Suppliers - Preferred By Whom?

"We have preferred suppliers", said the voice coming down the 'phone. In 1988 I'd been contracting for 14 years and, trying my luck as a recruitment consultant, didn't know what a preferred supplier was. I didn't take long to find out.

When I started contracting in 1973 most opportunities for freelancers came from software houses. These supplied temporary staff to work under client supervision as an extension of their consultancy activities. They knew their client's requirements and usually supplied the right people.

There weren't that many criteria for staff selection. Package software hardly existed and the overwhelming requirement was COBOL. 99% of work was batch-processing, operating systems were rudimentary and clients would often accept staff from other hardware environments. They didn't have much choice - there weren't that many freelancers to choose from. The client indecision that today's recruitment consultants take for granted would have resulted in the freelancer being snapped up by another client!

The computer staff agencies dealt only in permanent vacancies and were surprisingly slow to spot the potential in contracting. Some were decidedly "sniffy" about the whole concept but overcame their scruples when they realised the enormous margins to be made.

By the mid-70s the contract market as we know it was established. Agencies were usually staffed (or at least managed) by people with some technical knowledge and were much smaller in terms of number of consultants and freelancers out on contract. There were few multi-branch agencies and none (to my knowledge) had offices abroad.

Soon, as long as you could spell "programmer" and dial a number from the Computer User's Year Book you were a contract agent. Client company managers were suddenly dealing with school-leavers whose knowledge of IT ended with a list of buzzwords on their desks.

The contract market continued to grow throughout the 1980s. Boom or slump, no company dared to reduce IT spending, so contractors began to feel that they were recession-proof.

As more and more agencies hit the market the major users of contract staff found themselves bombarded with agency canvassers. Decision-makers started to hide behind their secretaries, who would field all agency calls, or entrusted dealings with agencies to the department's clerical assistant. These could read out a requirement but were unable to answer queries. Not surprisingly, a lot of totally-unsuitable CVs were submitted. SOMETHING HAD TO BE DONE!

If anybody cherishes their copies of "Freelance Informer" and files them away I refer them to my article "Recruitment - There Has To Be A Better Way", published on December 2 1994. It sets out some ideas on how to overcome the problems that employers have recruiting good candidates and applicants have getting their details to employers. The alternative to this common-sense approach is the preferred supplier system.

Unsurprisingly, clients become tired of the onslaught by contract agencies and try to limit the number of sales calls. A list is made of those agencies who supply good candidates and are reliable. Typically this list will have from 4 to 6 supplier names, though some major contract-staff users have dozen-strong lists.

Being granted preferred supplier status usually commits the agency to reduced margins. After the days when software houses marked up their contractors' invoices by 100% things settled down to a reasonable 20-25%. Since the recession (which some don't acknowledge to be completely over) agencies have had to accept lower figures to secure the business.

I have never seen the point in either the client or the contractor paring the agency margin to the bone. Neither will gain from putting the agency out of business, as those suffering from the demise of Executor Computers will confirm. The overheads of running an agency are high and, since contractors demand payment before the client has paid the agency, money has to be borrowed. However, some contractors will always moan about margins.

But like all roads to Hell, these good intentions can become corrupt. In the mid-70s a major food retailer had a preferred supplier list of one. I was told that a formal interview wasn't necessary as the company trusted the agent to make the selection - I should just turn up on Monday morning. The IT manager was dismissed the same day that his boss discovered the arrangement. Not long after, he joined the agency (who had ceased to be preferred).

I do not claim that every preferred supplier agreement is corrupt, though many are. At the very least there is likely to be a degree of corporate hospitality supplied by the agency to client managers and/or co-ordinators. Nobody will object to the customary meal or drink to clinch the deal, nor to a bottle of Scotch at Christmas, but outright demands for cash are something else. Lately, another ploy demanded by client recruiters is a percentage of the invoice value, almost certainly illegal and putting the person in breach of his/her terms of employment.

What does the preferred supplier system mean to the contractor? As we have already seen, these agreements put downward pressure on agency margins and therefore on the contractor's rate. Bad though this may be, it's not the worst aspect. Unless you happen to be registered with agencies on the appropriate list, you'll never hear about vacancies for which you may be the best person on earth. This also works in reverse - the client can be denied the most suitable candidates.

It can also mean having to take a contract via an agency with whom you'd rather not deal. Client co-ordinators seem to know little about contracting and tend to be swayed towards the mega-agencies with their multi-page advertising in the computer press. My contracting career was mainly performed via small to medium-sized agencies and I'm sure that most will agree that these give a better service than the "contract supermarkets".

What do you think about preferred supplier agreements? Let's hear from each part of the equation - client, agency and contractor. The correspondence pages of the computer press are waiting for your response!

© Brian Smith 1995

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