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Contracting with Individuals
By Fred on Friday, January 03, 2003 - 04:24 pm:

1. Can the Federal Government contract directly with an individual?

2. If so, what part(s) of the FAR or other guidance should I refer to and be concerned with?


By Anonymous on Friday, January 03, 2003 - 05:23 pm:

Fred,

This is what is called a "personal services" contract.


By 2ndAnon on Friday, January 03, 2003 - 11:05 pm:

No, I don't think you are correct Anonymous. "Personal services" does not deal with the contracted entity so much as the deliverable. An individual contracted to deliver a specified product is not under a personal services contract. A company contracted to deliver a workforce to do "whatever a government supervisor wants" is dealing in personal services contracting. The key is the services being contracted for and who is supervising the work rather than "an individual."


By Eric Ottinger on Saturday, January 04, 2003 - 09:40 am:

Fred,

Here is a good answer out of the Ask A Professor website:

"Definition of Personal Services
Posted to Contract Law on 8/28/01 by Kenji Farinelli
The Scenario"


The Question
"I'm looking for a clear definition, with examples, of personal services - when it is not allowed and when it is (if ever)."

"A “personal services contract” (PSC) is a contract that, by its express terms or as administered, makes the contractor personnel appear, in effect, Government employees. The FAR defines and explains the concept at Part 37.104. An example would a DoD medical treatment facility (MTF) that hires a physician, by contract, to provide medical services at the MTF. This physician will work at the facility, be personally supervised by the Department Director of the MTF, and will be indistinquishable from the other federal civilian service doctors working at the MTF. The provisions explaining PSC restrictions are found at above-cited FAR section and for DoD contracts at DFARS 237.104. The FAR & DFARS sections cited above can be accessed at http://www.arnet.gov/far/> and http://www.acq.osd.mil/dp/dars/dfars.html/"
Stephen Copetas,
Law Instructor,
DAU Norfolk Campus

Regards,

Eric


By Vern Edwards on Saturday, January 04, 2003 - 05:54 pm:

Fred:

There is no rule against the government contracting with an individual. See: Enrique (Hank) Hernandez, ASBCA No. 53,011, Dec. 12, 2000, 01-1 BCA ¶ 31,200, in which the board said: "There is no proscription against the Government entering into a contract with an individual in the capacity of individual."

See, too, FAR § 4.102(a), which prescribes the rules for obtaining contractor signatures on contracts, and which says:

"A contract with an individual shall be signed by that individual. A contract with an individual doing business as a firm shall be signed by that individual, and the signature shall be followed by the individual's typed, stamped, or printed name and the words, 'an individual doing business as _____________________' [insert name of firm]."

Furthermore, a contract with an individual is not necessarily a personal services contract within the meaning of FAR § 37.104. If the individual, as contractor, is to perform in accordance with a contract statement of work and is not subject to employer-employee type supervision by government personnel, then the contract is a nonpersonal services contract.

I, as an individual and as an individual doing business as a firm, have entered into many, many nonpersonal services contracts with the government, and so have many other persons.


By Eric Ottinger on Saturday, January 04, 2003 - 10:27 pm:

Vern,

Thanks. Now I see what 2ndAnon was getting at.

Eric


By Eric Ottinger on Saturday, January 04, 2003 - 11:15 pm:

All,

On second (actually third) thought, the legal definition of "personal services" is a little different from the definition of “improper personal services” that we have had in mind. A contract with Vern probably is a “personal services” contract (albeit not FAR 37.104) because I can’t imagine that any substitute would be acceptable.

"in contract law, the talents of a person which are unusual, special or unique and cannot be performed exactly the same by another. These can include the talents of an artist, an actor, a writer or professional services. The value of personal services is greater than general labor, so woodcarving is personal service and carpentry is not. Therefore, if an actor contracts to perform in a movie and fails to show, he/she will be liable for damages based on the difficulty to replace him. An artist who contracts to paint a picture cannot send a subsitute since he/she was retained for his/her unique ability and product."

Courtesy of law.com

If Fred is merely contemplating a contract with an individual, Vern provided the answer than he needs. If he is contemplating something that fits FAR 37.104, he should get help from agency counsel.

Eric


By Vern Edwards on Sunday, January 05, 2003 - 04:55 pm:

Eric:

We should probably explain to Fred that the term "personal service contract" has two, generally unrelated legal meanings.

The first meaning is the one in FAR § 2.101, which defines personal services contract as follows:

"'Personal services contract' means a contract that, by its express terms or as administered, makes the contractor personnel appear to be, in effect, Government employees (see 37.104)."

The second meaning is a common law usage, unrelated to and long pre-dating FAR, referring to contracts in which the buyer hires a particular person or firm because of unique qualifications. One of the legally significant facts about this kind of personal service contract is that the contractor cannot delegate performance. See Contracts, 3d ed., by E. Allan Farnsworth (New York: Aspen Law & Business, 1999), pp. 744-745:

"One of the most significant of these circumstances [in which a court will prohibit delegation of performance] is the extent to which the performance is 'personal,' in the sense that the recipient must rely on qualities such as the character, reputation, taste, skill, or discretion of the party that is to render it. For example, an artist who contracts to paint a portrait or a singer who contracts to sing for an opera cannot delegate performance, even though the delegate's performance might be superior to that of the delegating party."

The classic common law personal service case is Lumley v. Wagner, 42 Eng. Rep. 687, which dealt with a contract awarded in 1851 to Johanna Wagner, an opera singer, who was to perform at Lumley's Her Majesty's Theatre in London, but who then refused to do so. See: Damning with Fulsome Praise: Assessing the Uniqueness of an Artist or Performer as a Condition to Enjoin Performance of Personal Service Contracts in Entertainment Law, by Sharon F. Carton, in Villanova Sports and Entertainment Law Journal, 5 Vill. Sports & Ent. L.J. 197, 1998. (Anybody remember the Kim Bassinger case of a few years ago?)

