he bankruptcy in January of one of the world’s largest providers of vendor management
services has sent shock waves through the staffing industry as companies scrambled
to collect outstanding bills that have been estimated to total $100 million to $300
million.
The collapse of Axium International of Los Angeles and
its subsidiary, Ensemble Chimes Global, raised broad questions about the concentration
of staffing management control in third-party companies, particularly technology-based
providers like Ensemble Chimes, which oversaw hundreds of vendors on behalf of client
companies.
Vendor management systems—or VMS for short—rate staffing
vendors based on client criteria, track their performance, handle payments from
clients to vendors and perform a host of other functions through a centralized platform.
"The big concern that we have as an industry going forward
is the financial viability of these VMS suppliers," said Ed Lenz, general counsel
of the American Staffing Association. Lenz has monitored the bankruptcy proceeding
on behalf of staffing companies that have unpaid bills from Ensemble Chimes.
"We have members who are worried about amounts owed
to them," Lenz said. "But so far we have not heard of any staffing firms in dire
straits."
Axium, which started out as a payroll services vendor
to the entertainment industry, expanded into the broader business of managing the
vendors that provide contingent and contract staffing and related services to clients.
VMS providers have grown rapidly over the past decade, thanks to their promise of
reducing labor contracting costs and improving vendor selection through the use
of sophisticated software programs.
Axium abruptly ran out of money in January and filed
for Chapter 7 bankruptcy, which is liquidation rather than reorganization. That
resulted in a swift dismantling of the company. What remained of Ensemble Chimes
was sold out of bankruptcy on January 23, followed by the rest of the Axium business
on January 31.
Much of the initial attention surrounding the bankruptcy
focused on movie and television production contract workers who did not get paid
when the company collapsed. But the impact was much broader, reaching around the
nation and globe into numerous large corporations.
Lenz says hundreds of staffing companies around the
U.S. provided contingent labor to clients through the Ensemble Chimes VMS. Bills
went from staffing companies to Ensemble Chimes to client companies, and the payments
came back through the same channels. The Axium bankruptcy effectively cut off the
billing and payment pipeline.
In Minneapolis, insurer UnitedHealth Group had ties
severed to around 100 suppliers of contract and contingent labor services who were
managed through Ensemble Chimes. In some cases, the relationships involved individual
contractors performing project work. But in other cases, groups of up to 40 workers
engaged on a contract or contingent basis were affected.
To prevent disruptions, UnitedHealth immediately hired
about a dozen Ensemble Chimes employees who constituted the team that managed the
UnitedHealth vendors. The move helped minimize problems as a result of the bankruptcy.
But despite hiring the workers, UnitedHealth has yet to decide how it will manage
its staffing services vendors in the future.
"The long-term solution hasn’t been determined yet,"
said Karl Oestreich, a UnitedHealth spokesperson. "We are weighing all the options."
The uncertainty on the part of many client companies
about how to deal with the Axium bankruptcy spawned a rush by other staffing services
companies to offer help and take over Axium/Chimes contracts. Adecco, the Zurich,
Switzerland-based staffing company that has its own VMS, was among those offering
to pitch in to help affected Axium/Chimes clients—and perhaps pick up some additional
business.
"I think that this disruption has certainly created
some opportunities," said Steve Baruch, Adecco’s senior vice president of business
development in North America. "There is a void that needs to be filled. But at same
time, it has created caution. Clients aren’t going to race to pick the next solution.
They will be digging deeper, asking more probing questions than they asked before."
Lenz says that staffing companies, which are the ones
that actually provide workers to clients, have become increasingly concerned about
the growing power of VMS companies to control large numbers of vendors. Prior to
the Axium bankruptcy, ASA established a special committee to examine the operation
and impact of VMS companies on the staffing industry.
"It has taken on a new urgency because of the bankruptcy,"
Lenz said.
ASA has taken no position on the use of vendor management
services, partly because staffing companies hold varying views. Many staffing companies
complain that third-party vendors like VMS providers erect barriers that block access
to clients. Meanwhile, other staffing companies have not only embraced the VMS model,
but have launched their own versions to better compete.
The ASA is trying to develop several reforms that might
help protect staffing companies and clients from disruptions like the ones caused
by the recent bankruptcy. The ASA plans to publish its conclusions as a best-practices
guide—perhaps as early as the end of February.
Among the top issues under discussion are ways to help
ensure the integrity of financial arrangements managed through a VMS. One suggestion
is to have client payments placed in trust or escrow accounts separate from other
funds controlled by a VMS. Another suggestion is that staffing vendors be paid directly
by clients instead of having the payments routed through the VMS. The VMS could
continue to monitor, track and direct vendor usage and spending without actually
handling service payments that go to the vendors.
Jason Posel, senior vice president at Albany Group,
a company that manages contingent worker services, says one way for clients to protect
themselves is to avoid grouping all vendor contracts under one manager like a VMS.
Having some vendor services managed separately provides a check and balance to the
authority of a single manager.
For payroll services, Posel advises clients to include
contract clauses allowing audits of vendor accounts to ensure proper handling of
funds and payment of relevant payroll taxes.
Jeff Phelps, president and founder of Secure Talent,
which provides contract worker services, says the collapse of Ensemble Chimes will
probably affect the confidence clients and staffing vendors have in VMS providers
for some time to come.
"I do think it is going to cause companies to take a
look at the whole VMS industry," Phelps said. "I think many suppliers will be hesitant
to engage with a VMS."
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