Hired guns: Page 2

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In large organizations, this can easily involve sums topping $100 million per year. With that kind of investment, it pays to take a close look at best practices for contract staffing, says Krengel, who helps manage the process for about 20 companies in the Twin Cities area, just under half of which are Fortune 500 organizations.

Stemming the sprawl

The number of contract staffers in large IT organizations can easily range into the hundreds, even thousands. Too often, contract staffing is done in an ad hoc way by IT managers in decentralized environments, notes Kari Krengel, president of TeCS Management Inc., St. Paul, Minn., and a veteran staffing consultant.

Most often, the results are a mess. Just keeping track of contracts made with dozens of staffing brokers is a monstrous task. Firms end up paying too much for contract work, missing out on volume discounts, losing track of how many contractors are employed, and, worse still, losing sight of what those contractors were hired to accomplish.

"Without a centralized function to monitor and facilitate purchasing [of staff], it's not uncommon for an individual IT manager to bring in a contract worker and pay an hourly rate of $5 to $20 more than necessary," says Krengel. "I see it all the time. If an IT manager only calls one or two of his favorite vendors, what are the odds they have gotten the best candidate at the best price?"

And with the average ratio of one agency for every five to eight contractors, the list of agencies being used by a company at any one time can quickly multiply--"more by default than by design," she adds.

One way to fight such staffing sprawl is to centralize the management of contract IT hiring, says Rita Terdiman, research director at Gartner Group Inc., in Stamford, Conn. Another is to consider adopting one of the new breed of enterprise workforce management tools, she says. These products are designed to help companies fill jobs faster by tracking what skills are needed, what projects need to be completed, and what staffing resources--both companies and individual contractors--have been used in the past. Some products have components that link the company looking for workers with staffing brokers via the Internet.

Among the offerings are applications from Evolve Software Inc., based in San Francisco; Icarian Software Inc., of Sunnyvale, Calif.; PeopleMover Inc., of Hermosa Beach, Calif.; and Vivant! Corp., of Oakland, Calif. Starting prices for integrated enterprise workforce planning (EWP) applications range from $50,000 to $100,000. --SW

The first hurdle in hiring contract workers is selecting a reliable staffing agency. Open the telephone book in any major metropolitan area and you'll find dozens of listings for contract IT staffing agencies. How do you pick one? The short answer, according to Dan Carr, director of software engineering at NBX, a network telephony products maker in Andover, Mass., is that they find you. "There are lots of vendors out there and they work hard to solicit business," he says. "My only criteria is [that the agency provide] good, qualified, hard-working people."

At NBX Corp., a division of 3Com Corp., in Santa Clara, Calif., contractors are helping to fill crucial gaps in the young company's IT organization.

"When our company started two years ago, we built a critical mass of full-time engineering talent and then began adding contractors in areas we needed help, like Windows NT, C++, and Visual Basic," says Carr. Several of those contractors were provided by NetGuru Systems Inc., of Waltham, Mass.

Even with reliable agencies--those that have tested and trained their contractors--it makes sense to do your own assessment of candidates. "I don't hire anyone without putting them through an interview process," says Carr. "I don't take a contract firm's word on the quality of the individual or their skill set. My team and I determine that for ourselves. In this respect it's not really much different than hiring a regular employee."

The truth is, no one agency is likely to be able to staff all of a company's projects, from help-desk workers to systems analysts, from software designers and coders and testers to project managers. "It's more common that a company will have a ratio of one agency for every five to eight contractors," says TeCS Management's Krengel, "so if a company utilizes 400 contractors, it's most likely working through 50 to 80 agencies."

Numbers like that prompted Brian Korsmeier to utilize a Preferred Vendor Program during his years as director of technical contract resources at a major West Coast utility.

"When you're hiring in the thousands of contractors, like we were, you need to build relationships with a core group of suppliers," says Korsmeier, who requested his former company's name not be used because officials at the utility consider the number of contractors employed to be strategic information. "Putting them through a formal RFP (request for proposal) process reduces the amount of churn. You end up with qualified suppliers who know your business, won't gouge you on price, and will work with you if there's a problem with a worker."

In some respects, adds Korsmeier, contracting to buy temporary IT help is akin to buying widgets; both require sound contracts. It makes sense to involve your procurement department, he says. Tapping their expertise with contracting principles and pricing dynamics can cut liability and save money.

The art of the deal

The most often negotiated elements in a staffing contract, say the experts, are price and length of contract.

"Cost depends so much on where you are in the country and the experience of the candidate," says Williams Controls' Aronson. "Around here, a junior help-desk staffer might run $30 an hour, while a programmer/analyst could easily ask $80 to $125 an hour. That's still a lot less than the $150 to $250 an hour some of the Big Five firms charge." He notes that Williams Controls pays general support people $28 to $49 per hour, analysts $45 to $80 per hour, senior analysts $100 to $150 per hour, programmers $40 to $80 per hour, and senior programmers $125 per hour.

Of course, the contractor receives only a portion of that amount.

According to Alan Strong, president of Commercial Programming Solutions Inc., a staffing agency in Los Angeles, broker margins hover at around 40%. Agencies that spend a lot of money on training their contractors may charge more than those that do little more than recruit workers and handle their payroll. In addition, some agencies provide extensive oversight of their workers while they're contracted out, sometimes as often as every 30 days.

Most contracts are written to last from four to six months, notes Strong, though the total length of time a contractor works at a firm has been steadily rising over the last five years, often involving more than one contract. Short contracts help companies keep nimble, adds Aronson; he prefers month-to-month contracts that allow him to add and subtract staff easily.

NBX Corp.'s Dan Carr
Once candidates are given the green light, the next question is how to deploy and manage them. In most cases, says NBX's Carr, his company won't use contractors on core technology or in project leadership positions.

"I would not put a contractor in a position that has employees reporting to him or her," agrees Krengel, the consultant. "You get into problems with morale, not to mention liability and confidentiality issues."

In addition, notes Aronson, it may be risky to place contract workers in positions that require them to represent your IT organization to others: "If you're staffing a help desk, for instance, they need just the right interpersonal skills to represent your function to the rest of the company."

At the same time, the best work will be produced by contractors who are treated as an integral part of a project. Says Carr: "I try to manage them like anyone else on my team. To me, they are part of the team, and they should be treated as such."

Try before you buy

There's one more advantage to the contract worker scenario: the ability to test out the fit between employee and employer before possibly making a more permanent arrangement. NBX, for one, has hired several of its early contract workers.

Hire and hire
By 2003, contractors and consultants will represent as much as 50% of the IT workforce in large enterprises.

By 2003, 20% of IT positios will remain unfilled.

Source: GartnerGroup Inc.

Converting temporary workers to full time usually requires some sort of fee to be paid to the staffing agency. Most contracts include a "contract to hire" clause, which sets out the fees to be paid, usually on a sliding scale, when a contract worker is hired inside a company.

"In some cases, we've paid a reduced headhunter fee almost immediately. In others, we commit to contract for a certain amount of time and then pay no fee," says Carr. "I've found that it's best to negotiate these terms up front, especially if I determine during the interview process that the contractor might be someone I'd like to hire."

Caveat emptor

As with any industry that competes for such scarce resources, the IT contract staffing business has its downside, say experts, and it pays to be aware of it.

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