A government contract with an individual is not necessarily a personal service contract in either sense of the term. For example, the government can contract with Joe Doakes, working as an individual, to perform janitorial services at a field office based on a performance work statement. Joe provides his own tools and supplies, works at night when no government employees are around, performs in accordance with the work statement, and is not subject to employer-employee type supervision. The contract with Joe is with an individual, but it is not a personal service contract in either sense of the term.

It appears that some contracts can be for personal services in both senses of the term, e.g., some contracts with physicians.

Vern


By Fred on Monday, January 06, 2003 - 08:07 pm:

I intentionally asked my original questions in a broad way in order to get the broadest answers and perspectives possible. There are oftentimes no right or wrong answers in this business, but there sure are a lot of positions, opinions, and interpretations--that's what I really wanted to get--various opinions on (what seemed to be) a simple topic, and I got it. All the answers, even some that prematurely jumped to conclusions, were helpful in that they brought up perspectives I might not have considered before. Vern, you did provide the answer I was looking for with your Jan 4, 5:54 p.m. reply. Thanks to everyone that responded!


By Kennedy How on Wednesday, January 08, 2003 - 12:17 pm:

Well, I'm back after a long vacation and some TDY thrown in....

The only time I ever contracted with an individual was for Transcription Services to get transcripts in relation to an ASBCA Case. Our JAG sent us a note saying please contract with such and such a person for X number of copies of the transcript for ASBCA # xxxxxx. I can't remember if I had to make any determinations or not (this was at least 10yrs ago), but I remember having to research it to ensure it wasn't a personal service.

Kennedy


By Neil Ray on Thursday, January 09, 2003 - 12:48 pm:

Excellent discussion! I have been interested in this subject for a long time, and I really appreciate the insights of the usual crew of experts, and especially the longer, detailed responses.
I have a slightly different concern about contracts with individuals. Are they really "independent contractors" or not? If injuries and law suits or other problems develop from the work, will the individual be treated by the law as an "agent"/employee for whose acts the "principal"/employer is responsible, or as a separate legal entity which bears its own liabilities?

The FAR seems to ignore this subject, though it is implicit in its concern over "personal services" contracts. But the IRS is deeply involved with this question because of concerns over payment (or nonpayment) of various payroll taxes for employees. Consider the case a few years back of the Microsoft workers who won assorted employment benefits (including pension rights) after being labeled as "independent contractors" for many years by Microsoft.

I like to know if an individual contractor has: any other clients; a business license; a separate business taxpayer identification number; an office with equipment, supplies, etc.; any other staff? The IRS has a much longer list with questions such as: Who sets the work hours? Is the individual paid by the hour, week, month, or by the job? Can the person quit whenever they want without being liable to the company for unfinished work?

These issues get even trickier when the individual is a rehired Federal annuitant -- often being rehired as a "contractor/consultant" to come back and do the same work as they were doing before as an employee. Pension reductions, tax issues, and other legal problems arise that are best handled by Personnel offices rather than contracting staffs, but it always seems to take a fight to make this happen. These annuitants are often so experienced that they need little or no actual supervision. So the primary FAR test for "personal services" may not screen out all of these people.

What do other contracting specialists do in these situations?


By formerfed on Thursday, January 09, 2003 - 01:45 pm:

Neil,

You bring up several good points. As a CO I always tried my hardest to use the rehired Federal annuitant route when the agency wanted to bring back a former employee.

Let's face it - a recently retired employee may be in the best position for a variety of reasons to do some job. But getting this person through the procurement office usually is not the best way. It puts the agency in general and the Contracting Officer specifically in jeopardy. I say this because there are two ways to get the person on board - either sole source or competitively, and whichever way is subject to close scrutiny and clearly smacks of favoritism to other sources that do the same type of work.

The biggest problem usually is convincing the individual the agency wants to come back as a reemployed annuitant for financial reasons. The amount of money they receive is greatly restricted and essentially capped to in the neighborhood of what they made before retiring. Naturally that person wants to come back as a contractor at $50, $75, $100 or more per hour and keep their retirement annuity amount in tact.

I would advise any CO to highlight the pitfalls to their agency management and insist on using the personnel avenue except in the rarest and under extraordinary circumstances


By Anon2U on Thursday, January 09, 2003 - 05:07 pm:

Our former employees provide thier resumes to three professional services companies who let us know they want to be employed. We compete the three companies via GSA FSS and award to the best value. The individual is then hired by that firm if they can come to an agreement on compensation. There seems to be enough slush in the proposed rates that most of these people are plenty happy with their pay even if they can't tell us what it is. If they cannot be hired, we cancel the requirement. Most personnel are done this way.

Another way (much less appealing to me) is to have the person incorporate themselves, then provide a SOW that matches their skills, and finally award sole source as unduly qualified. It matters not to us that the only employee of the corporation is the individual. Our legal and IG have never took issue.


By Neil Ray on Friday, January 10, 2003 - 09:18 am:

Thanks, Anon2U, for these suggestions. Either one sounds like a huge improvement over the way that we handle such cases.


By John Ford on Saturday, January 11, 2003 - 03:21 pm:

Anon2, how do your former employees know that you are willing to hire them? It seems to me that there must be some upfront bargaining between the exes and you before they go off and start marketing themselves to front schedule holders.


By Anon2U on Sunday, January 12, 2003 - 08:14 pm:

John,

Of coarse there is. The employee gets the approval of their mangement before any of this starts. As long as we have available funds to pay for contract help and you are well liked, you can get back in. There are several professional services firms who will play this game and the employees all know them. I only hope it is still going on when it becomes my turn.

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