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All of Government Round Two: The “VFM” Factor

By June 28, 201211 Comments

Ding Ding.  Round Two of New Zealand’s “All of Government” recruitment tender is about to get underway.  The impressive communication channels between MED and the bidding recruiters have hummed into life once more and further instructions sent out over the past week.

The pertinent points:

  • 82 recruitment firms submitted tenders to provide external recruitment services to All of Government.  Following the Recruitment Centre of Excellence evaluation of respondents’ answers and tick-box “robust” measurement of customer satisfaction, this has been whittled down to 59 firms.
  • The next stage is a surprisingly sophisticated live, online, Dutch Auction kind of scenario.  For whatever “lots” you have offered to recruit for (from Perm / Contract / Temp in Admin / IT / Corporate) respondents have the opportunity to reduce their price, or percentage, or discount levels, downwards.  The intriguing part is that you will know in real time where you rank in terms of price against the other bidders in your “lot”.  Depending on which of the lots you are bidding within you may be up against 18 – 29 other bidders.
  • Eventual award of positions on the panel will be based on a final “value for money” (VFM) score on a lot by lot basis.  It is this VFM score that will determine your success in being awarded a contract to supply to AOG.  To be fair to the MED, this is consistent with Mark Ansell’s claims that this is “not just a cost cutting exercise” as it will mean that respondents who score highly on Quality (measured by capacity to supply services, capability to do so, and customer feedback scores) can get as high, or higher, a VFM score than firms who submit lower bids on the Price category.
  • There is a final “sealed bids” stage where bidders can continue to reduce their proposed fees and percentages but will no longer be able to see your ranking against other bidders.

Firstly, I take my hat off to the Government for this adoption of technology, who say that:

“e-negotiation provides the CoE with the opportunity to negotiate price in an efficient and expedient manner whilst giving respondents the opportunity to have visibility of their pricing relative to the market.”

I wonder if they realise just how clever they have been in adopting this method of pricing negotiations with the recruitment industry, though?  We in recruitment are probably one of the most competitive bunch of bores in the entire business community.  We hate to lose.  At anything.  I can remember watching the bidding building up on our Mutsy Stroller push chair recently on TradeMe where at $1 reserve, I had bet my wife it would go above a certain amount and there was no need for a reserve price as that made things boring.  The sense of vindication, and victory, was immense when it went beyond the amount we had originally wanted as a reserve or buy-now price.

I know, I need to get a life, but I can easily picture the scene on 4th and 5th July as senior recruitment figures engage in a battle of Russian roulette with their bidding strategies.  Firms who feel they have sharpened their pencils to as fine a point as possible will be further induced to further lower their pants when they see they are only ranked 25th in the “lot” on price.  MED have actually missed a trick in not revealing the names of the respondents who are ranked higher, as this would undoubtedly ratchet the competitive bidding up several notches more.

In fact, this is probably one of the most interesting exercises you could ever subject the recruitment industry to.  Despite how some may view us, we are a professional services industry, and there are many highly professional players in the sector to balance out those CV-spamming non-call-returning cowboys.  Many of us talk passionately and earnestly about the value we can provide to our clients and the levels of costs hidden in our fees that appear so high to those on the outside looking in.

Well now it’s time to put your money where your mouth is.  How low will you go?  Have you left any breathing room at all or is further discounting going to necessitate changing the entire way you deliver your service, and what kinds of recruiters you will be able to afford to do that.  Do you really value your service so highly, and have so much faith in your “Quality” score, that you will leave your price ranked in the double digits?

Of course, this is the reason MED are not revealing exactly how many respondents will form the final panel, saying only that:

“The Recruitment CoE expects significant further consolidation to take place post e-negotiation.”

To put a number on it now will give comfort to firms sitting around the higher ranked numbers, that they may still be invited through to further negotiations and consolidations, and to leave their bid where it is.  Perhaps we can look to legal services as a guide, where an initial 144 respondents were eventually whittled down into 10-11 panel providers in each of the 6 legal categories.

What we have here is an opportunity now for the Government to actually create a recruitment panel based on qualities and values never before successfully achieved in the other big corporate PSA’s around New Zealand.  If, after this process, we are left with a panel of recruitment firms with scores truly and accurately based on Value rather than Price alone then that is a plus.  But if that score is then communicated to the Participating Agencies who will be looking to engage with external recruitment suppliers, and who then actually use that score to choose which recruitment agency to engage with, and whether to give them a role on an exclusive basis, then this could really be quite revolutionary.

Sadly, though, there are caveats remaining that threaten to ambush this potential PSA utopia.  Imagining a system where your final bid is what you stick with when you are finally awarded a place on the panel is dampened by comments like:

Whilst the Recruitment CoE reserve the right to seek uniform pricing following e-negotiation we also recognise the opportunity in allowing respondents to differentiate their value offering to Eligible Agencies through price.

Furthermore one of the biggest bones of contention amongst providers of legal services to Government in their own recently-awarded AOG contract is the ability of firms in other “lots” who didn’t bid for certain areas of law to be able to offer their services under those other “lots” that they didn’t even originally bid for, just by virtue of their being on another part of the panel.  In the recruitment world this would equate to an IT specialist recruiter awarded a place on the IT Contractors “lot” being able to offer their services for roles coming up under Admin Temps even though they didn’t originally bid for it.  Worryingly, the MED’s default position on this is:

“…where a Participating Agency raises a Recruitment Services Order (or similar request) for areas not tendered by a successful provider, that provider would not be prevented from fulfilling that RSO in lots they did not originally tender for.”

