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Sunday, 13 June 2010 00:00

Outsourcing: Hiring Individual Resources

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Cousin Itt, from the Addams Family

The most common form of outsourcing is to hire resources through a staff augmentation firm. Staff augmentation firms, better known by their less polite nicknames of headhunters or pimps, provide anyone from project managers to developers and testers to fulfill a projects' temporarily needs. These firms match your requirements, based on level of experience in a skill or trade, or talent in dealing in specific situations such as overseas deployments, military contracts, etc., to the people in their database. The challenge remains in getting the correct person, who can ramp-up quickly and integrate into the team.

Expectations for Staffing Firms

Staff augmentation companies are a great place for buying commodity skills, such as testers. Their turnaround time for finding resources is quick and their rates are very aggressive. For specialized skills, they can provide board search capabilities and find resources that are otherwise difficult to locate. Specialized skills take longer and require that the desired person's attributes be well defined.

Headhunter or Direct, a Cost Issue

Case Study: Beating the System

The problem that plagues every project manager is staffing. The game is:

  1. Make a list of the skills needed
  2. Hand that into the resource manager
  3. The resource manager looks at the list of people inside the organization and selects resources that he or she feels is a close enough fit
  4. If they cannot find one, Human Resources (HR) will send the request to staff augmentation firm for bidding
  5. HR will not let the staff augmentation company talk to the project manager
  6. The project manager and team wade through dozens of résumés that are not qualified or have the communication skills of Cousin Itt

The solution is to write a thorough requisition with an accurate job description and skill requirements. Too often, this task is seen as drudgery and the requestor leaves too much up the reader to understand. They say Java or .NET or they have company acronyms and forget to add a level of detail. Have the project's core team make sure the requisitions are correct.

Remove requirements that are not needed. Obvious, you say? Not so. I have worked at more than one shop where every requisition had to have "Experience with RUP required" and they never used RUP. They had bought it and management was in the dark about the fact that it was unused. This can be quite a battle; however, staffing firms will filter good people out based on this requirement.

I have had many situations where staffing firms could not find people. I once covertly bypassed HR, went directly to two of the firms, and sent them edited versions of the requisitions. I removed all the requirements that were not needed and made sure there were no company acronyms. I then previewed dozens of résumés prior to them being submitted. The feedback from reviewing the résumés, gave the staffing firms a better idea of what was needed. The officially submitted résumés were very high quality. I then coached my team on writing better requisitions. Eventually, I went to HR and told them why they were seeing better submissions. We then collaborated on changing the hiring process.

Using headhunters will add between twenty-five and fifty percent to the cost of the resource. Good placement firms you can trust will provide value in screening potential resources. However, multiple vendors should be used in order to have a complete inventory of qualified candidates. Do not let a single poor list of potential candidates disqualify a vendor, sometimes their inventories are biased to a specific set of skills.

For many high-end resources with specific skill requirements, such as program and project managers, the cost of using a placement company is prohibitive. Additionally, the type of resource needed, are usually part of consulting companies that do not use placement firms.

General economic conditions drastically affect rates. In slow times, headhunter fees will decrease since fewer people are being hired. Many companies stop using them because they want to save the staffing fees, this makes the placement firms even more competitive. The reciprocal is also true. In good times, companies have money to spent and rely on placement firms; rates go up. As resources become scarce, companies cannot find the correct resource themselves and turn to headhunters even more. Rates go up further. This is simple supply and demand.

Assignment and Level of Protection

The assignment for the resource should be clearly defined. Many contract positions drag on over multiple assignments and the resource starts to qualify as an employee. Insure new statements of work are created for each assignment. In the US, the length of the engagement raises concerns for the company's liability with the Internal Revenue Service (IRS), the primary funding source for the US government. After too long a tenure, the IRS will rule a contractor an employee. For this reason, many companies have an eleven- to fifteen-month automatic termination clause in contracts. Make certain either the placement firm or the consultant a) provides government forms (a W9 in the US) to show that they are properly registered to pay taxes; b) is responsible for all taxes; c) has proper liability insurance.

When to Convert a Contractor to an Employee

All contracts should clearly define the intentions, requirements, and obligations to convert a contractor to an employee. If the intent of the placement is to determine if the contractor is an appropriate fit to be an employee, the contract should indicate that. Many contractors prefer being contractors; they have no intention of becoming anyone's employee. If the resource does not want to be considered to be hired, that should be identified at the beginning of the engagement. As mentioned in other articles, setting expectation is critical.

Hiring temporary labor from a placement company almost always incurs a finder's fee based annual salary. The contract should have both the requirements, such as when to notify of intent or non-intent to hire, and the obligations, how much the hiring fee will be. These should be boilerplate statements in all contracts. Always leave the options open to hiring a contractor.

Payment Options

As opposed to common belief, not all contractors are hourly. The same options are available for paying resources as there are for projects—time and materials, fixed price, fixed price incentive, cost plus, etc. These should be used to match the type of work required. The most common is to have people working on an hourly basis. However, nothing says that programmers could not be paid a low hourly rate, with an incentive for early release of a tested product. This will incentivize them to test properly, refrain from adding non-essential features, and meet the schedule. Project manager rates could be fixed price with incentives for on-time completion. Recovery managers could be paid for how much money they return from a project recovery. The correct payment options can drastically change the project's performance.

Termination Clauses

All contacts need a clause for termination without cause. Temporary resources need to be a good fit. If for any reason they do not work out, replace them quickly. There should be a two-week notice condition—they should be treated honorably. If, on the rare case, there is a reason for termination (i.e. the contractor breaks the law or company policies) immediate termination without any financial obligations is appropriate.

What Are Your Experiences?

What have you experienced? If you are a contractor, or have hired contractors, tell us what you have found:

  1. Have you had a horrible experience?
  2. Do you have a trick to ensure you get the right people?
  3. How do you know when to turn down an engagement?


Note: This is the first in a series of articles on outsourcing that will appear over the summer of 2010. If you are interested in an in-depth study of the subject, Todd will be teaching a class at various universities and colleges. For more information check out the course description and find a college or university near you.

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