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Who Owns the Temps

April 12, 2007
Related Topics: Contingent Staffing, Outsourcing, Recruitment
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W hen Stephen Holmes, vice president of Kelly Vendor Management Solutions in Troy, Michigan, gets a call from a corporation shopping for contingent workforce help, it’s typically a procurement officer on the line.

    But Mike Fox, a managing principal at Towers Perrin in Southern California, says human resources departments are almost always either in charge of or fundamentally involved in the contingent workforce situations he sees.

    The split reflects the two halves of the contingent workforce equation: cost control and talent recruitment. While human resources remains the dominant player in contingent workforce plans at most companies, procurement officers are becoming much more involved—and in some cases control the process—thanks to increasing pressure for corporate cost control and savings.

    "It is all about cost containment," Holmes says. That message resonates with most procurement executives, whose specialty is managing supply-chain networks with an eye toward cost control. To procurement officers, contingent worker arrangements revolve around negotiating contracts with vendors to deliver the right workers at the right time at an attractive price.

    Human resources executives "are not negotiators," says Jim Haining, a Colorado-based consultant with years of experience as a corporate procurement officer. "When human resources does it, generally you are not getting as solid a contract as you can get. Often you leave a little bit of money on table, and sometimes a lot of money."

    He cited a company where he worked that had an agreement with a contingent labor vendor that was negotiated by human resources in which the vendor got paid an extra 100 percent over the base pay of the worker.

    "That’s crazy," Haining says. "Putting it through the bid process, markups should be 30 to 45 percent." Haining adds that a procurement officer who is savvy in outsourcing and contracting can save 15 percent to 30 percent in contingent labor contract costs.

    "You also get better terms and conditions and just better overall contracts," he says.

    That doesn’t mean procurement officers should take control of contingent labor, Haining says. Rather, they should be key players in shaping and negotiating contingent labor contracts that are ultimately managed by human resources.

    Today, most contingent worker arrangements are run by human resources, which is by design.

    "Our members feel strongly that a hiring manager needs to be involved in the process," says Steve Berchem, vice president of the American Staffing Association in Alexandria, Virginia. "It can’t be done through a requisition order."

    In a 2004 ASA survey of 500 businesses that used staffing services at some point in the previous 12 months, 82 percent said human resources was either in charge of or involved in the process. In smaller companies, office managers or finance/accounting managers often took leading roles. Procurement officers came into play at companies with more than 500 employees, but even there, only 7 percent reported procurement officer involvement.

    Haining says large corporations recently have re-evaluated how they handle outsourced services. Procurement offices are gradually taking charge of more contracting, including contracts for contingent labor.

    Ron Mester, CEO of Staffing Industry Analysts, says the split over how to handle contingent labor reflects the nature of the field.

    "If you look at it, it is a unique blend of HR, procurement, legal and operations," Mester says. "It has elements of all of them. Procurement looks at it and says, ‘We are contracting to buy services.’ HR says, ‘This is about talent and labor, so it sure sounds like HR.’ Operations people often look at it and say, ‘We have handled this for years.’ More recently, legal says, ‘There are substantial issues in how we contract and manage these workers.’ "

    The schizophrenic approach to contingent labor was reflected in a recent survey of Fortune 500 corporations by Taleo Corp. of San Francisco. The survey found that 21 percent of companies could not estimate their own annual spending on contingent labor in the U.S., while another 18 percent could not estimate the number of contingent labor suppliers they used. Taleo says that large companies now spend about 7 percent of overall revenue on contingent labor.

    While legal issues like the reporting requirements of the Sarbanes-Oxley Act of 2002 often come into play in contingent labor contracts, many companies seem to have little awareness of how those legal issues play out within their organizations. In the Taleo survey, half of those surveyed did not know if their companies had ever been sued regarding contingent labor. Another 33 percent did not know which, if any, department was responsible for minimizing risk and liability arising from the use of contingent labor. Yet 66 percent were highly concerned about overall compliance with regulations at their companies.

    To help companies get a better handle on their contingent staffing operations, Staffing Industry Analysts recently launched a new Contingent Workforce Strategies Council through which Fortune 1,000 companies can exchange ideas and develop best practices in the field.

    Many economic analysts now predict a tight labor market in the next few years, which has raised the importance of a comprehensive and effective contingent labor strategy. While some company insiders view a labor shortage as reason for more involvement by procurement, others see it as a catalyst for greater human resources participation.

    Procurement officers provide a ready resource to help control contingent labor costs when a shortage of workers tends to drive up prices. But Fox says that instead of taking advantage of the expertise offered by procurement officers, some human resources executives are instead moving toward a greater role in contingent labor simply to resist losing control to procurement.

    Human resources officials need to move cautiously, warns Lee Muller, a group procurement director for Waste Management. Leaving procurement offices out of the
contingent labor equation can be a costly mistake.

    With contingent labor contracts negotiated exclusively by human resources, "It is unlikely that you have the best value situation," Muller says. "Not impossible, but unlikely."

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