuitedtospendthefunder's
money.
8.Theorganizationwantsaconsultanttolendcredibilitytoadecisionthat's
alreadybeenmade(thissituationwouldbelookedatbymanyexperienced
consultantsashighlyunethical).

WheretoGetConsultants

1.Contactprofessionalassociations,e.g.,networksoforganizationdevelopment
practitioners,facilitators,trainers,fundraisers,accountants,lawyers,computer
users,etc.
2.Contactlocallargecorporations;theyoftenhavecommunityserviceprograms
andcanprovideawiderangeofmanagementandtechnicalexpertise.
3.Consultthelocaltelephonecompany'sYellowPagesunderthecategory
"Consultant"and"Volunteering."
4.CallalocaluniversityorcollegeandspeaktosomeoneinthecollegeofHuman
Resources,TrainingandDevelopment,orBusinessAdministration.
5.Askotherorganizationsforideas,particularlythosethathavesimilarservices
andheadcountsize,forcontactsandreferences.
6.NonprofitsinMinnesota,seethe"DirectoryofServicesandResourcesfor
MinnesotaNonprofits"fromtheMinnesotaCouncilofNonprofits(6421904).
(Notethatnonprofitscanoftengetconsultantstoprovideservicesonaprobono
basis.It'sworthasking,especiallyiftheconsultantisinstrongagreementwith
thecommunity'sneedforthenonprofit'sservices.)

HowYouCanMakeaConsultancyasProductiveasPossible

(ThissectionincludesadvicegraciouslyprovidedbyBarbaraDavis,317South
Hamline,St.Paul,Minnesota55105)
1.Knowwhatyouwanttodo,andmakesureyouragencyispreparedforit.
2.Trytoreachinternalagreement(boardandstaff)abouttheconsultancy.
3.Don'tbecomedependentonaconsultant.
4.Ifpossible,don'tlimittheconsultanttorecommendingaction;getthe
consultantinvolvedinimplementingrecommendations.
5.Fixcauses,notsymptoms.

GettingandHiringtheBestConsultant

(ThissectionincludesadvicegraciouslyprovidedbyBarbaraDavis,317South
Hamline,St.Paul,Minnesota55105)
1.Giveinterestedpeopletheinformationtheyneedtounderstandyourneedsby
usinga"requestforproposal"(RFQ)orthroughdirectconversation.(SeeSample
RequestforProposal.)
2.Getawrittenproposalfromeveryinterestedparty.
3.Getabidonthefeeandreimbursableexpenses.
4.Lookatmorethanoneproposalandexaminethemallcarefully.
5.Interviewthebestprospectsandchecktheirreferences.(Considertheirextent
ofexpertise,listeningskills,abilitytoadapttothenatureofyourorganization,
abilitytocoachtoensuretheorganizationcanaddresstheprobleminthefuture,
etc.)
6.Don'tpicksomeonebasedonlyonprice.
7.Writeagoodcontractincluding(seeSampleAgreementforServices):
alistof"deliverables"
aprojectcompletiondate
apaymentschedule
checkpointsatwhichyoucanevaluateprograms
a"bailout"clause
nameofpersoninyouragencywhohastheauthoritytoagreetoexpendituresor
approvework
agreementonreimbursableexpenses
understandingonwhowilldotheactualconsulting
(seethefollowingsection,AdditionalAdvice,aboutconsiderationsregarding
IRS)

AdditionalAdvice
(orientconsultant,evaluateproject,avoidIRSpenalties)

1.HelpConsultantstoUnderstandYourOrganization:

Thereareafewbasictechniqueswhichcangreatlyhelptheconsultantto
understandyourorganization,particularlyiftheyarebroughtintowork
organizationwideandnontechnicalissues.

a)Helpthemunderstandyourservice(s),market(s)andstakeholder(s).For
example,providethemcopiesofyourstrategicplans,budgets,policies,most
recentannualreport,organizationcharts,andadvertising/promotions/sales
literature.Ifthereisafullrangeofthesetypesofdocuments,yourorganization
probablyvaluescarefuldocumentationwhenmakingimportantdecisions,and
willlikelypreferthesamefromtheconsultingproject.Ifthesedocumentsappear
tobeverycomprehensiveandincludeagreatdealofgraphs,figures,and
numbers,yourorganizationprobablyhighlyvaluescarefulresearch,analysis,
andconclusions,andwillpreferthesameintheconsultationproject.

b)Givethemasensefortheoverallnatureofyourorganization,e.g.,Arestaff
highlyindependentandworkaloneordotheypreferworkinginteams?Doyou
goforconsensusondecisionsevenifittakesalongtimetogetordoyouwant
timelyclosureondecisions?Aretheirstrongtraditionsyourequirebasedonthe
diversityofyourworkforce?Howdoesthestafffeelaboutusingconsultants?

c)Givethemasensefortheoverallprioritiesofyourorganization,e.g.,youmight
attempttoidentifythegenerallifestageofyournonprofit,e.g.,startup,
developing/building,stabilizing,declining,etc.Thestagewillindicateyour
overallpriorities,aswell,e.g.,gettinganyhelpyoucanget,grabbingmarket
shareand/ormoreclientsand/ormorerevenue,developingawiderangeof
carefuldocumentation,divestingresourceswhileensuringclientneedsaremet,
etc.

