ACT Government voluntarily opts out of quality recruitment outcomes by Simon Cox

This week I turn InSight over to HorizonOne
co-founder and Director, Simon Cox. I’ve done this to highlight an issue that many of
you may not be aware of, but it’s a practise that I believe to be both very
short-sighted and counter-productive. It’s a practise that, as an industry, we
need to resist with all of our combined energy. I’ll leave Simon’s excellent
article to explain why and, at the conclusion, I would invite you to contact
either  the  RCSA
 or  APSCo  to see what you can do to help roll back this
mass stupidity.

 

ACT Government voluntarily opts out of quality
recruitment outcomes by Simon Cox  

 

Simon CoxIn a move that
defies logic, the ACT Government is about to explore how much damage can be
done to an employer brand by testing the age old principle of “you pay
peanuts – you’re going to get monkeys.”

 

In
a ‘forced choice’ procurement exercise described by some in the industry as a
‘process trap’, the ACT Government have unilaterally set labour hire margins at
7.05% effectively forcing those that rely on ACT Government business to either
sign up, or risk losing their contractors to other firms on the panel.

 

A
margin of 7.05% represents less than half that paid by Commonwealth Government
panel arrangements, which are already cut price rates.

 

For
a Government crowing about how strongly they support small business, how many
SME’s could survive a Government imposed >50% drop in profitability?

 

7.05%
puts professional recruitment services in the same bucket margin-wise as those
who supply standard transactional products and services. Given the complexity
and challenges involved in sourcing highly skilled contractors, this doesn’t
make any commercial sense.

 

Canberra’s
recruitment community is stunned that our local Government would make a
unilateral move across most of Canberra’s major labour hire categories.  Our
region consistently ranks above all other States and Territories on candidate
shortages in sectors like ICT, Accounting and Finance, and other specialist
professions.

 

The
number days to fill an average ICT contract across Australia is 25 days, whilst
in Canberra it takes on average 60 days!

 

This
is why implementing a scheme like this in the ACT market vs the NSW market is
so different. In addition to this uniquely Canberra challenge, attracting
talented contractors to the ACT Government is already a challenging task. 
By compounding this challenge and making it unprofitable for recruiting firms
to supply staff, surely the ACT Government will damage their already limited
supply of talented professionals?

 

I
will tackle concerns about the ACT Governments bullish approach to the
procurement process in a future blog article.  I will say for now however
that this represents another very clear example of how the ACT Government pays
lip service to support local SME’s, whilst behaving completely differently when
it comes to managing their own procurement.  For another recent example,
have a read through  recent article by Tim Benson  from B2B magazine.

 

Let
me spell out in plain and simple terms how this move will impact the ACT
Government’s ability to attract talented contract personnel:

 

1.
Opportunity cost will drive down quality  

Like
it or not, experienced recruiters make decisions daily on how they prioritise
the application of their talent network.  Where recruiters send their best
people is a multi-faceted decision, but one of the key factors considered is
around the client paying appropriate fees.  The opportunity cost of doing
business with the ACT Government through this panel is so extraordinarily high,
recruiters will simply avoid referring their best talent.  Quality
referrals will dry up rapidly.

 

2.
Existing contractors will be placed elsewhere  

Local
recruitment firms are already looking at reprioritising their existing ACT
Government contractors to employers paying reasonable rates.  Whilst
nobody will be being overt about this, it is simple economics at work.

 

3.
Pay peanuts, get monkeys  

Having
spoken to a number of experienced recruiters that managed teams on the NSW
Government equivalent of this scheme, it sounds as though a number of poor
outcomes will prevail when you stiff a recruitment company on margins. 
These recruitment companies would allocate their lowest performing consultants
(read cheapest), and put them in a corner of the engine room where they battle
for the bottom rung candidates and fire them at the client till something
sticks.

 

Experienced
recruiters, those with the strongest talent networks, avoid engaging with low
fee panel work like the plague.

 

4.
Reputational risk (could this be brand suicide)  

As
mentioned above, the ACT Government already has distinct challenges when
competing with the likes of Federal Government for talent.  It is a shame,
there are some great jobs in the ACT Government and we often hear positive
stories from contractors who enjoy the proximity to ‘real outcomes’ in their
work.  But in a market driven by recruitment companies, where recruitment
consultants are the critical interface for communicating employer brand, what
will happen when the middle man feels jilted?  That’s right, there will be
a ‘pong in the air’ likely to cause a lasting impact on the ACT Government’s
employer brand, and this may also impact permanent and non-ongoing talent
attraction capability.

 

In
a notoriously candidate short market, talented contractors are highly sensitive
to bad press and will favour offers from other employers.

