Job candidates held back

With an aging population, high staff turnover and still low unemployment, many corporate organisations have developed exclusive 'preferred supplier' agreements with one or two recruitment agencies to keep the candidates flowing. In return, the organisation is rewarded with lower recruitment fees, tailored consulting and faster recruitment services.

However, while employers and agencies generally agree there is a need for preferred supplier agreements, sometimes the conditions of these are poorly thought through and come unstuck for agencies, candidates and the organisation .

CEOs and other major decision makers may not be aware of the parameters of an agreement put in place by the HR department, and potentially ideal candidates may not get a look in when they should have.

Craig Parsons, managing director for small IT recruitment firm CPU Recruiting says preferred supplier agreements have resulted in his firm being turned away by HR departments.

"Too many times we have had an HR department shut us out because of a preferred supplier agreement with another recruiter. Yet our candidate had skills that perfectly matched the job criteria each organisation had advertised on its web site," says Parsons.

He says some agreements give the preferred supplier 10 days to two weeks to fill a position before allowing other agencies in while others let non-preferred agencies approach the preferred supplier and take a cut on the recruitment fee.

"That's not fair to the agency that did the work in securing the candidate," says Parsons.

Parsons says in July he emailed Carter Holt Harvey CEO Peter Springford after being shut out of the recruitment process by the Carter Holt Harvey HR department. He says Springford replied within minutes saying he was 'staggered' by that response and assuring Parsons' CPU candidates could apply. Days later, he says Carter Holt Harvey's HR manager contacted him to say CPU Recruiting could submit candidates.

Clearly, not all CEOs are cognizant of the details of preferred supplier deals put in place by their HR managers. However, Don MacKinnon, principal for employment law and HR consultants MacKinnon and Associates, says they don't have to be.

"HR managers are often given the responsibility of overseeing the recruitment process; the firms facilitating that process come under the HR manager's responsibilities," says MacKinnon.

In 2004 management consulting firm HR Equations undertook a study of recruitment trends and practices among New Zealand's 100 largest employers and found 55 per cent had a formal preferred supplier contract with one or more recruitment firms.

Of these, 73 per cent said they had reduced recruiting fees, 64 per cent has reduced the time taken to recruit, 77 per cent felt the calibre of external candidates had improved and 55 per cent said candidate assessment standards had improved.

In the survey report that followed, Martin Price, director for HR Equations, said the prevalence of formal agreements had grown in the past four years, particularly among organisations with between 100 and 500 staff.

The benefits of using preferred supplier agreements include a consistent relationship, reduced recruiting costs and less stress for the employer.

However, preferred supplier agreements need careful drafting, should be carefully planned, involve a cultural fit between the agency and its client, and result in a better standard of service and lowered recruitment rates, says MacKinnon.

He says preferred supplier agreements work best in non-specialist recruitment areas where the roles are not overly specialised or hard to fill. However, if the organisation is advertising a strategic role requiring a high level of skill a preferred supplier agreement can be detrimental.

Adrienne Perry, spokesperson for IT services firm EDS New Zealand, says EDS uses two preferred recruitment suppliers, both the result of long term relationships.

"The [recruiters] are proactive about sending good prospective recruits our way and that is one of the benefits of a preferred supplier relationship. The other is of course long term discounts for service," says Perry.

She says while it is a mutually beneficial relationship, when EDS' preferred suppliers can't source applicants in areas that are hard to fill, it reserves the right to use other agencies. EDS has also been building its own in-house recruitment team over the last year and runs print advertising campaigns under the EDS logo instead of an agency banner, says Perry.

MacKinnon says it's important for organisations to leave these sorts of loopholes in preferred supplier agreements and those that begin to bring recruitment in-house will require even more flexibility.

"It will still work if the agency solely looks after one area of employment; it doesn't work if the agency finds itself competing against its client for the same candidates," he says.

MacKinnon says although recruitment is an expensive exercise and HR managers can be "driven mad" through receiving mass CVs from a number of sources, smaller recruiters often have access to the ideal candidate. Nor is he surprised to hear that CPU Recruiting bypassed an HR department to contact the CEO.

"It wouldn't surprise me if that [strategy] was successful. A recruitment agency with a great candidate will always do what they can to get that candidate employed and there are some exceptionally good small recruiters around," says MacKinnon.

He says the key is for employers to draft preferred supplier agreements in commodity employment areas only and leave enough flexibility in the conditions for common sense to prevail. Exceptional candidates should be able to come forward through word of mouth, another agency or if they are internal to an organisation.

So do the potential limitations of preferred supplier agreements outweigh any benefits? Even Parsons says no.

"It's understandable that companies want preferred supplier agreements - recruitment agencies want them too; there just needs to be flexibility," he says. 


Preferred supplier agreements - Getting it right

Hays Specialist Recruiting says the most common way organisations search for a preferred supplier is to request proposals (the Recruitment Consulting Services Association can provide a list of members as a starting point.)

These proposals are typically sifted through by companies looking for the best deal on price first and cultural fit and extra services second.

Hays suggests reversing those criteria - value for money should motivate the final selection rather than actual price alone, and cost benefits should include the quality of service and supplier's ability to deliver. 

Each supplier should be able to service each client location, and there should be synergy between the corporate cultures of both organisations. The supplier should be able to offer a site visit and provide customer references that can be reliably checked.

Hays notes service levels agreed upon within preferred supplier agreements can vary widely between recruitment agencies, and range from basic recruitment for a specific area at a reduced price, to total in-sourcing where the agency becomes an extension of internal resources and that operates on site.

Whatever an organisation decides is right, Hays says agreement criteria should be agreed upon by all decision makers.