2.IncludeFrequentEvaluations,IncludingProjectFollowUp

Theextentoftheconsultant'sandclients'participationinevaluatingtheproject
isoftenanindicatorofhowmuchtheyreallyseethemselvesresponsibleforthe
overall,longtermqualityoftheconsultingproject.

a)Theconsultingprojectshouldbeevaluatedregularly,includingbrieflyatthe
endofeachmeeting(abouttheprocessusedinthatmeeting),atmidpointinthe
planningeffort,andatitsend.Specifyinthecontractthatcertaindeliverables
(e.g.,tangibleproducts,suchasreports,presentations,projectreviews,etc.)be
deliveredduringtheproject.Ideally,theprojectisevaluatedatthreemonthsand
sixmonthsaftercompletionoftheproject,particularlyaboutwhetherthe
consultant'srecommendationswereimplementedornotandwhetherthe
project'sgoalswerereachedornot.

b)Establishcriteriaearlyonfromwhichtheoverallconsultingeffortcanbe
evaluatedatthemidpointandendoftheproject.Establishcriteriabyhavingyou
andtheconsultantspecifywhatconstitutesasuccessfulconsultingprojectand
process.Getdescriptionstobeasdetailedaspossibletolaterknowiftheproject
wasclearlyasuccessornot.
c)Don'tbaseevaluationsmostlyonfeelings.Avoidthismistakebyspecifying,as
muchaspossible,behaviorsthatwillreflectasuccessfulconsultingproject.

3.IfIRSDisagreesServiceProvideris"IndependentContractor,"You
MayPayPenaltiesandTaxes

TheIssue
Amajor,recentissuefoundduringIRSauditsisnonprofitsarrangingtouse
whattheytermas"independentcontractors,"butwhattheIRSconcludesare
"employees."Inthesecases,theIRSdemandsthenonprofitpaybacktaxesand
penalties.Consequently,aclientmustbeverycarefulwhenenteringintoa
relationshipwithaserviceprovidertoensuretherelationshipwillbedeemedan
"independentcontractor"relationshipbytheIRS.

Background
Asbackground,oneaspectofthearrangementbetweenaclientandconsultantis
thattheclienttypicallydoesnothavetopaybenefitsandworkerscompensation,
matchSocialSecuritypayments,andwithholdincometaxes.Consequently,the
IRSisquiteconcernedthatclientsaccuratelyclassifytheirserviceprovidersas
"employees"or"independentcontractors."Thereappearstobenoclear
distinctionbetweenthetwointhelaw,andeachsituationissettledonacaseby
casebasis.However,therearecertainguidelinesanonprofitcanfollowto
minimizethelikelihoodthatIRSwilldeemaserviceprovidertobeanemployee.

GuidelinestoMinimizeLikelihoodofIRSPenaltiesandTaxes
Whetheraserviceproviderisanemployeeoranindependentcontractordepends
primarilyontheextentofcontroltheclientorganizationhasovertheservice
provider:thelesscontrolintherelationship,thelesslikelytheIRSwilldeemthe
serviceprovideranemployee.Considerthefollowingactionswhenattemptingto
definetherelationshipwithanindependentcontractor:
1.Carefullyspecifyyourrelationshipwiththeserviceproviderinawritten
document.
2.Thetermsoftherelationship(specificservices,fees,projectstartandstop
dates,etc.)shouldallbespecifiedinthecontract.
3.Attempttoarrangefeestobebasedonresultsortasks,ratherthanontime.
4.Inthedocument,specifytherelationshiptobewithanindependentcontractor
whoisresponsibletopaytheirowntaxes.
5.Theserviceprovidershouldhaveallorconsiderablediscretioninhowservices
arecarriedout,includingtheprocessandscheduling.
6.Theserviceprovidershouldberesponsibletoobtainandpayfortheirown
trainingtocarryouttheservices.
7.Theserviceprovidershouldnotberequiredtocarryouthisorherservicesat
theofficesoftheclient.
8.Theserviceprovidershouldhaveorbemakingobviouseffortstoadvertiseand
retainbusinesswithotherclients.
9.Theserviceprovidershouldhavetheirownplaceofbusiness.
10.Notethatthemoreaserviceproviderappearsasamanager(i.e.,makes
operatingdecisions,supervisespeople,isresponsibleforresourceallocations,
etc.),themorelikelytheserviceproviderwillbedeemedan"employee"bythe
IRS.