Why are there so many contractors within the procurement profession, how does this fit with consultancy and what’s really going on?
To begin we need to ensure everyone is talking the same language, a consultant and a contractor are not necessarily interpreted the same way.
- A Consultant is an individual/organisation who provides external advice, for example they may provide answers to “how do we address rogue spend and ensure compliance across the organisation?” A consultant would typically be engaged for a specific scope of work via a contract.
- A Contractor could be one of two things. First, it is a term used for referring to a supplier, so a contractor could be the consultant! Secondly the word is also used to refer to a person who is working for an organisation under a different term of employment, this definition is our area of focus.
A contractor: a person employed by the organisation
under different terms of employment
The Business Issue
In the ever increasing race towards profits and delivering on budget, managers are under increasing pressure to justify headcount. The act of recruiting additional resources has a two-fold impact on the business, first it increases the operational costs due to increased salary payments and secondly and potentially more importantly, it increases the long term financial liabilities of the organisation through aspects such as pension payments, holiday pay, medical cover etc.
When an organisation employs a contractor the impact to the organisation is limited to the operational costs for salary, the long term financial obligations are not relevant as the contractor is not an employee and does not qualify. The salary (the day rate) of a contractor is typically higher than an employee of the same level, but this offsets the long term financial liabilities of the business, so from a business perspective employing a contractor could be financially beneficial.
With many organisation stretched in resources we find ourselves in a strange situation with managers pro-actively looking to see if they can employ Fixed Term Contractors (FTC) instead of a Full Time Employees (FTE). Getting approval for a FTC is generally easier that a FTE, with the intent the FTC does the work of a FTE for a set period of time.
This is the crucial element, “a set period of time” and it’s where things can start to go wrong, especially within the Public Sector. Employing FTCs to complement the FTE resources is meant as a short term strategy and if continues it could have an adverse impact for example on FTE moral.
I personally know of many FTC who have worked in the Public Sector for decades, many within the same government department and the same areas of business. Procurement is just one of many areas that seems to have a high degree of contractors working within the profession, other areas include IT and Service Management to name but a few. As a tax payer we have to ask the question “is the current strategy behind FTC employment delivering value for money or just a mechanism to by-pass the system?”
We are not here to discuss the benefits to the individual and their decision to be either a FTC or FTE but instead focus on the business benefits associated with FTCs, which include aspects such as:
- No long term financial impact on the business
- Flexible resource pool to address peaks in demand
- (Potentially) higher calibre resources, in line with higher salary opportunity
- Easy to terminate employment
- Does not count towards FTE headcount
However these benefits should be balanced with any potential impact such as:
- Financial benefits (savings) of long term FTC employment versus FTE
- Ensuring the FTC remains focused on the organisations success not their own contract renewal
- Impact to FTE moral
- Risk that a long term FTC could be deemed a FTE in the eyes of Law, impacting many of the perceived benefits
Contractors are becoming more and more prominent as organisations continue to see budgets cuts, with the risk of creating a two tier employment society, those who become self-employed as a FTC and those who are FTE’s. If the trend continues what will an office look like in 20 years’ time, will the FTE be a single individual managing a raft of FTC resources?
If it makes long term financial sense to employ FTC rather than FTEs, especially within public sector where the associated long term employment benefits can be considerably better than most private sector organisations, does this mean we will continue to see a steady increase in FTCs?
If FTCs are hear to stay, is it about time we all faced up to what is happening and bring it out from the shadows?
Author: Mike Robertson CEO POD Procurement