 

5.
Evidence from recent history predicts pain ahead  

Below
are two examples where similar approaches have run into trouble recently:

 

(a)
Queensland Government

The
Queensland Government went to market with a similar model to ACT and NSW
Governments, not with a fixed bargain basement margin, but with a model that
failed to appropriately consider how the sector operates.  Combined with a
messy implementation and a lack of communication with suppliers, the panel
quickly ran into trouble.  The supply of quality talent to QLD Government
reduced markedly.  In this instance, through engaging with a strategic
working group including industry bodies and improving the process and
information sharing, the panel is operating positively and suppliers negotiate
commercial terms they can afford to work to

 

(b)
Department of Health and Ageing

At
the end of 2011, just as Canberra was starting to experience its own little GFC
(i.e. Government cut spending, redundancies, recruitment freeze), the
Department of Health picked a far more intelligent time to try a low cost panel
for contract recruitment.  Trialling a fixed rate model for non-ongoing
staff at around 60% of normal rates, these were the results:

 

  • Many of the
    agencies on the panel reduced their level of work with Health, easily
    transferring their commitment to other clients who were willing to pay
    proper fees
  • The panel
    leaked like a sieve. If hiring managers could demonstrate ‘they tried’ to
    use the panel, they were able to agree on new commercial rates with anyone
    they chose.
  • Investment in
    short term personnel through consulting firm panels increased
    dramatically, at much higher premiums (typically 30%)
  • Recruitment
    agencies avoided sending their best talent, and experienced recruiters
    avoided the Health panel work. Some of the large multi-national firms
    eventually setup specialist health panel teams with junior recruiters
    tasked with flicking CV’s until something stuck.
  • Only 1-2 other
    Commonwealth agencies ‘piggy-backed’ the arrangement, with at least one
    Department quickly backing out of their commitment once they saw how the
    panel operated.
6.
The margins are prohibitive for small businesses  

Companies
that are able to exist on tiny margins are typically built for high volume, low
value-add labour hire supply.  Typically these margins are seen in
hospitality, mining and blue collar industries, and construction recruitment
where entire teams are hired at once, and often for sustained periods.

Quality
focussed, value-add recruitment companies simply cannot turn a profit on these
rates unless there is a restricted panel on offer (there isn’t), and a
guaranteed volume of work well above what is on offer from the ACT Government.

 

7.
False economies  

We
all know the ACT Government have a cash problem.  But will taking the
lion’s share of margin away from a group of suppliers like this, really save
money?

 

Advice
from a number of very experienced consultant contractors in the commercial
procurement space is this approach creates a false economy.

 

The
driving down of quality by panels like these will mean it will be harder for
ACT Government agencies to ‘do it first time, and do it right’.

 

Lower
quality contractors that deliver a poor service will lead to more failed hires,
and value for money quickly disappears.  To replace someone after the
first hire fails to deliver incurs more cost, and often at an inflated price.

 

Where
to from here?

 

Currently,
it is optional for ACT Government agencies to sign up to this agreement. 
We would recommend any Government agency considering signing on should think
very carefully about what this means for their employer brand, and what hidden
costs are involved in the change.

 

However,
signing on may become mandatory in the near future.  Therefore now is the
time for some real public debate.  Any form of conversation about this
enormous change has so far been strategically avoided by the approach taken
with the procurement process for this panel.

 

Whilst the recruitment industry
bodies  APSCo  and the  RCSA  are
working hard to engage the Government in some eleventh hour lobbying, we are
interested to hear from employers, contractors, and all other interested
parties.

 

I
would also call on recruitment company leaders to consider very seriously the
move of signing up to this agreement, what that might mean for your business
and the industry. Also, if you are unhappy to be treated this way contact your
local member, contact ACT Chief Ministers and ACT Procurement, and let them
know that you won’t stand for this level of disrespect.

 

As
a recruitment company that seeks to add value to local employers through the
quality of our services, and as an SME who do a significant amount of
business with ACT Government, HorizonOne won’t be signing on  .

 

About
the author:
 

Simon
Cox co-founded Horizon One in 2008. Horizon One are based in Canberra and
provide recruitment services in the Accounting
and Finance sectors,   including in tax, audit, business services,
government accounting and related positions, commercial accounting and the
not-for-profit sector. Other specialist divisions include   Government
(APS) recruitment (Policy, Program Management, Procurement), HR,
Communications, Marketing, Scribing and Administrative support positions.

1 Comment

  1. Anonymous on 18/04/2017 at 10:28 pm

    Just like Payroll Tax Exemption was never going to last in the ACT, nor were 40% recruitment margins. Apparently these guys have a thriving scribe business these days, so they should be content. Deal with it and move on!

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