Why in contingent work partnerships cannot be partnerships at bottom prices.

In order to be successful, organisations need to have the right talent at the right time. To achieve that, close collaborations are started with external parties like staffing agencies, Managed Service Providers and other HR service providers. We often speak about “partnerships”. But when can you call it a partnership? And why can’t price be the critical factor in choosing the most suitable partner?

Definition partnership

A good definition of a partner is the following: “An external party, chosen for strategic reasons, with which one works together to advance a mutual goal that provides a lasting benefit to both parties”. In good partnership you work in trust and mutual respect on achieving the determined goals. If you want to strive for a lasting benefit, then the collaboration has to look for continuous improvement.

Partnership in supplying contingent workers

If we translate the definition above to a partnership for supplying contingent workers, reality is often different. What should a good partnership on contingent work look like?

The client is offered well selected staff. The supplier is able to do so due to a solid client briefing on requested personnel.Supplying well selected personnel comprises of two factors. The first is supplying personnel, which is the main reason to engage in a partnership. The second is to select personnel well. And that is more than checking availability. There are always more aspects to the selection of a candidate. An example: when someone needs to trained specifically for a position it is important this person stays long enough to make it worth the investment. So he position has to be interesting enough for the employee to stay on for a longer period of time.

The customer can rely on a sound and compliant administration, including correct remuneration and invoicing. To this end, the client provides the supplier with correct and timely information about the deployment of employees. The client needs to trust its partner to fulfil its administrative obligations to the letter. Employees have to be payed correctly, social security and tax payments need to be done and employee identity and work rights should be checked. All shortcomings in this area can reflect badly on the client and harm them.

At the same time the client will provide correct and timely information (timesheets, corrections etc.). Because that information is crucial to ensure that further processing runs smoothly. Lateness and incorrectness cause problems in employee payments (killing!) and makes running a proper administration impossible for the supplier.

Both the client and the supplier aim for transparency in rates, wages and margin. They both have a clear agreement on this with each other.Voluntary work excluded, appropriate wages are an important element in work relations. The same applies to the relation between supplier and client. Unclarity about rates often leads to friction.

The rewarding system is regularly embedded in a collective labour agreement, but often it isn’t. Especially in contingent work relations the way to determine rewarding varies. For instance a contractor can work directly for a client (all-in hourly rate), via a broker (all-in hour rate and an hour fee for the broker)and temporary workers via a staffing agency (hourly rate or wages plus agency margin).

The last case in particular is prone to discussion and irritation, especially in long term collaborations. Why? The rates are accrued from the gross salary according to the pay scales. Then costs for absence, employee benefits, social security and tax payments are then added and ultimately a margin for the agency’s expenses and profit. At first things can be explained. But all the changes in rates that arise during the collaboration cause a problem. Social security rates change at least once a year. Collective labour agreements also change regularly. These changes in particular are the cause of friction. An agreement often claims an “indexation of rates” without detailing the starting point of the cost structure. It is hard to determine whether (and to what extent) changes are part of the indexing clause or are actually margin changes.

The second element that can cause friction is the question if, and how much, changes in the labour market should lead to extra (or less) margin for the agency, in relation to the effort to find and keep suitable workers for the client.

Many agreements are specifically designed to deliver “classical staffing”, but the world is changing rapidly. The number of temporary workers in staffing will hugely decrease over the next few years in favour of new contingent work varieties like freelancers/contractors and the GIG services. A number of traditional agencies are gravitating this way too, but it doesn’t show in long term agreements yet.

The client and supplier share their knowledge and skills (with respect for their ‘intellectual property’). Everyone understands that the client as well as the supplier want protect their ‘intellectual property’; their trade secret. But it can be an advantage to both parties to share a bit more than one would normally. That requires trust, but can lead to an enormous increase in efficiency and innovation. By looking for suitable solutions together and by exchanging more in-depth information, smart new solutions can be created, which would not have been possible otherwise.

The client and supplier have a continuous urge to improve the service. A flourishing partnership requires a continuous commitment on improving the collaboration between both parties. Improvement on the points described above, and more. Building a good end-to-end employee experience together – also for temporary workers – is becoming more and more important to recruit and retain the right people for an organisation. This applies to the customer as well as the supplier and requires a continuous investment in time and resources from both parties.

What’s the price of a partnership like that?

And so we return to the statement in the title: Why in contingent work partnerships cannot be partnerships at bottom prices.

All parties need sufficient room to invest in continuous improvement to be able to guarantee an optimal and efficient deployment of contingent work, short as well as long term. The benefits of working together in a real partnership are much greater for the customer than squeezing the last dime out of a margin. In the long term, continuous efficiency improvements combined with better and faster fulfillment of the demand for contingent workers are much more valuable.

So, can a supplier raise its rates unlimited when entering a partnership? No, of course it’s all about finding a balance. Market conformity is the starting point. From there it’s up to the supplier to make sure the client experiences enough added value to justify a good price.

About the author

Marc Viëtor is Managing Partner at TalentIn. With more than 25 years in the industry and as former senior executive in Randstad and Randstad Sourceright he has a thorough experience in HR solutions. His broad experience covers  sales, solution design, concept and process development, finance and HR in markets around the globe. Marc has worked with many companies on a variety of services and solutions.

TalentIn can help you develop or update your contingent labour recruitment programme by assessing your current plans or programme with our Talent Management Maturity Model that deliver results and stays ahead of the paradigm shift.  We are happy to discuss this topic more in depth with you. Please visit us at www.talentin.eu , mail us at info@talentin.eu or call us on +31 10 307 54 22.

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