By Gloria Larkin,
What is the single biggest myth in government contracting? While there are countless myths, misconceptions and confabulations in the federal, state, and local government contracting marketplace, the single biggest myth affecting contractors is that one can pay someone else to pursue and win contracts on your business’ behalf.
1099 or Retainer Consultant
To clarify, this typical model is that an independent consultant (also known as a 1099 consultant or contractor) is hired by a company to represent it, make introductions, and set up meetings. This person almost always requires a hefty monthly retainer and often negotiates a percentage of the contract upon award. The 1099 consultant may have worked for an agency, military operation, or other government contractor in the past and says that will help him/her get meetings.
However, the 1099 consultant does not work for your company alone, instead they represent a number of companies that may have unrelated, complementary, or competitive services or products. In the private sector, this model can be successful,and this person is known as a manufacturers’ representative. By its name, it is clear that the model was initially developed for selling products only.
During the past decade, this 1099 model has migrated to the government contracting marketplace and has greatly expanded to include not just products, but all services and created many potential conflicts.
On the face, it seems to be a viable model, one in which companies may be able to limit their investment in paying full time employees and still receive the benefit of the experience and connections that the 1099 consultant says they will bring to the table. The idea of a commission implies that the 1099 consultant has “some skin in the game,” as well.
Conflict of Interest
What has changed during the last five years is that actual government decision-makers (i.e., contracting officers) are vocal in their perception of this 1099 model as an inherent conflict of interest. When they see the 1099 consultant represent one company one day and another company another day, or worse, try to represent multiple companies at one meeting, they have no faith or trust in either the company or the 1099 consultant.
Meeting with No Purpose
Another issue is that often the meetings that are set up have no relation to the actual contracts coming up for bid and are instead meetings that leverage the consultant’s personal connections. Examples are meetings with agency directors, high-ranking military connections, or politicians. These are feel-good meetings that rarely (if ever) result in awarded contracts, essentially because the Federal Acquisition Regulations (FAR) specify exactly who can make what decisions regarding purchasing and contract awards and rarely are they the same people these 1099 consultants know.
Supporting the government decision-maker is another red flag that is raised in FAR clause 52.203-5 (Covenant Against Contingent Fees), addressing the issue of commissions, finder’s fees or other fees upon award agreements.
FAR states, “… the contractor warrants that no person or agency has been employed or retained to solicit or obtain this contract upon an agreement or understanding for a contingent fee, except a bona fide employee or agency. For breach or violation of this warranty, the Government shall have the right to annul this contract without liability or, to deduct from the contract price or consideration, or otherwise recover, the full amount of the contingent fee.”
The FAR is subject to interpretation, but most actual government decision-makers will stay away from any situation where they feel litigation may result. This means they do not like to work with 1099 consultants.
Consultants Make Windfall, Not Contractors
This 1099 model is still prevalent because many such consultants benefit greatly from it even if the contractors do not, they work with multiple clients simultaneously and receive retainers from each; however, while they may make appointments and set up some meetings, the actual end result is rarely an awarded contract. This is a “churn and burn” model, where the business hires such a 1099 consultant for up to six months, and after no measurable results, ends the relationship.
Key Employee Responsibilities
Long-term success in the government market is impossible when the actual decision-makers (those with the power and authority to buy) view the 1099 consultant model as a conflict of interest or fear litigation.
Instead, what is critical for a business, whether it is small, mid-size or large, is to have its own employee(s) directly represent the firm instead of a non-employee 1099 consultant. This employee must know the market and understand the needs of the multiple layers of decision-makers, operate within FAR regulations, focus on the needs of the government prospect/client, and honestly and directly represent the company. Depending on the revenue goals of the company, this employee may be full- or part-time.
What has changed in the last decade that benefits companies greatly is that the above-mentioned employee need not be the six-figure sales or business development person. Instead, a well-trained entry-level sales/administrative staff member can work hand-in-hand with the owner, manager, or businessperson to perform the daily sales and administrative tasks to identify appropriate targets, attend the outreach events, and reach out and schedule the appropriate decision-maker meetings.
Attending said meetings would be the business owner, manager, or other technical and subject matter expert. This updated model leverages the expertise of existing staff and keeps overhead as low as possible, with a junior-level sales/administrative company employee who then grows into the experienced business development person receiving authorized commissions.
If one is considering the 1099 consultant model to grow government contracting business, an excellent question to ask the consultant is for recent references where the model has actually worked and resulted in awarded contracts. Call the references and ask what the total cost was for the 1099 consultant before any revenues were seen from the awarded contracts. Also ask if the relationship brough signed, profitable contracts to the company.
Also, ask a lawyer to review the FAR 52.203-5 clause to determine if it is worth the risk of litigation to hire a 1099 consultant. At that point, one has the basis to make an informed decision.
Gloria Larkin is president of TargetGov, in Linthicum. Visit www.targetgov.com or call 866-579-1346 for more information.