In today’s tumultuous labor market, large organizations are in need of specified expertise more than ever – and find it smart to engage with contract talent to get work done. Organizations that can safely and easily access a pool of unique experts can react quickly to changing market demands and pressures. For many leading organizations, this agility is a significant competitive advantage. For independent experts, large enterprises can be goldmines, so it follows that the relationship of an independent contractor and an enterprise should be a marriage made in heaven, right?
Unfortunately, large organizations can be bureaucratic quicksand to a small firm trying to provide expert services, sucking up time and energy that could be using to earn revenue elsewhere. Between vendor qualification forms, approved vendor lists, purchase order authority, invoicing format requirements, contractual formalities such as indemnifications, intellectual property rights, business insurance coverage, non-disclosure agreements, background checks and drug screens, the contracting process alone at these firms can be overwhelming and discouraging, despite the clear profit and growth potential.
To help control how they engage with this growing workforce, many large organizations have begun to leverage managed service providers (MSPs). The MSPs are brought in to ensure quality and pricing consistencies across the contingent workforce. MSPs are primarily focused on staffing temporary resources, so they often mistakenly group independent consultants into the same category, comparing an hourly salary rate to a project or SOW price. It is comparing apples and oranges.
Companies with MSPs usually use complex technologies, called Vendor Management Systems (VMSs), to track and control their contingent labor sources. Most VMS systems are built to support temporary workers who bill by the hour. These systems often times find it challenging to accommodate project, milestone, statement-of-work, or any other billing frequencies. The challenges of breaking a complete project into an hourly rate may seem obvious to an independent contractor, but when a client’s procurement department gets a view of the newly calculated hourly rate and compares it to their annual market salary data, their understanding of the differences are not so clear. An IC's bill rate differs from the hourly rate equivalent of a full-time salaried employee because it includes the costs of running a small business, including tax filing, business insurances, bookkeeping, legal advice and support, profit margin, etc. Also, the process for an IC who must enter their time and expenses into the client’s VMS system on a regular basis can be administratively burdensome with little benefit to the IC.
Payment terms can be an issue when engaging with a large enterprise. To most small businesses, cash is King, so ICs must manage cash flow carefully and skillfully. However, large client organizations are accustomed to dealing with large suppliers/vendors, and they might not be sensitive to this small business pressure. Often their payment terms extend beyond the credit limits of their small vendor’s resources, creating undue strain on the relationship and a major distraction from the work that must be delivered.
I’ve learned firsthand from my work with MBO Partners that there really is a win-win, smarter way for ICs to deliver services to these large clients. It is through an Independent Contractor Engagement Specialist (ICES) like MBO Partners. As an executive at MBO, I am responsible for helping to set up engagement programs and ensure a smooth transition for ICs, so I speak from specific experience of the challenges and benefits of engagement for both parties.
ICES firms such as MBO allow you access to these target clients through existing master agreements. The best ICES will provide you with additional services that reduce costs, administrative burdens and business risks. Think of the ICES as a better way to dig that “goldmine” from earlier; you find the gold, and the digging is done for you. All that’s left is for you to get down there and collect it.
Learn how to calculate a cost-based bill rate with our new, easy-to-follow video tutorial.
News and notes for independent professionals and their clients. This is the October 17, 2016 edition.