Thursday, February 08, 2007

Price Fixing Racket in the Labor Market? Check Your Wallet!

As a contract software development professional, I make my living by offering my services at a price I believe the market can bear for a particular assignment. I work with potential employers to reach a fair price. At least I used to.

In recent days I've been looking for a new contract and I submitted my resume through a few employment agencies to a certain health care insurer in Hartford. The job descriptions were not exact but a fairly glove fit for my skill set. In recent days, I received responses from the employment agencies that my resume was rejected because in one case "it did not work" and in another because my resume was "ineligible".

Because I am not independently wealthy and need work to pay bills I followed up and was told that the company in question used a service called ProcureStaff. And after numerous unsatisfactory explanations of the phenomenon I looked this thing up.

You see, the way things worked in the free market world was that someone needed expertise, they would speak with you and if they were sufficiently satisfied that you could do the job, a fair price was negotiated and you were hired. Now if you have a skill in demand the company needed to pay market price. So the idea that the hiring manager never sees the resume is disturbing - it means I can't compete in the American job market! And it means self-improvement is meaningless because the demand of the market is irrelevant.

So as I say I investigated what might be the matter with my resume by looking up ProcureStaff. What I found was shocking. ProcureStaff appears to a program that may have monopolized the regulation of non-salaried employees. The markets this program affects are insurance, health, government, and more.

You might be asking what this program seems to do. Here's a sample from

Avaya began working with ProcureStaff in April 2001. As Battaglia explains it in a presentation she gives on the initiative, “ProcureStaff is Avaya's outsourced administrator of ‘The NEW Procurement Center,' which is a customized total procurement and payables solution for the sourcing, acquisition and administration of all technical, management and clerical non-employee workers required by Avaya managers.” ProcureStaff offers Web-based tools for services requisition management and e-procurement, time-keeping and vendor management — as well as consolidated invoicing, so Avaya receives a single invoice from ProcureStaff for all temps working through the center.

The Honeymoon Period Continues

Since beginning to channel its temp labor spend through the NEW Procurement Center in 2001, Avaya has seen the payback on its work with ProcureStaff ramp up over time. In 2002 and 2003, Battaglia says, the company saw an average 7 percent savings on its average billing rate. But by 2004, the company was already seeing a 29.5 percent reduction in average bill rates. Battaglia credits this jump in savings to the tracking tools available through the ProcureStaff solution, which provides information on all the resources that the company has sourced over a three-year period and which have allowed Avaya to create a baseline for the average price that the company has paid for a given service. With this information, ProcureStaff set up a job library customized for Avaya with 278 unique job titles. “Now each time we source a contractor through the program, we have the backup to know what [bill rate] that person should be coming in at, and that's where we see our savings,” explains Battaglia.
This sure sounds like price fixing to me. But wait, there's more...
As a result of the initiative, Battaglia reports that the company had reduced the number of its preferred temp labor suppliers by 73 percent and seen direct sourcing activity drop by 81 percent for the locations up and running with the new center. In addition, the consolidated invoicing has resulted in process savings for accounts payable.

Interestingly, as Avaya has rolled the NEW Procurement Center out to its operations in different countries, the company, at times, has had to adopt new models to accommodate local requirements. In the Netherlands, for example, local laws do not permit a third party to stand between Avaya and a temp labor agency. As a result, in the Dutch market, Avaya has direct engagement relationships with its agency suppliers and pays the vendors directly. Battaglia credits ProcureStaff with assisting Avaya in researching the requirements of the different markets and ensuring that Avaya remains in compliance with all local labor laws.

Perhaps the icing on the cake for Avaya is the fact that the NEWs program has no budget, since it is funded by the suppliers. When the suppliers sign up under their preferred contract to participate in the center, they agree to a fee (typically 2 to 5 percent) for each contractor that they bring to the program (depending on the volume for a program and how many people it takes to run the program), and those fees go to ProcureStaff. “Our purchasing folks have put a lot of hard work into the program,” says Battaglia, “but ProcureStaff does assume a certain risk in ensuring performance. So it's a no-brainer.”
What this amounts to is a scheme that eliminates smaller businesses from competing AND forces the remaining vendors into a pay-to-play situation. Not very free market nor American, IMO.

It remains unclear what criteria are used to filter legitimate candidates from applying for positions. You see, if a price-fixing scheme is in place there is no room for free market negotiation of any kind to take place. And this distorts employment policy as well since corporations claim they cannot find enough "qualified" candidates through their public relations campaigns.

We may be entering a dark age of employment extortions being committed in a cyberspace that no one is is regulating and where fair employment and compensation laws are being subverted because no one is the wiser.

No wonder college graduates can't pay off their student loans. The labor market may be artificially dampened without so much as a whimper of protest.

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1 comment:

Anonymous said...

Mr Lipka

Your facts in this matter leave a little to be desired. As the Director of VMS for a major staffing firm let me set the record straight.

Vendor neutral companies where brought in by the Fortune 500 companies to curtail costs and abuses in the staffing industry when companies where not allowed to compete and bid for work. Most contracting work was paid out on a negotiation between a manager and a conultant or staffing company with no out look as to market costs or rates.

Vendor Neutral companies are required to put the services the client requests out to bid. The staffing companies in most instances are the ones driving the rates through a line bid auction on hundereds of job categories and these are locked in for a period of time with the client.

The vendor manage companies hire professional technical recruiters to sort thru the resumes sent for each job. The vendor neutral company for example might request 26 resumes with the blended maximum high bid. The vendor will then determine by bid and skill set which 8 are sent to the client. The client will then determine which candidates he or she wants to interview and the process goes from there. All other resumes are then stated in the system as no interest.

As far as the fees are concerned. We do pay a percentage of the bill rate as a short pay for the vendors service. We get that money paid back several times over in the forms of electronic billing and payroll cycles. Also we get SLA's on payments from the clients. This is guaranteed bankable 30-45 day money. You do not get those terms anywhere else in the staffing industry or anywhere for that matter.

The end customer additonally pays a matching fee to the vendor manager for meeting SLA's in its cost saving abilities

This is the wave of the future for major companies and consultants and companies like ours have a choice to make. Neither of us are making the profit levels we used to. Unlike your statement this is more than ever a free enterprise market based on an auction basis. You can take the job or bid on the job and there will always be someone more qualified willing to do it for less