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Regulating contractor placement

Abraham (who you may have seen commenting on this blog) and myself were having a discussion last week around the state of contracting and placement. Being both independent contractors in the SAP arena, we feel there are some aspects to placement that could do with some regulation, to protect both contractors and clients.

It is necessary to mention that we are both residents of South Africa; we live and work here, and I don’t think either of us really knows how things work overseas. So feel free to read along and perhaps learn something about our setup, our hopes and dreams, or enlighten us with insight on how things work in your part of the world.

I will start with some background: In South Africa, the SAP community is a rather small one. If you have been a part of it for a number of years and worked on a number of projects and for various clients, chances are quite good that you will bump into people again that you have worked with previously. Chances are extremely good (you could take it as a given) that you will run into people who know people that you have worked with.

Around this small community, there are also a number of people who do placement for SAP contractors; that is, they place contractors at clients, whether on SAP projects or on at sites running SAP. These placement companies sometimes operate as groups of people, but very often as individuals. They invariably charge a fee for placing someone at a client in the form of a percentage of the person’s hourly rate. (I heard this referred to the other day as “rate skimming” – thanks for that, Hamish).

While there is nothing wrong with the practice of charging commission for rendering a service, there are increasing murmurs of dissatisfaction among contractors who feel that the amount earned by placement agencies (who are often individuals) is rather exhorbitant, considering that in most cases their service is limited to introducing the contractor to the client and nothing more.

In this world, everyone wants a slice of the pie. It is not unusual for there to be two or even three parties between a contractor and a client, each taking a share of the rate before it reaches the contractor. Agencies often do not know anything about SAP (which is fair when I guess that estate agents probably don’t know how to build houses), but they know the people in the industry, and thereby gain a foot in the door. And so, everyone pretty much does what they please.

In our discussion, Abraham and I felt it would be nice if there were some governing body, some “consumer watchdog” as it were, to regulate some aspects of this trade. In particular, there are two aspects that we would like to see enforced (actually there were three, but for political reasons, and to protect the innocent, I’m discussing two of them):

1. Full disclosure of rates

Placement agencies should disclose both the rates they are charging the client and the rate the contractor gets paid to both parties. This would ensure that a fair commission is being charged, the client would know that the contractor is getting paid a fair rate, and the contractor would know whether they are earning their potential. It would keep agencies honest, and would ensure a competetive environment, making agencies work for their money.

2. Consent for representation

Clients sometimes ask agencies to put forward CVs for a specified number of people, especially for new projects. It happens sometimes that agencies, unable to find people, put forward CVs of contractors or consultants that they find floating around, of people they do not even know. This is done at great detriment to the professionals, who, being represented without their will on the basis of an old CV, may never get to work at that client. As such, it would be better if contractors were to give written consent to agencies to represent them. If I were a client, I would insist that every CV that comes across my desk is accompanied by such a letter of consent.

For any kind of regulation to be effective in the long run, it would of course be great if it were backed by some sort of legislation, but I think in this case, it would hardly be possible.Instead, if there were a regulatory body, one could encourage both clients and contractors to only deal with agencies registered with such a body. An organization such as this would probably not have the power to recuperate losses on behalf of either contractor or client, and would probably be limited in ability to blacklisting parties who make themselves guilty of breaching regulations.

One thing that may go a long way to solving the dilemma is if agencies charged a once-off placement fee commensurate with the rate being earned and the duration of the contract, instead of an ongoing percentage. The solution for professionals in the meantime, is to build up their own rapport with clients and go direct where possible, provided that they have this option.

Regulation of this kind would of course be applicable to many contracting scenarios, and not just be limited to SAP. SAP contractor placement, due to the amount of money being made from it by agencies, is a definite candidate for reform.