My answer to How should I go after more contract work?
Answer by Ken Larson:
Consider forming your own company. The following is geared to government contracting but you may find the generic information useful.
Talented free lancers often wish to grow independently as individuals in the government contracting market and face difficulties in doing so. Many have service and product development skills of value to federal agencies, but few succeed without forming a company and beginning to view their objectives as an enterprise instead of a single person entity.
This article will examine the principal differences between free lancing and small business contracting from the perspective of the market realities that drive success in the venue.
We have previously discussed the organization entities that are involved in federal government contracting:
A particular type of individual – the “Free Lancer”, finds his or her way to the federal market via established companies and performs single person services while not on a company payroll as an employee, having no taxes, benefits or deductions taken from their pay and not covered by any form of insurance.
The company issues a purchase order to the individual at an hourly rate and submits a Form 1099 to the US government reporting what is paid for services. The free-lance contractor must self-insure during the contract period and pay taxes on the money earned at the end of the tax year. Little, if any intellectual property protection exists for the individual and the larger firm may require non-disclosure, exclusivity and noncompete agreements that may limit the future efforts of the free-lancer.
The term “Contractor” in government parlance refers to businesses, not individuals. To become a contractor to a government agency, you must therefore form you own business. Government agencies rarely engage individual contractors or free-lancers. If they want individuals to perform services they put them on the agency payroll. If they want to acquire specialized outside services they contract with companies.
A subcontractor is a company that takes on a flow-down of liability from a prime contractor to complete a major portion of a large scale job for the prime contractor's customer. The subcontractor is obligated to the prime contractually in an identical fashion as the prime is obligated to the government agency. The prime contractor issues a subcontract with a statement of work and flow down terms and conditions from the prime contract to the subcontractor. In many instances the government requires review and approval of major subcontractor selections and holds the prime contractor accountable contractually at the prime contract level for the subcontractor(s) efforts. Free-lancers and contractors, as described above, rarely become subcontractors.
The Necessity to Grow From a Free Lancer to a Contractor and/or a Subcontractor
Although talented professions may believe there is growth in the market for high performing individuals, the government contracting industry has very little room for them except in specialty roles and then usually only temporarily. Prime contractors also view Free Lancers as interim performers of a short term variety and usually offer them the option of joining the company or moving on. The government tends to view them as “Roosting” and not long term in reliability.
No past performance record is kept on individual Free Lancers by the government or prime contractors under FAR. Such records pertain only to incorporated entities. Companies bringing free lancers on board cannot claim their historical work as credible under government past performance guidelines until the individual has contributed to the company success as an employee, losing his free -lancer status in the process except for resume and organization chart purposes on future projects.
With federal agencies there is a strong movement to issue umbrella, multiple year, long- term contracts, many to multiple sources for qualification and then order services as required with bundled capabilities in teams of companies. Free Lancers do not qualify for such efforts without a company identity.
On cannot acquire a GSA schedule as a Free Lancer. Once must form a company and apply as a business entity that form of marketing vehicle.
Further, the government hesitates to become involved in contracting with individuals unless they are heavily insured and such insurance costs heavily for individuals and in many cases cannot be achieved at all.
Therefore, to progress economically and independently the Freelancer must incorporate, form an enterprise and begin to thinking in terms of a company entity in lieu of a single person image for the future. This can be achieved by adding personnel via incumbent work forces, using contingent hire agreements or engaging in product development with industry partners and government financing. The following articles at this site provide details:
For stability, growth, cash flow, industry reputation and partnering, past performance consideration and economics, consider the transition from a single individual free-lancer to a company. Brand your company and not yourself and think bigger than you are in terms of involving others in your operations to best position your supplies and services in the federal contracting market.