Q:

Full Time Salary Working On Contracts - Is this a common practice?

I am speaking with a recruiter who has proposed the following to me:

Get paid a yearly salary
Work on contract jobs
In between contracts you still get paid
Full benefits
Get a yearly bonus for each developer you bring on
Get a bonus for any contract leads you bring in

The pitch is that it's like working contract gigs, with a full time salary and the stability and dependency of full time work.
I had never heard of before, but I am also still relatively new to the field.  Is this a common practice?  Is there something I should be asking the recruiter to find out if this is a real deal, or if there's something awry? 

A:

The business model is entirely reasonable (the company I work for does it this way).  Particularly for higher end skill sets, it can easily be less expensive to pay someone their salary for a few weeks or even a few months between contracts than to replace people that get a different job if they sit on the bench unpaid for a while.  The company expects to get a certain amount of work in the door and they staff for that level of work.  They expect that people will spend some time on the bench and that those that spend a bit more time between contracts will end up subsidizing those that go directly from one contract to another.
One thing to be aware of is how the company handles overtime.  One thing that contractors generally like is that they get paid overtime if they work more than 40 hours.  If you are salaried, on the other hand, the company can bill the client for, say, 45 hours while you just get your regular salary.  It's possible that you end up working extra hours without extra compensation (alternately, you can look at it as deferring your compensation to a point in the future where you're between contracts).  Particularly when you're working on projects for multiple clients, you may find that you're being encouraged to work extra hours to keep everyone happy.
Obviously, whether this particular company is reputable is not something we can answer.  You'd need to talk with former employees, look at glassdoor, etc. just as you would with any other company.  It is possible that the company intends to lay people off rather than paying their salary while they are on the bench but that should be a rather self-destructuve thing to do since they'd quickly get a bad reputation.  

A:

Ive come across a few companies that offer these kinds of setups (the ones I've dealt with are mostly based out of Texas.)
It's not the common arrangement, but it does exist. Just don't count on that "time between contracts".
Just make sure you don't pay in. If you pay them, you're getting scammed (like, if suddenly there is this great contract that will start your employment, but you need to do this certification we offer first...)

A:

It is not really a common practise, but companies do tend to pay full-time salary to people who they feel are working well; so that they don't lose out on them.  (Sort of retention hack)
Even my company does it. So, I would answer your questions one by one:

Is there something I should be asking the recruiter to find out if
  this is a real deal, or if there's something awry?

Yes, you should ask the recruiter about that. I am pretty positive that it is for retention, but you might want to confirm that from the recruiter or your manager(if you have any).

I suppose my biggest concern is that if they can't find contract work
  for me, will they really continue to pay me or will I get laid off

NO They wouldn't continue to pay you if they can't find a contract for you for a long time. The full-time pay would only till they find contracts for you to work on with short intervals between them. Cause it wouldn't cost the company much, and they are retaining a nice candidate. So, a win-win for both.  But, for a long-time?  No. Even though you are a spectacular employee, they can't and wouldn't afford to give you full-time salary for nothing. 

Would it be appropriate to try to negotiate a severance contract if
  going that route?

Yes, you would definitely want to. As I mentioned above, in case of a long gap, you might be laid off. So, do negotiate a severance contract forehand.

