iv. Agency basics for IT contractors – Lingo
Preferred Suppliers Lists
Most organisations will have a formal Preferred Suppliers List (PSL) in place which will be run by the HR or Resourcing division. The benefit for contractors is the comfort and knowledge that the agencies they are speaking with about opportunities will understand the organisation, or business or department that the role sits within and the actual requirements. PSLs usually mean the agency adheres to a fixed margin agreement with the client and so when discussing rates these are what the client wants to pay to the contractor.
This prevents the situation where an agency will try and reduce the rate expectations of the contractor to increase their own margin so contractors can have a degree of comfort and trust with an agency with a PSL.
Another perk is that if your CV is submitted through an agency on the PSL, you can be confident it will be reviewed by the hiring manager, as very often CVs from agencies not on the PSL will not be accepted.
Fixed Margin Agreements
This is the most commonplace agreement and often they will impact the agency's ability to reduce their margin; the client will state what they want to pay the contractor in line with the rest of their contract consultant community (very similar to how companies want parity with their permanent employees) and the margin sits separately to this.
Agencies will have contractual terms with the client which they have to adhere to which will include the margin. Agencies are not obliged to discuss their client margin agreements with contractors (and sometimes will be contractually restricted). It is down to the contractor to ensure they are happy with the rate they are being paid at the outset of an engagement. Contractors should also consider the value they place on the agency's role, including that of introducing them to the opportunity and contractor care throughout the engagement. Often the highest priorities will include being paid correctly and in a timely fashion, having consistent points of contact (often the 'consultant' and a dedicated 'contractor care' team) for issue resolution and advice and agreement on extensions well before the initial end date of the assignment.
Agency Commission, Fee or Remuneration
The size of cut an agency makes on an IT contract varies according to the client, the industry sector and the nature of the relationship between the agency and the end client, so there is no single answer. As recruitment as an industry has evolved, there has been a tightening up of margins that agencies charge. These margins will usually be reviewed on an annual basis with the client.
The most common scenario is where a client will quote to the agency the rate they want to pay the contractor excluding the margin; the margin will be added onto the pay rate once an engagement is confirmed and this makes up the charge rate. The answer to the Contractor's Question in February approximates the right boundaries, but generally the rate will be at the lower end of what was quoted, and sometimes the margin will also decrease over time with extensions.
Comment provided by Paul Elworthy, associate director of banking and financial IT staffing at recruitment firm Hudson.