One of the more humiliating recent events within the Australian recruitment industry was Chandler Macleod’s withdrawal from the $400 million Australian Defence Force recruitment contract it had won from incumbent provider, Manpower.

At the time of the contract win in July 2008, Stephen Cartwright, the CEO at that time of Chandler Macleod, described it as a ‘landmark contract’. And so it proved to be a ‘landmark’ in how quickly a contract ‘win’ could turn into a morale-sapping, PR and financial disaster.

The post-wedding glow lasted a mere 7 months and 16 days before an official statement was released on 16 September 2009 confirming that an amicable divorce was being undertaken, ‘irreconcilable differences’ suspected as the motivator.

Within 3 months, the long-rumoured reconciliation between jilted first husband, Manpower and the blushing ADF bride, was confirmed. The two year ‘interim’ arrangement was the obvious path to take given the bruised egos and red faces seen everywhere from Canberra to Sydney.

It’s tough being a public company. You have to disclose all information that is regarded as ‘material’. In other words any good or bad news that may impact the view investors have of your share price must be announced to the market as soon as possible. All the financial ugliness of the ADF/Chandler Macleod contract was duly posted by Australian industry news service, ShortList, for all subscribers to see.

Like 40% of marriages, many other Preferred Supplier Agreements (PSAs) start out the same way - full of promise, high spirits and huge expectations and sadly, end up the same way as those marriages - desperately disappointing, sometimes humiliating and always costly.

PSAs are the recruitment sector’s equivalent of the Promised Land. The lure is strong, the rewards seem vast but for most seekers, things never quite pan out as expected.

I suspect it is a lot to do with the very optimistic and competitive nature of recruiters. We want to win and we think that no matter what we inherit, we can turn a sow’s ear into a silk purse, so to speak.

Here’s a word of warning – most PSAs suck. Not all of them but many of them, as Chandler Macleod found out for themselves, the hard way. Here’s why:

1. They take a heap of time and resources to win
It sucks completing all those loathsome tender documents, requiring every piece of information about your company and financial status that the client would never reveal about their own organisation.

2. It’s rarely an even playing field
It sucks when you put in all the effort to submit a tender when (secretly) all the client wanted was to screw the existing supplier on price.

3. You have to discount heavily to win
It sucks when you have to drop you pants on price and grin and bear it as the client suggestively whispers to you ‘just a little bit lower, you’re almost there’ while at the same time you dreamily remember that the original RFT document cooed ‘quality of service is our highest priority’ and ‘the lowest priced suppliers won’t necessarily be selected’

4. They rarely deliver the volume of work that is suggested, hinted or promised
It sucks when you offer your very best price and turn your company’s processes upside down to then experience the promised torrent of jobs is nothing more than a trickle.

5. They want your best consultants to do the recruitment
It sucks when your top $1/2 million billing consultants are forced to fill jobs at 7.5%.

6. They require extensive reporting
It sucks when you spend more time filling out 17 reports each month to satisfy your client’s procurement and TQM zealots, than you spend on taking and filling jobs from that client’s PSA.

7. You still have to compete to fill each job with other ‘winners’ on the PSA
It sucks that even after you have dropped your pants on fees and margins, you still have to undertake a resume race to win the puny placement fee.

8. The classic ‘we reserve the right to use suppliers outside this agreement as and when necessary’ clause appears on the final page of the contract
It sucks that after all the loyalty and effort you have put in (at your very best price) that your PSA clients think nothing of sleeping around on you, whenever they like.

9. Once you win a PSA, you can’t afford to exit it even after you have made little, if any, profit
It sucks that after everything you have done over two years for the client you still haven’t made any decent money, yet if you do not re-tender for a further contract period, you will probably have to fire staff and live with the tag of having ‘lost’ the PSA.

It’s easy to see the upside of a PSA win and I don’t wish to discourage you from seeing the good in a PSA win. What keeps coming back to me is a little phrase from my first year economics subject, Introduction to Microeconomics, ‘opportunity cost’.

Opportunity cost is the potential value for what you have forgone when you choose one alternative over another.

As Wikipedia goes on to say: ‘The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently. Thus, opportunity costs are not restricted to monetary or financial costs: the real costs of output forgone, lost time, swag, pleasure or any other benefit that provides utility should also be considered opportunity costs.’

PSAs are full of hidden opportunity costs – that’s why most of them suck.

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