05 November 2014

Recruitment tenders and PSAs: Please get out of your own way!

I'm right! Yes, it does happen occasionally.

I now have substantial evidence from a highly credible global consulting firm that supports one of my more common rants; the ludicrous waste of time and money that a vast number of tenders and PSAs prove to be.

Wasteful recruitment tender and PSA processes are one of my pet hates, and I am willing to bet my house on the fact that they are also a very big hate of many recruiters.

Last week, Top 4 global accounting firm Deloitte, released the fourth part (Get Out of Your Way: Unleashing Productivity), in their Building the Lucky Country series.

The Deloitte report is a wonderful, evidence-based articulation of exactly why a large majority of compliance processes are a huge waste of time and money and, ultimately prove to be an impediment to business productivity.

The report's summary (page 4) puts this waste of time and money in specific annual financial terms:

  • $94 billion to administer and comply with public sector rules
  • $155 billion to administer and comply with self-imposed rules and regulations
  • Unquantifiable losses from forgone incentives, enterprise and innovation
  • At least eight weeks of work just to cover the cost of administering and complying with rules

The report spells it out bluntly ‘..... the biggest single drag on Australia's productivity (is) red tape and overzealous rulemaking.'

How does this happen?

Firms with a lack of trust in their employees limit their use of judgement or discretion. Large organisations, in particular, tend to frown on discretion, meaning that many employees - when faced with a divergent choice between doing the right thing and doing what the rule says - will opt for the latter. They prefer the quiet life of ‘going by the book', even if they doubt the book's wisdom. (p 28)

Rather than weighing up costs and benefits, organizations often institute new rules with little or no thought as to whether those rules are really needed, or even whether they are consistent with other rules they already have in place. (page 6, my bold)

Too often, corporate and government bean counters see ‘recruitment fees' in the general ledger and immediately identify it as a cost that can be reduced. And how is that reduction achieved? Mostly it's achieved by unwieldy, long winded and resource-soaking exercises in constructing and implementing tender processes, undertaken by, as Deloitte calls them, ‘compliance workers'. These processes cost money. Once the PSA is implemented more compliance workers are employed to ensure that the new rules are being followed! Compliance workers don't care about their own cost because it's not their job to do that. Their job is to ensure that the rules are followed. Yet how many companies truly think through the full cost of all this compliance work?

And this is exactly the point I have made in all my rants about recruitment PSAs; the headlong rush by companies into such 'compliance agreements' without any careful, thorough and objective review of both the costs and the benefits.

When some corporate or government HR/Recruitment speaker stands in front of a conference and crows ‘we saved X hundred thousand dollars in recruitment agency fees' I suspect they never think to deduct from these ‘savings' the extra costs that are now borne in employing compliance workers throughout the organisation.

Let me remind you, again, of how costly and productivity-sapping this whole tender/PSA fixation is in the real world of recruitment. Here are some brain-exploding examples I have written about before:

  • Fifty nine (59!) weeks after their temporary and permanent jobs tender closed the Federal Health Department announced that 27 recruitment agencies had been successful in winning a place on a non-exclusive recruitment panel, that guaranteed no minimum volume to any agency across the Department's nine offices. (November 2011)
  • Forty nine (49!) weeks after their executive search tender closed the same Federal Health Department announced that 18 search firms had been successful in winning a place on a non-exclusive panel, that, yet again, guaranteed no minimum volume to any firm. (July 2012)
  • The Australian Nuclear Science and Technology Organisation (an agency of the federal Department of Innovation, Industry, Science and Research employing a relatively small 1000 or so staff) managed to take a yawning nine months to make an announcement about its fourteen tender winners for the orgnisation's recruitment needs. (August  2012)
  • A place on The City of Sydney Council Temporary Staff Recruitment Panel was awarded to thirty nine (39!) agencies after a process that took eight months from tender close until the ‘wining' agencies were announced. (November 2012)

In the middle of writing this rant I checked industry news service, ShortList, to see what other examples of PSA lunacy might make my blood boil and there it was ... a fresh, yet equally stupid example of something that reads from a Yes, Minister script. Read this and try not to laugh, or cry:

The ATO has put its ICT contractor supplier panel back to market in a bid to improve the way it procures contractors.

The new panel will comprise two tiers of suppliers: one providing contractors with general skills, and the other for specialists, the ATO said in tender documents.

