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 Preferred Supplier Agreements (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 in Australia, 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: 

  • AUD$94 billion to administer and comply with public sector rules
  • AUD$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 Australian 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 Australian recruitment 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 Australian Tax Office 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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