At The Oyster Partnership we used to proudly describe ourselves as a Public Sector recruitment firm. Along with others in this niche we supplied specialist staff to Public Sector organisations within the London area. After all, we’re based in the very heart of the City of Westminster.
When the first Vendor Managed Services came in to the sector the industry gave a collective groan but we weren’t overly surprised to see it happen. Recruiters including Randstad, Hays, Badenoch & Clark, Impellam Group, Synarbor, Eden Brown, Reed, Pertemps, Manpower and Ajilon all reacted quickly using their financial clout and set up their own versions; within a short space of time pretty much all London Boroughs and other public sector bodies were tied up in VMS agreements.
Money is made mainly through the splitting of cost savings. Initially rates were cut to manageable levels, but of course in order to make further savings in future years more cuts have to be made – year on year. So when does this stop?
The writing was on the wall quite a while ago. We’ve always been a very fluid business and made a decision to move away from VMS over a year ago. This meant having to abandon our clients and relationships we had built up. In essence, rebuilding the business which is what we are still doing now. VMS now accounts for 25% of our business rather than 75% and we have to drop this still further. Our turnover is up by 20% and our GP more. This has given us a fighting chance.
I often wondered who on earth was signing the new rate agreements and regularly questioned providers who informed me that “Everyone else is signing them”. How were they making money? How were they paying their staff? What were they paying them? Are the rate agreements being signed by people with commercial acumen or by employees that haven’t bothered to work out the financial implications of their actions?
We now know that several respected competitors of ours are struggling – teams are being made redundant and consultants are leaving what they perceive to be sinking ships. Our contractors are at the mercy of the VMS providers. Just yesterday I had another email informing me that margins on existing temps at one large London Borough were dropping to 8%, and if we wanted to continue to supply within our current sectors our new proposed rates would be between 6 and 10%. Thanks but no thanks. It’s not that we don’t want to work the jobs - it’s that we can’t work the jobs, and there goes the second major client in as many weeks. Proposed rates are as low as 3.5% and this isn’t uncommon. We know there is a Public Sector recession coming but it’s a huge wheel that can’t be stopped from turning overnight.
The market is creating an oligarchy and nobody seems to be bothered about it. The recruitment groups that contain both VMS and recruitment companies e.g. Matrix (Eden Brown & Technical Resourcing) can probably afford to offset any reduction in GP on the recruitment side with the profits they are making through their VMS businesses. The rest of us have to find another place to lay our hats. I’m sure many businesses will go to the wall.
The real losers will be the end users who have bought into these agreements. As the supply chain becomes weaker the quality of candidates will drop, along with efficiency and productivity. By the time clients cotton on to this it will be too late – quality recruiters will have found somewhere else to ply their trade. Recruiters who are happy to work at the new margins simply aren’t very good - they can’t be. These are the ones who are going to be called upon to supply into specialist roles.
So while we wait for the next cycle we’ll be elsewhere, hopefully continuing to be innovative and keeping our heads above water. When the market falls apart we’ll be there to pick up the pieces. I only hope that when that day comes everyone will have learnt valuable lessons. Greed is not good.
Jack Barton
@jackkbarton
