Managing the contract workforce

The trend toward outsourcing and a need to cut costs both suggest an increasing reliance on contract and contingent manpower to meet the changing labor needs of the government market. Governments need information technology (IT) experts, office/clerical workers, industrial/engineering specialists, janitors, security guards and even professional positions, any of which could fit into the category of contract or temporary staff. Efficiently managing a contract workforce can be especially challenging, given the fragmented staffing market; the need for dependable, productive labor at affordable costs; and the variety of staffing needs across diverse parts of a government entity.

Managed Service Providers (MSPs) sometimes are contracted to manage multiple staffing vendors and to measure their effectiveness in filling positions according to a customer’s standards and requirements. In effect, the MSP serves as a “neutral” party that offers the customer a complete workforce solution while ensuring efficient operation and leveraging multiple staffing companies to obtain competitive rates. MSPs typically use a Vendor Management System (VMS) as a software tool to provide transparency and efficiency — along with detailed metrics to the user — related to every aspect of the contingent and contract workforce. The model has proven its usefulness in the private sector, notably among Fortune 500 companies, and is poised to become more common in the government arena.

In the course of managing the overall program and related processes, the MSP uses a VMS software program to handle fulfillment of requisitions by various staffing companies and to consolidate billing to the user. The user pays one bill to the MSP, which distributes payment to the various staffing companies, keeps a percentage and pays a rebate to the user. Efficiency cost savings, competitive rates and the benefits of consolidating the buy all contribute to making the net fee the user pays to the MSP the same or less than it would cost to requisition the individual contract positions. In this way, the MSP service can be “free” to the user. The MSP uses aggressive and competitive processes to staff each position and nets savings of 5 to 15 percent for the customer (after the MSP-VMS administrative rebate). This funding model is referred to as the “percentage of spend” model. (See sidebar, page 15.)

Advantages of MSPs

An advantage of MSPs for the customer is having a single point of contact to manage a temporary workforce. There is also a level of built-in accountability and transparency related to spreading the buy among several staffing suppliers. The MSP is also continuously reviewing rates and rate card structures, comparing rates to marketplace indices such as staffing.com, USDOL Regional Wage Rates, State DOL Wage Rate data, and Staffing Industry Analysts (SIA) as well as Gartner research data.

John W. Healy, vice president of Enterprise Workforce Solutions for Kelly, says MSPs fulfill a customer’s desire to save costs, to comply with audit or regulatory requirements, to leverage a range of talent from various suppliers and to have access to actionable information on the size, scope and efficiency of the contract labor spend. Most MSPs have developed as offshoots of staffing companies and as separate businesses. In the case of Kelly, Healy says the MSP business is completely “vendor-neutral” and independent of the staffing business.

Dealing with a single vendor can be easier than dealing with possibly hundreds of staffing companies that might solicit for contingent positions or contract labor. Also, there are enterprise-wide advantages from one entity handling the staffing needs of the larger organization rather than using a one-off approach among a variety of departments. A benefit to procurement is also the availability of additional metrics about the spend. Because the system is integrated, the customer can see, for example, which suppliers are performing better. The benefits for the staffing company may include getting paid faster.

“An MSP can manage tens to hundreds of temporary or contingent workforce staffing companies to realize savings of generally 5 to 15 percent of total net spend across the contingent or temporary workforce,” says David M. Candler, senior director, Government Services at TAPFIN Process Solutions, and a former administrator of Georgia’s first MSP/VMS program. TAPFIN is a division of IT staffing company COMSYS.

Knowledge of available suppliers and capabilities is another benefit MSPs provide, according to Carlton Hardee, vice president of the Government Solutions Group at Volt Information Sciences. Volt also operates its MSP business separate from the staffing operation. “If a municipality has a certain requirement, the MSP would have information about the capabilities of various staffing companies, and push it out only to those companies [that qualify].” Full transparency avoids the appearance of the “fox guarding the henhouse.”

Among 10 vendors, for example, an MSP could show who is performing well and who is not. Tracking how vendors are doing in specific categories can point to a need to introduce additional vendors.

MSPs can also work faster. To illustrate, they might be able to fill a position from creating a requisition to on-boarding the employee within 10 days. “All steps are incredibly quick compared to the minimum 70-to 90-day cycle that is typical of most government hiring processes,” says Candler.

VMS: the technology component

VMS software is used to manage the staffing supply chain. It is offered as a service on the Internet (in the “cloud”) and therefore does not require additional IT personnel. The program can either be internally managed or outsourced.