I do take my hat off to MED for conducting a fair and well-communicated tender process so far, and this e-tender stage will expedite further rationalisation on an open and transparent basis.  A panel of providers with different price levels, but also Value For Money scores for hiring managers to take into consideration when appointing a recruitment supplier, sounds like something we would all welcome.  Imagine even having a regularly updated VFM score based upon how successful you are at delivering on roles you take on?

Sadly, though, I fear that even after all this there will just be uniformity of pricing for the ones who are able to go that low.  At that stage it will be a matter of panel providers building relationships with hiring managers and internal recruiters within Participating Government Agencies to make sure they send work their way rather than to other panel providers.  So kind of like back to square one, but for less money.  “Mission Accomplished” Mark Ansell would say.

A watershed moment in our industry beckons, particularly for Wellington recruiters.  How high do you believe your Value For Money score can be?  How much do you believe what you have said to countless clients over the years?  How low are you really willing to go on Price whilst still maintaining that conviction?

We shall see.

Jonathan Rice

Director of New Zealand rec-to-rec firm Rice & Co, co-founder of freelance recruiter platform JOYN, and people-centric technology firm superHUMAN Software. Recruitment innovator, agitator and frustrated idealist, father of two, husband of one, and lover of all things Arsenal and crafty beer.


  • Just a thought says:

    I do hope recruitment managers are being reasonable in their bidding and won’t commit to fees that are going to be unpalatable to the consultants. Who would see value in working for  a recruitment company that a.) services the exacts same client base as everyone else and b.) are doing so a fraction of the fees??
    Recruitment owners might feel a double pinch if they drop their fees too low because they may also have to come up with better commission structures or incentives to retain their consultants. Company car anyone??

  • Just a thought, reposting :) says:

    I do hope recruitment managers are being reasonable in their bidding and won’t commit to fees that are going to be unpalatable to the consultants. Who would see value in working for  a recruitment company that a.) services the exact same client base as everyone else and b.) are doing so for a fraction of the fees??
    Recruitment owners might feel a double pinch if they drop their fees too low because they may also have to come up with better commission structures or incentives to retain their consultants. Company car anyone??

    • Paulh says:

      I honestly believe that the government should be concerned that the best recruiters will walk away and headhunt the most skilled staff out of the public sector and into the private sector. I think MED are pursuing a risky course. Comparatively speaking, what proportion of IT workers are employed in the public sector v the private sector?

  • paul jacobs says:

    I’m all for value-for-money and all, but are we just going to end up with a cheaper 1999 recruitment and recruitment advertising model across the NZ public sector? A big part of me thinks yes unfortunately.

    • Fiona says:

      Agree with Paul we have see this all before. Nothing new and it continues to reinforce the fact that given a bite of the pie we value price over ability to service.
      Not a great message to send when in some cases quality doesn’t match end result

  • Lfraser says:

    Good luck to all my former colleagues and compadres out there dealing with this! Could be an exciting result opening up a lot of possibility – or it could just get really messy. I guess time will tell…..

  • Simon says:

    I think all they will end up is pretty much a fixed price unbundled recruitment model like QJumpers already offers.
    I have been through this reverse auction process in another industry. You end up with lower quality suppliers who’s two points of difference end up being price and relationships.
    Good luck!

  • Simon Telfer says:

    I was involved in one of these Dutch Auctions in London for KPMG (I think – 10+ years ago). Horrible experience – everyone drove the price down  to margins of around 3 -4 %. The company ended up ignoring the auction and negotiating with the incumbent suppliers.

    Why don’t they just do a closed tender?

  • John says:

    Ultimately, price is inextricably linked to service and the
    ‘service evidence’ MED have gathered to date is historical and not necessarily
    indicative of the quality of future service. Will this encourage the successful
    agencies to setup ‘lite’ divisions within their core operations, with lower overheads
    and ring-fence the Government business?  If they all do this, what becomes
    the future benchmark?

    • Jonathan says:

      Hi John, well if we see Perm rates dip down below 10% then I think the set-up of “lite” divisions is inevitable with a different delivery model to filling roles.  Recruiters without commission filling jobs with a process approach rather than an intuitive and creative approach.  Firms can still be profitable, Government will pay less for the service, but quality of delivery will reduce – that’s just the way it’s going to have to be.  Have fun on the e-tenders!

  • John says:

    Sorry Jonathan, I just picked up that I had missed the second book in the Trilogy “A Game of Drones” (Drone – a pilotless aircraft controlled remotely) “ commonly referred to as the AOG and the introduction of a new character , the MED.  This is fascinating and I am really enjoying it. Looking forward to book three to find out who losses their head, who loses their throne and who is crowned and gets to sit in the drone. 
    I tried to understand how the VFM score  system will work for the benefit of the quality providers but unfortunately too much smoke and too many mirrors for me to understand. More spin doctors than those involved in the Banks/Key tea party. Through the smoke I still see that Price underpins everything and no matter what spin is put on value and VFM points, Price will win through and remain King.
    But then there are the mirrors. My experience tells me that low price generally goes hand in hand with cheaply made, poor quality, poor service, low ethics, poor practices etc. Before I get assassinated or something worse I reiterate that this is a generalisation and indeed there will be those who can deliver quality at an exceptionally low price providing incredible value to the client(AOG) and of course I mean you who is about to leap into print with indignation and righteousness. I promise, I am only talking about those other people who will never adapt to the new paradigm and will live in the past with their traditional models and overpriced service.
    Thanks for the amusement, I think I will stick to my knitting and thank goodness I live in Auckland. I will now withdraw and wait in anticipation for Book three in this exciting trilogy although it is obvious that the outright winner and still in control of the crown and the Drone will be the MED. This will maintain the balance of life as the “ customer is always right” especially when they hold all of the cards.