Here Philip sums up the discussion, responds to many of the points raised and looks at the next steps.
Philip Ross writes:
In December I wrote an article for Shout99 entitled ‘Is the agency way the only way?’ in which I questioned the current agency model on the grounds that it offered a poor deal to both clients and contractors.
Philip Ross at Labour Party Conference
My motivation is that I now work for a consultancy company that uses contractors and we are paying a heavy price to engage them through agencies. From our side the maths is easy if we could find a model where we could find and engage contractors directly on business-to-business contracts then we could improve our profitability. It would also enable us to grow by bidding for larger projects in the knowledge that we could profitably engage contractors to work on them. At present agency margins of 15-25 per cent make the model almost unworkable with agencies making far more margin than we could ever hope to, lots of risk but low rewards.
I asked for comments and discussion on the topic and then promptly fell ill for the rest of the month.
Yet the response from Shout99 readers has been overwhelming and both insightful and thoughtful. I am indebted to those who have responded as it has helped me to focus on what the market is, why clients and contractors use agencies and what is possible and what isn’t. It has reinforced my belief that there is an opportunity to redefine the current agency model. I am convinced that the recession combined with the coming social media revolution together could provide the drivers for real change.
Discussions correctly noted that the PCG missed out in focusing on reforming the agency model and I take some responsibility for that as it was on my watch. But what the PCG was able to do early on was - using the common pooled resources of the contractor community - to get tax accountants and lawyers to focus on creating freelancer-friendly contracts.
Prior to that the contracts had been written for and by both clients and agencies in their interests not those of contractors. Make no mistake about it, agencies and their representatives weren’t just casual observers at the introduction of IR35 they argued for some of the more unfriendly clauses and ATSCo (as was) in particular lined up with the Revenue to counter many of the PCG’s arguments. At the time this may have been to try and entrench the agency model for professional services. As comments have shown at the time the creation of internet sites like jobserve were a real threat to their business model. They managed to adapt to change in the end but now with social media and a more mature internet change is on the agenda again.
I began this exercise with a view to removing agencies from the equation. There certainly is an argument for that. Many of us would like the utopia where clients and consultancies can engage freelancers directly. But there is a need as 'jackspt' suggests for 'middlemen who spread a lower cost across many businesses and who maintains access to that audience. Whether you call these recruiters or something else, that's always going to be the case'.
DavidHazel pointed out that 'the agency way isn't the only way, but it's often the easiest way, certainly from the contractor’s perspective.' He adds that the 'alternative requires either good networking skills or else money for marketing; and IT skills are a hard thing to sell. Even networking only works if you happen to know the right people in the right companies.' I will return to David’s comments later because the points he makes are important, about networking and marketing and knowing the right people.
TaxedtoDeath pointed out that if 'you really want to do the search and select yourself, as a client, I don't think there's much stopping you have your HR people do exactly that via Jobsite, Jobserve, CWJobs, maybe Monster and some others'.
This is true but the downside to this as someone pointed out to me was ‘we have used Jobsite before, the issue is that it requires is having internal resources to filter through the 200+ CVs that we got back. It’s doable, but it’s a lots of work’.
That is one of the reasons why companies go to agencies, to do that filtering for them and it is assumed (wrongly in my experience) that they reference-check the candidates that they put forward.
TaxedtoDeath also pointed out that ‘by-passing agencies does lead to a certain nervousness on the legal front as well as bringing the headache of having to do the recruitment themselves’. He suggests that HR aren’t really up to the task.
Ability notes that most companies try to keep their list of approved suppliers to a minimum. So as to reduce admin costs, since they need to vet and approve every supplier/subcontactor. Therefore, if they are able to mop up all of the professional contractors into one supplier - the agency - they can reduce their admin overhead, even if the actual contract rate is higher.
The admin cost includes possibly running the contract through a lawyer. Ability adds that ‘it is simply cheaper, and possibly cheaper for a company to deal with one supplier than several, all with potentially different contract terms’.
But as Den-ny points out because of this triad relationship this in effect means the freelancers are effectively ‘quasi-temps’. I expanded the argument myself to note that the agency-freelance contract usually have hand-cuff clauses to make the contractor tied workers to the agency. Effectively making them a serf to agencies feudal lordship.
A journalist contacted me to say that in their freelance market agencies would place them at clients for short contracts of a week or even a day, but the contract clauses meant you couldn’t go back to the client directly you had to use the agency from then on. They felt that in that industry it was a scam by agencies to push freelance journalists to as many clients as possible so as to legally tie them in for the future.