The first tier will include a maximum of five generalist suppliers that will provide the bulk of the ATO's contractors, and must have the capacity to supply in Adelaide, Brisbane, Canberra, Sydney, Melbourne and Wollongong.

The tier one contracts will run for three-years, with two one-year extension options, while tier two providers will work on shorter one-year contracts, with four one-year extensions.

The ATO, which spends $36-$40 million annually on its IT contingent workforce, revamped the procurement arrangement in a bid to reduce the complexity and cost to industry, it said.

This is the ATO's way of reducing complexity and cost?

They cannot be serious.

Here's a tip for the ATO: the complexity and cost you are so keen to reduce can be achieved by stopping all these ridiculous, costly and inefficient tender processes. Just get out of the way and let the free market operate!

The ICT agencies that provide the ATO with the required contractors for a fair price will get business and everybody else won't get the business, or will lose any business they currently have.

CEO of GE, Jeffrey Immelt said, in a recent letter to shareholders, and quoted in the Deloitte report (page 21):

"We attempted to manage volatility through layers and reviewers. Like many companies we were guilty of countering complexity with complexity ... more inspectors, multiple reviewers," he said. The result was a "higher cost structure, an artificial sense of risk management, and we were insulating our people from the heat of the market". (my bold)


I'll leave the final words to the authors of the Deloitte study:

As a nation, we're wrapped up in red tape. Something must be done, and government - as rule-maker in chief - is in a strong position to fix the backyard we all share, set an example, and promote best practice in its own operations and across the economy.

Yet that doesn't let businesses and other non-government organisations off the hook. As we've shown in this research, the largest part of Australia's annual compliance cost comes from the rules private sector organisations impose
on themselves rather than those from governments.

If those organisations really want to get ahead, they could start by getting out of their own way. (page 51)

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1 comment:

  1. Unfortunately Ross, at least in my experience, most of the time they don't even save money out of the process (even ignoring the resources allocated to conduct the process) for two key reasons. Either (a) the 'old glove story' (price of everything, value of nothing) or (b) because they try to conform the outside market to their internal view of the world.

    (a) The Old Glove Story
    This is one I heard of from the procurement department of a government health facility. The procurement department found a supplier for surgical gloves that was nearly half the price of the current supplier; and switched suppliers; three months later the expenditure on surgical gloves is higher than it was before; after investigations they found that their staff were ordering nearly three times as many gloves each month; after further investigation it was found that the gloves were weak and would frequently break whilst being worn and so all staff were double gloving; thus the higher usage". Perfect example of knowing the price of a product but not the value involved.

    In my industry (on-hire medical healthcare) the recruitment example (and I've seen this a few times in my limited experience) is as follows. Facility procure 'cheaper' on-hire staff, who don't have the same level of experience/training/competency as their existing supplier (thus why so much cheaper). These cheaper staff end up making a lot of clinical mistakes which means the facility spends lots of money paying their supervisors and managers to investigate, report and then rectify these mistakes (don't even consider the bad publicity potential yet - remember we're talking the medical healthcare industry).

    This continues further, the facility's staff don't like working with agency staff that are paid more but are far less competent and they're sick of cleaning/fixing up everything after the agency staff come in. Their own staff turnover increases and their reliance on these 'cheaper' agency staff increases. Before long their stable workforce has disappeared, they are reliant on agency and their few remaining pre-existing staff that are left (often only those who couldn't be employed elsewhere) and it takes years to repair the culture (if ever). I've seen this a few times in my limited experience and it is very sad to watch the slide in quality as an outside observer.

    (b) Conforming the Outside Market (for no other reason than to conform)
    The facility get agencies to supply their rates according to the facility's EBA. The facility EBA has 4 categories, the agencies all work to a modern award that has 10 categories. The agencies thus have to group their staff into fewer categories (at the highest rate of course to ensure they don't erode their margin). The facility ends up paying more for exactly the same employee than they did before they conformed them to their EBA. Worse yet, the facility has even effectively made an incentive for these agencies to send the least experienced employees (as they are being paid at a higher rate and thus making a greater margin than they would sending them elsewhere.

    This is not to say that every tender process ends up flawed like this; it just highlights what I so often see going wrong with these processes when the team running them don't understand both the 'value' involved in what they are procuring and the 'industry' they are procuring them from. The best outcomes have always been where their teams have actively worked with existing suppliers (and sometimes new ones) first to understand the market they operate in and take onboard (not necessarily adopting everything - that could possibly even be worse if you've got a bad supplier already - but considering) the information those suppliers give them.