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March 2004

 
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Contract Engineering: A Viable Career Alternative

by Paul Kostek

In today’s job market, employment opportunities vary tremendously. While most engineers still seek permanent, full-time positions, many have turned to equally viable alternatives: contract engineering and consulting.

What’s the Difference?

Contractors typically work through a contract firm that assigns them to companies for particular projects. The contract firms pay the contractors an hourly rate and then collect fees (generally 40 to 50 percent more than the contractor’s hourly rate) from the third party company. Perhaps one of the most attractive aspects of being a contract engineer is that the contract firm finds assignments for you. Sometimes, contract work opens doors that might otherwise not be available to you. In fact, contract positions sometimes lead to permanent full-time positions.

As a consultant, however, no firm does your marketing or administrative work for you. You are on your own. You have to find assignments, work the assignments, bill and collect your fees and, of course, continually market your services for future assignments. Wearing all of these hats simultaneously can create time management challenges, among other things. To survive, you have to be sure you address these areas consistently. You can’t wait until you’re nearing the end of one assignment to begin looking for a new one, or to negotiate further work with your current client.

As a consultant, you should explore incorporating or establishing a sole proprietorship. Though not required, such business structures are worth considering. One excellent resource for setting up your business is the IRS Small Business Resource, www.irs.gov/businesses/small/index.html.

Negotiating Power?

As a contractor, the company looking to fill assignment positions will drive your hourly rate. You can set a target rate for yourself, but you will have to negotiate your final rate with the contract company representing you. Some contract firms set specific rates, forcing you to “take it or leave it.” Often, the supply of engineers and the demand to fill positions will play roles in the rates offered.

Tax Incentives for Contractors

One advantage you have as a contractor, rather than as a consultant, will be per diem. Contract firms’ standard practice for the past few years has been to split contractors' hourly rates into salary and per diem. For example, they may split a $55/hour rate as $33.00 in salary and $22.00 in per diem. This practice can amount to a considerable savings for contractors, since per diem pay is non-taxable income.

Retirement, Medical Coverage and Training

Some contract firms offer access to or provide benefits such as 401(k) plans and medical coverage. Most often, though, you'll have to pay for your medical and life insurance. Some firms also provide training for contractors, as do some employers. However, most companies look for engineers with current skills, so be sure to plan on developing skills on your own, if necessary. Monitor the industry to be sure your skills are both current and in demand.

Do Your Homework and Be Prepared

Contracts can run from as little as 90 days to three years or longer. In general, contract agreements are not firm, and contractors or the company using them can end the agreement or extend it at any time. I’ve had six-month contracts turn into three-year assignments and 12-month assignments end after just four months. Be prepared and be flexible.

Before accepting an assignment, research the company you’ll be working for and check on the project you’ll be working on. Learn the company’s history with using contractors and be sure you know up front how viable the project is. Also, part of being a successful contract engineer is to develop contacts within companies and with contract firms. A good network will keep you employed. Finally, many contractors experience slow periods. Prepare yourself for the down times by having sufficient savings to tide you over.

Contract engineering can become a career in and of itself, or can be a stepping stone to move into full-time consulting or a full-time position. Contracting offers flexibility that will enable you to work for different companies perhaps even in different industries and to develop a wide range of skills. And in times when full-time employment is not available or is not what you’re looking for contract engineering can be a great career alternative.

For More Information

One of the best resources for anyone interested in contract engineering is Contract Engineer Weekly (www.ceweekly.com), which lists contract firms and open positions. You can also consult the IEEE-USA Consultants Network, a resource contract firms use frequently.

 

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Paul Kostek is a principal at Air Direct Solutions, a systems engineering services provider. He has served as chair of the American Association of Engineering Societies (AAES), as IEEE-USA President and as Region 6 PACE Coordinator.

 

 

Copyright 2004, The Institute of Electrical and Electronics Engineers, Inc.