Staffing Managed Service Providers, (“MSP”) provide the outsourcing of recruiting activities for a fee. MSP’s maintain the relationships with dozens of staffing vendors that perform the actual sourcing in such a program for a customer. By utilizing a pool of staffing vendors in an open and competitive marketplace, MSP’s can then get the most qualified candidates at the lowest costs for their clients by having the vendors compete with each other in what is known as a “Vendor Neutral” staffing program.
That’s the sales pitch, anyway! The reality is actually quite different.
We have been IT consultants for over 20 years and currently manage an IT Consulting Company, Advans, that started providing staffing services at the request of our consulting clients. Staffing, however, is not Advans’ main line of business. Advans is neither an MSP nor a provider of Vendor Management Systems, (“VMS”) which is the software used to manage vendors and the recruiting processes. In the last few years, Advans has been a staffing provider in many MSP programs. Our experience with MSP’s points to a murky world, where MSP’s take advantage of their customers.
First, MSP’s are either large staffing agencies in their own right, or have subsidiaries or affiliates which are staffing agencies. Often, MSP’s do not disclose these affiliations to their customers. This is because the premise of being an MSP and charging fees for managing recruiting is based on maintaining a competitive marketplace in any vendor neutral program. However, customers do allow a staffing agency to be an MSP and they are allowed to participate as one of the member staffing agencies in the program. But the expectation is to build a competitive staffing program. That’s why they were hired in the first place for a small fee which is a small portion of the payment transactions paid by the participating staffing agencies. The customer thinks they are getting a good deal by outsourcing recruiting for less than they could do it themselves, (or so they think).
Instead, what the MSP’s are really after is to fill requirements directly, if the program allows it, or with an affiliate or subsidiary. This is because that’s where the real money is. Pocketing the margin between what the candidates are paid versus what the customer pays is what the MSP was really after all along. That spread is easily 10 times as much as the fee for just managing the program. On top of that, given their position, the MSP’s have the capability to manage the margin, if they or one of their affiliates, fill the requirements.
The other vendors, unaffiliated to the MSP, in the program are often kept around merely to provide the appearance of a competitive marketplace. They either don’t see the requirements or the MSP pushes their own candidates. Even worse, in some cases, MSP’s present some of the well qualified candidates from the other vendors in the program as their own to the customer. The excuse usually given to those other vendors is that the MSP has already submitted those candidates or they already have those candidates in “their database”.
Eventually, the other vendors in the program figure out that their candidates are being “poached” by the MSP and they stop submitting candidates. The MSP then reports to the customer that the other vendor in the program should be dropped from the program for “under performance.”
MSP’s and/or their affiliates also subcontract recruiting to vendors outside of the program, unknown to the customer. This is done to obtain a bigger reach for candidates and submit those candidates as candidates of the MSP or affiliate to the customer.
To our knowledge, in those rare instances when one of the vendors in the program has actually placed a candidate, which happens when the MSP can’t fill the requirement themselves, that vendor has always been subsequently terminated from the program soon afterwards. Again, the MSP’s claim that the successful vendor must be dropped due to “under performance!” This has actually happened to Advans. Advans’ crime? That Advans placed a well-qualified candidate at a competitive price. A better price, in fact, than the MSP normally presents to their customer.
So why is this an issue? Is this just sour grapes from a staffing agency that gets little business from big, bad MSPs?
Actually no, it is the MSP’s customer that is injured.
By shutting out competitive rates from other vendors in the program, the MSP makes their customers pay more than the market rate for the candidates they hire. Plus, customers don’t get the best available talent.
For this “service”, the MSPs double-dip and keep the management fee and the bill rate/pay rate spread for themselves.
So what’s the answer? Don’t be afraid to Do-it-Yourself!
The best results, in Advans’ experience, come from customers that manage their own staffing. These customers purchase Vendor Management Software (VMS), dedicate their own staff to running the program. That way the companies can keep tabs on the bill rate and the pay rate so they know the margins their vendors are getting. These customers stay in touch with the market and know which staffing vendors actually deliver. So stop over-paying and get a better handle on labor costs and talent by working with a pool of efficient lean vendors without relying on MSP’s and those vendors with a conflict of interest.