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The Feds and Staffing Industry Misinformation

I have avoided passing comment on the Canadian Federal Government's "Way Forward" initiative designed to streamline its procurement practices and save money. Like every taxpayer (probably in the World) I think that government is a terribly inefficient organization and anything done to save taxpayer money has to be a good thing! Having said that, there has been so much BS spouted around the initiative (designed to save money on how they procure staff augmentation services) that I just can't ignore it any more! I have been very involved in this initiative, representing ACSESS in a process for the last 18 months that was a cooperative government industry working group to achieve the goals of "The Way Forward". Somebody in power decided this was not a good approach, threw all that work out the window and brought in my old "friends" AT Kearney (now I don't have anything good to say about these guys ... so I won't say too much) at a cost of about $20 million to save money! Go figure!

The result is pandemonium and I predict the minority Conservative Government is flirting with disaster because the implications on business that serves the Federal Government are dire! There has been much said on this subject (CATA had much to say!), so I will move on to clear up some very major misunderstandings about our industry that have appeared in the press.

1. Staffing Companies are Middle Men that Cost the Crown Money.

I wrote a blog about the Value Proposition offered by staffing companies, all of which applies to the Federal Government just as much as to private enterprises.

An analysis that Eagle has conducted over the last year demonstrates that on a consistent basis procuring services through Eagle has resulted in cost savings for our clients as opposed to when they have found the resources for themselves! This is counter intuitive, because the client believes they are saving the (very skinny) margin paid to an agency. However ... their source of candidates is limited, their negotiation power is limited and sourcing people is not their core business! The agency can find people faster, has access to a much bigger pool and can negotiate the best rates!

2. The Staffing Companies Take Money out of the Pocket of Temps and Consultants!

Our clients pay us to provide a service ... we pay the consultants and temps to do a job. The temps and consultants are paid at market rates and the amount paid to the agency is added to that. If there was no agency, in theory the temp or contractor would still be paid at market rates and the additional amount would be absorbed in the internal cost of trying to source people.

3. Staffing Companies are Making Huge Profits

Statistics Canada suggests that the average staffing company has a pre-tax profit margin of 4.5% of revenues. Industry sources would suggest that average pre-tax profits in our industry are in the 3 to 5% of revenues range. This is all before the taxman takes his bite!
I have recently seen crazy numbers that talk about markups of 30 to 100% ... these are numbers that have no basis in reality. Margins in our industry are in the 15 to 30% range and out of those margins come the operating costs of our businesses ... hence the profitability percentages shown above.

There is tremendous value to organizations in having access to a flexible workforce to supplement their own employee base. Misinformation and misinterpreted data is being used to run down our industry and I think people need to do some serious research and understand the facts before they publish "drivel" such as an editorial in the Ottawa Citizen.