I used to have a recurring nightmare of being chased by battle tanks across the farm my Grandparents lived on. Although the tanks were slow-moving, in this dream, my legs felt like lead weights, making me even slower. As always, I was relieved to wake up just as I was to be crushed to death. However, I would have been more relieved to have never dreamt about those f*cking tanks in the first place. I had another crazy dream last week. I was co-running a recruitment firm and the procurement team of a government agency who knew nothing about recruitment decided to totally transform the way that us agencies make money. Instead of using a methodology that is tried and tested across multiple decades, industries, and continents, they decided to destroy contractor recruitment. Instead of charging an easy to understand and calculate hourly margin based on what the contractor was paid, we were to pick two monetary amounts, and charge them as a flat fee up front no matter the level the candidate was working at. There was no temp to perm fee, and we had all of about six minutes to put together a proposal. Recruitment firms couldn’t even protest for fear of damaging their reputation with the panel, and it took the RCSA of all people (and perhaps a handful of self-absorbed bloggers) to voice their concerns. To be honest, I preferred the one about the tanks.
Of course this was no dream.
On Friday we witnessed a Mussolini-sized U-Turn from the procurement folk at MBIE. After wasting countless man hours and tax dollars, the AoG procurement team have decided that the old way of Recruitment firms making contractor margin wasn’t so bad after all. However, like all those who seem to run any government in 2022, admitting that they were wrong and that we were right was not on the agenda. Instead, we were issued with a new RFP. An RFP which had clearly not been proof read, containing contradictory information within the space of three paragraphs regarding the most important changes on the document. Firstly we are told that it is still a “fixed fee” model:
The pricing model sought in this Gen Three contract will be a fixed fee rate for each Placement Type. This fixed fee model removes the salary component and focuses on a consistent service delivered across all job types from graduate to senior level roles.
And then, a short 7 lines later:
Common Administration and Corporate – Contractors. This is a set percentage of the successful candidate’s hourly rate for year one
This major stuff up was described, somehow without any sense of embarrassment, as “small legacy errors” from one of the MBIE bods during Wednesday’s laugh-a-minute Supplier Briefing. And just to be clear, the second part is correct. MBIE just can’t be bothered updating it. So it’s business as usual right? Well, not quite. Obviously keen to save face, MBIE weren’t prepared to let Recruiters have their own way. The new model works as follows: We have to decide a contractor margin in the form of a percentage up front for year one. We then pick a different rate for the subsequent years should the contractor work beyond 12 months. MBIE will want this to be lower. We then have to pick a maximum capped fee for a 12 month period. Once we reach this amount in margin for any given year, we can no longer charge any margin on top of the contractors hourly rate. This “resets” after 12 months. How we are to keep track on how much margin has been earned per contractor so that we know when to stop adding it is a problem for the admin team, not a recruiter.
Here’s how the numbers may play out. Of course I’m not going to say a number, as that would be deemed “collusion”, but for arguments sake, let’s say 12% for year one. Now let’s pick a maximum capped fee per candidate. Again I’m not going to say you should all put $20k on your RFP, but let’s just use that number for now. Now we have to pick a number for the margin for year two and subsequent years. Let’s put 10% and I’m absolutely not suggesting everyone puts 10%.
So our totally randomly selected numbers which I hope no one decides to use would generate the following revenue on a $100/hr Contractor working a 40hr/week for 48 weeks a year.
- Monthly margin $1,920 (factoring in 4 weeks’ leave)
- Yearly margin $23,040
- However, given that this example caps at $20k, you would essentially miss out on 6 weeks of margin at the end of the year. This means you’re actual margin would be $1,666/month per $100/hr contractor. This makes sense.
- Year 2 (and subsequent years), based on the above, you’d make $19,200, which falls rather pleasingly under the maximum capped fee.
So there we have it. The whole exercise has been a waste of time. MBIE have been arrogant, ineffective, and illiterate in equal measure. Hopefully none of you choose 12%, 10%, and $20k. And we pretty much have a contractor model that is about the same as it always was, but with a bit more admin. Good news I guess.