There are a variety of VMS programs, and an MSP company would typically have relationships with several companies and choose the one most appropriate for a certain situation. VMS software ensures transparency and efficiency by providing detailed information (metrics) to the user about every aspect of the contingent and contract workforce, such as the use of small businesses or minority- or women-owned suppliers.

Before breaking out the VMS software as a separate solicitation, Candler cautions that most MSPs bundle their offering with a technology; therefore, there is no need to purchase it separately. “If you have already bought one, an experienced MSP can work with your existing tool. If you still think you need to buy a tool, keep it simple,” says Candler.

Candler also warns that some firms call themselves MSP-VMS experts but are actually VMS suppliers purporting to offer MSP services. “There are very few providers who have developed a significant presence in the vendor management arena with governments and major corporate clients, the essential experience required to achieve the desired savings and efficiencies,” says Candler.

The government market

John Healy of Kelly says that many government entities are just now being introduced to MSPs, although there is “some penetration at the state level.” He says: “Four or five states are in the process of actively looking for programs. There is virtually none at the federal government level, although a lot of large private sector government contractors use the MSP model.”

“I would say there is some degree of awareness, but not to a very in-depth level,” agrees Hardee. “A lot of education needs to be done in the local and state space.” He adds that the MSP goals of providing transparency, accountability and efficiency play well in the government market.

“It’s something they really want to take a look at as a way to get a handle [on contract labor spending], in essence to bundle the contract and reduce replicated work. It’s a more efficient way to manage the contingency workforce,” says Hardee.

Usefulness of the MSP model in private industry suggests additional possibilities in government. “There are probably more commonalities between the private and public entities than there are differences,” says Ben Walker, vice-president, Market Srategy, Volt Consulting. “The commercial side has implemented [the MSP model] faster, and public entities can learn lessons from them.”

It takes a sufficient level of spend to justify an MSP program. Candler says the program becomes cost-effective when the government entity being served has in excess of 100 temporary workers and between 10 and 100-plus servicing staffing companies. “Optimum economies and efficiencies come in the range of 300 to 1,000 contingent workers over multiple departments, agencies, authorities, boards, commissions and/or political subdivisions,” he says.

The model also complements the use of reciprocal agreements or “piggyback” arrangements in which, for example, a local community could leverage a state-wide contract already in place. A state could conceivably grant permission to a local government to use its VMS tool, and the tool would include budget codes and agency codes to collect the funds for the manpower used by the local government.

Even if a government’s spend on contract and temporary workforce is insufficient to justify a full-blown MSP, there are also other models and opportunities to boost efficiency and minimize costs, what Walker calls “introducing more rigor” into the process. These include use of a master vendor program, in which a single, preferred staffing company handles some of the functions of an MSP by distributing among secondary suppliers any needs it cannot fulfill.

The complexity of how government processes are run can create challenges. Decentralized management often keeps temporary workforce needs spread throughout a government. As a cross-agency function, procurement is in a good position to champion the use of MSPs. Procurement is also a logical point of contact because of the need to keep the human resource (HR) function of managing direct employees separate from management of a contract workforce. Governance of the contract would also involve the operational leads to provide feedback on priorities in addition to price.

Candler says a competitive solicitation for MSP/VMS services should include criteria such as:

• Capable of providing an MSP with a VMS Web-based software platform, which manages and standardizes process control
• User of a global VMS technology platform (SAS 70 Type II compliant software)
• Supportive of staff augmentation, payroll service, 1099, consulting and outsourced project labor acquisition, management and off-boarding requirements
• ISO 9001-2008 certified for Implementation Quality Control
• Recognized by industry analysts, such as SIA, as a leader in MSP spend
• Best-in-class in the provision of standard, ad hoc and business analytic reporting on all spend under management
• Most importantly: MSP-VMS experience with state governments and large commercial clients

How to drive down costs

Gary McDonough, senior vice president of strategic accounts acquisition for Adecco, suggests possible cost savings related to separating the labor aspect of a big project from the need for higher-level consulting expertise. Typically in a big project, such as a computer system implementation, the contract includes a few members of the contract team who have a core-needed competency and many more members of the team who are the equivalent of contract staff. Separating out the labor aspect allows it to be handled in the context of an MSP /VMS contract that can span multiple departments and ensure competitive and low-cost manpower. “If you hire from a staffing organization, you can drive down costs 20 to 30 percent,” says McDonough.

Not bad for a “free” service.

• Read the “Best practice: pricing models for MSP” sidebar to learn about options to funding MDSs.

MSP/VMS by the numbers

About the author

Larry Anderson is the editor of Government Procurement (Go Pro).