Dirty consultant trick No. 4: Taking hostages
You hire an outside firm to write some custom software, develop a website, or manage your infrastructure. Months later you decide to go with a different provider and discover you don't actually own the source code, the domain name, or the passwords to your network -- your services firm does. Sometimes the only solution is to pay the ransom or threaten to sue.
"I rescued a client recently from another company that was hosting servers for them containing their financial and personnel files, Exchange database, intranet -- the works," says Jeff Pagano, owner of cloud IT services firm Iconic Consulting. "This rotten apple was not happy about being dumped and was holding the client's data hostage until his demands were met. We had to get the client's lawyers involved before the consultant agreed to release the data, and then it was in a proprietary format. We ended up eating the cost of getting this data restored and into our data center."
Howard Sherman, founder of tech support and Web design firm RoyalGeeks.com, says the "we own you" strategy is the single worst tactic pulled by consulting scoundrels. He cites the experience of one RoyalGeeks client that was left high and dry by a former Web developer who was "cruel to the point of pure evil."
"The client had to register a whole new domain name and seek new Web hosting services because access to his own website and domain name was rendered impossible," he says. "Even worse, the contract stated that the entire site design -- including the databases driving the back end -- remained the developer's intellectual property. The business didn't legally own its own website. We had to push the reset button and redo everything from scratch."
The fix: First, carefully screen the consulting firm to make sure you're not hiring a scoundrel, says Sherman. Then make sure that ownership of any intellectual property or domains created by the consultant is clearly spelled out in the contract and demand copies of all documentation, including log-ins and licensing information.
Dirty consultant trick No. 5: Kickbacks and double-dipping
Is your consultant strongly recommending a product or service from a third party? They may be getting a cut of any deal or incentives on the back end -- a nice second or third income on top of what you're already paying.
"Always make sure that you know how the consultant is getting paid so you understand their incentives," says Jeffrey Bolden, managing partner for Blue Lotus SIDC. "A consultant can be making money via billable hours as well as making commissions on products or bringing in other vendors. We avoid that conflict of interest by providing our clients with hardware or software at our cost, and bill just for the time of the engagement."
For example, a consulting firm may recommend an outsourced solution that will save your company money, but not nearly as much as if you contracted with the outsourcer directly, says Chris Smith, partner at strategy consulting firm ARRYVE. The consultants pocket the difference, and the client is never the wiser.
"The reality is that many big IT consulting firms are getting 100 to 300 percent margins on the outsourced resources they are providing," he says. "Sure, the client is getting cost savings, but this is probably one of the bigger areas where IT consulting firms are extracting money out of their clients."