Such clauses in contracts reinforce the ‘quasi-temp’ scenario. Why else would there be temp-to-perm clauses in true business-to-business contracts and restrictions on doing business with the client again? They do undermine the contractors business model. As Den-ny notes it is this triad relationship between end-client, recruiters and contractors that has forged the problems associated with IR35.
But agencies do provide some services to the contractor as Kgc points out. They do ‘two things for an independent contractor, they sell (or at least identify qualified leads) and they factor the debt.’ To some this is worth their commission. DavidHazel notes the difficulties in networking and this is the service that agencies can provided, they can identify qualified leads and match up supply and demand. They do bring the ‘human touch’ of facilitating contracts as opposed to a simple matching of requirements.
There was some discussion about what the solution was. The agency model would be a hard one to break; my conclusions are that there are two possible solutions. Firstly to slice the edges from the agency model and the second is to compete directly with it via a ‘new model agency’.
Take consultancies like my own who are eager to find and engage contractors directly. It is true we could go to somewhere like jobsite and post our requirements directly and then work to sift through those CVs. What we want is some mechanism that does filter them based on either references from elsewhere or another method of assuring their credibility. DerekTP correctly challenge my assumptions as to whether I was simply looking for bums on seats or whether I was looking for services and this view should inform how any new model was setup.
Urgency for filling a position often dictates how a role or a service filled, have we got time to sift, advertise and interview? Or should be pay someone (an agent) who has done this already? A good agent (like an estate agent) will know what and who is on the market - cleverly and efficiently matching sellers and buyers together. Or alternatively we may be looking for a solution not a person.
To avoid using an agency we need to plan ahead and anticipate what skills we may need. If we build up our own preferred suppliers list in advance this creates us a virtual squad of qualified and experience professionals and suppliers. It would allow us to bid with confidence for larger projects.
If a requirement comes in for a say technical project manager and all our staffed managers are already on site we can sub-contract the role down to one of our pre-approved associate companies, the result being that we can keep our relationship going with that client, or start a relationship off. This I know would work for us though there is an up front cost in building the supplier list.
A Portal? A marketplace? A directory?
History has shown that portals where clients post up requirements and contractors respond to them have had limited success. Such portals exist for household handyman work such as plumbing, electrics and decoration, yet I would be anxious to use such a system preferring to have someone referred to me by word of mouth.
Portals in the past (including the PCG’s) have not proved successful because as TaxedtoDeath points out ‘the real work is done when you go and talk to clients to become Preferred Suppliers’.
I can see a portal working for me to build up a new supplier list, perhaps as a qualified directory but not so much for posting up vacancies. Ridiculous as it may sound when an agent forwards a contractor to the client there is the psychological suggestion that they have been endorsed. There is a word-of-mouth endorsement.
For some, a portal can create a marketplace to contact freelancers and build up relationship but the way the market currently operates they will never be true competitors to the agencies, because as TaxedToDeath suggests ‘setting up a portal will leave you open to standard agencies sitting at the table with their slick presentations explaining why their way is best’.
A portal could create a market place for mature clients willing to go direct but it won’t really compete with the agency model. But from my perspective if it allows us to network and build up a new supplier then it has done its job.
I think that Shout99 and its members could form the nucleus of such a portal. It has a database of some 35,000 professionals, the majority of whom are long term contractors, precisely the market with whom we would like to build associations with and I hope to build a trial with Shout99 to do just that for both current and future requirements.
New Model Agency (as in New Model Army)
As noted a portal could create a market place for mature clients willing to go direct but it won’t really compete with the agency model and the reason for this is that the agency model does offer some benefits to both contractors and clients. As a few commenters noted the scope for a more freelancer driven model is needed.
DavidHazel noted how he had asked an agency to find a customer with a project he could pitch for but couldn’t find a single agency that understood the proposition. Could a new contractor-driven agency be created, one with IR35 free contracts, one without hand-cuff clauses in it and with lower agencies fee? Or that offers projects and tenders not just vacancies? I believe the answer is Yes and it could combines with the portal approach.
This is the second and an exciting proposition and I shall write about on this in a future article.
Philip Ross was one of the first political/external affairs director of trade group, the PCG and led the team which successfully campaigned to have IT skills removed from the Skill Shortage list. He has been a long term critic of IR35 and as well as writing for Shout99 has also written for other political publications such as Progress where he has rounded on IR35.
A former IT freelancer, Philip has campaigned actively on behalf of freelancers and small businesses. At Labour Party Conferences, he has chaired fringe meetings and spoken from the platform in support of clearer and fairer policies for small businesses.
Editor's note:As Philip has said, there is scope for us to work together on this. However, before embarking on the details of such a project, we would both welcome the views of Shout99 readers on this next step.
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Susie Hughes © Shout99 2012