Our evolving workforce: How to make hiring a contractor as expensive as possible

Last week I looked at a report by Hnry into the lives of those of us that choose a flexible working life based on individual engagements as opposed to full-time employment. A vital takeout of that report is that having a balanced workforce of temporary and contract staff is key to success. Also, hiring contract resource is likely to be slightly cheaper than carrying full-time positions.

This week I want to look at why hiring contractors and consultants can cause costs to escalate very quickly and how to manage that. Rather like Cloud services, contractors, and consultants if not carefully procured and maintained, will end up costing you significantly more than you expected for the same or less output.

TLDR; Going direct to the contractor market, or via a reputable, local, well-established recruiter or niche consultancy company, with a clear brief, will enable you to get superior value for money.

Again, I am going to use the word contractor to cover all flexible resource, though, there is a subtle difference. It is expected that you provide workspace and equipment for a contractor. A consultant, on the other hand, is expected to utilise their workspace and have their equipment, barring, of course, remote access to yours.

Here is the first way to make sure that your contractors are far more expensive than you need.

Put exclusive panels in place that lock only a small number of firms into being able to supply your resource.

Nine times out of ten hiring managers know exactly the resource that they need to get the job done. If they do not, they probably have a relationship with a good recruitment agent who they know can find the people they need.

This often means that a contractor is then employed through several companies to get to be able to work for your organisation. It is not uncommon to see margins on hourly rates put on a contractor as they go through each connected panel, much inflating the cost entirely unnecessarily.

Instead, organisations, if they can, should employ contractors directly, or, via a reputable recruiter or small, independent, consulting firm. This will keep the hourly costs well down and give organisations the flexibility to hire who and what they need.

Panels have long been a bane of government agencies, dictating that all of government and common capabilities are only bought from a pre-selected group of suppliers. It is bad for agencies, bad for suppliers, and bad for the overall health of the market. Perversely, it increases the price of services.

The idea of this is so that agencies do not have to carry out an RFP to buy the service they want, in this case, contract resource, so it saves them money. But, when have you ever seen an RFP for contract services? The idea of going to market, with an RFP, for contractors, is absurd. And, you are still going to have to assess the contractor regardless of an RFP or not. It’s an entirely false economy.

Worse, if you are using panels, then, you lock out a large part of your potential market, potentially denying yourself access to the skilled resource you need, settling for a lesser one, because they are not on an approved panel.

Keeping your HR Department out of the process of hiring contractors, except for perhaps admin purposes, is a good idea as well. Certainly, do not let your HR group select CV’s, because they often do not know what you need.

It is common for HR to advertise for contract resource by title. For example, Project Manager or Business Analyst. However, we all know that you need skilled support and you must look past the title itself, to the person underneath and the role that you need to be filled. HR might be able to help you interview, but 90% of the time they are not equipped to find skilled resources for specific pieces of work.

You will potentially end up in a longer hiring process and accepting something lesser than you first wanted. Do the hiring yourself, every time.

Engaging in “Plausible Brand Deniability” will cost you an extraordinary amount of money. Let me explain how this works.

You have got a programme of work that you need to be resourced by contractors, but you worry that if the programme fails, you’ll suffer reputational damage. So, you go out, and you hire an expensive, international Consulting Firm, with a good brand, one of the Big Four. That way, if the programme does fail, you can use the excuse “but I bought the best consulting firm in the world!”

Plausible brand deniability…

Hiring an international consulting firm is only going to add one thing, cost, and a lot of it. The margins on their new grads are often far, far higher than the margins via an independent, niche, New Zealand consulting firm, and you just are not getting value for money when you’re paying a mark-up of 35% per hour in some cases.

Of course, those margins go up and up, and those firms convince you to deploy more and more senior resource. I have seen margins of 50% at Senior Consultant level. An excellent local consulting firm or recruiter will likely charge you around 10% margin.

But you tell me, are you getting skilled resource and IP that others can’t supply? Independence? No, you are not.

Most of the international consulting firms after winning a piece of work that requires contractors, immediately scramble in the local market to grab the resource they need, and then “body shop” it to you under their brand, with those high margins. You could have got that resource yourself, for a fraction of the cost.

And they are anything but independent. They partner all over the place and push partner products at every opportunity. Most contractors bring their IP and experience, and you should ensure at the interview stage they can do this and have a track record of success.

Those large consulting firms are becoming a relic. Their business model is now one hundred and seventy-five years old. Seriously. They started in 1845. They are doing everything they can to remain relevant, but, with that pedigree, innovation is not a word that springs to mind when you think of them.

One last thing for today, another common problem I see frequently is contractors being managed as if they were employees. Generally, that will not work, and you will not get the value out of the resource that you need. Another common problem that goes hand in hand is redeploying your contractor as you see fit to tasks different from what they were engaged to do.

Contractors are there for a set period to carry out specific tasks. They should be able to tell you in an interview how long they think it will take to undertake their mission, and they are generally very purpose focussed. Micromanaging a contractor never ends well, they need the latitude, under your guidance, to get on with the job.

In short, going direct to the contractor market, or via a reputable, local, well-established recruiter or niche consultancy company, with a clear brief, will enable you to get superior value for money.

In the next article, I am going to look at how we redefine the contractor role, to adapt to a new world. It needs to change and contractors need to be preferred for a far, far more flexible future.

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