T-bird Alumnus Sheds Light on His Niche in Contractor Management Services

By, David J. Roman

“Name one industry that doesn’t use Independent Contractors”, said T-bird alumnus Patrick LaVoie ’97 of Contractor Management Services (CMS) in an interactive workshop on campus Tuesday, November 18th. He smiled at our silence, continuing with “CMS is in the business of supporting great business relationships. Through substantial documentation, we provide the best evidence possible to describe and defend B2B relationships to even the most aggressive governing bodies.”

LaVoie was referring to the unique position his company occupies as a technology company serving a largely under-tapped independent contractor status defense market while purposefully avoiding the inclusion of staffing and legal advice services. The 15 participants in the room needed more background to understand what this meant.

First, we explored the issues related to using or being independent contractors in the United States. For federal tax purposes, Form 1099 is used by contracting companies for contracted independent service providers. Form W-2 is used for employees. Companies and their independent service providers may be subject to damaging lawsuits if governing bodies like the Department of Labor or the IRS accuse them of mis-categorizing the relationship. Patrick demonstrated this with descriptions of several actual cases, several of which concluded with the “1099 relationship” upheld as valid, while others were found lacking in proof to keep the independent contractor status. Cases that went poorly for the contracting companies often resulted in heavy fines and costly reactionary measures.

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“CMS makes sure that doesn’t happen for our clients”, Patrick explained. “We firmly believe it’s not if, but when the challenge occurs.” In these challenges, governmental agencies call into question whether independent contractors (1099) should really be classified as employees (W-2). Contractor Management Services controls these risks by combining its legal expertise and its secure web platform for contract initialization, negotiation, finalization, enforcement, and audit.

Several workshop participants asked how LaVoie’s business model differs from those of sites like Elance.com. The fundamental difference, he replied, was that all known examples of sites like Elance are “PEOs”: That is to say “People Employment Organizations”. CMS is not a staffing firm, and it is by this intentional boundary that they can avoid incredible complexity and cost.

Another strategic decision Contractor Management Services made from the start was to stay away from giving legal advice. Patrick described how he purposefully hired non-lawyer staff, helping maintain this focus. The clear benefit to CMS from this decision is a much smaller risk exposure, only dealing with the technology and contract establishment consulting side, while referring to key legal, insurance, and tax partners for those complementary services.

This disciplined and smart approach to CMS’s value proposition gives them incredible freedom from direct competition (as of now) and supports their policy of working only with clients with high standards of excellence. As a result, CMS revenues tripled this past year. Patrick anticipates fantastic growth, projecting that revenues will double in 2015 and again in 2016.

CMS has become an excellent partner with Thunderbird in recent months, supporting events like this workshop, the Business Plan Competition by TEN and TSG, and a special winterim project scheduled to run this January.

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