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Column Corner: Ask the Procurement Guy -- One or Two Contracts?CWS 30 March 2.6

Contingent Workforce Strategies 30





By Bryan Peña

We are considering a number of contingent workforce program models and are stuck on a few points amongst the project team. What do we need to consider when deciding between a joint contract or separate VMS and MSP models?

Your question is at once simple and complex. Simple in that the number of variables under consideration are relatively few and range from just one-stop shop or to not one-stop shop. That is the simple part. The complex part is a little bit more tricky to nail down as succinctly.

Considerations
A primary thought when investigating MSP and VMS solutions is is the current size of your program. Traditional procurement discipline tells us that leverage is, for the most part, the name of the game. The more you spend on a given category, the more likely you are to receive preferential pricing and services from providers. Therefore it stands to reason that if your program is on the larger side -- say, over $100 million -- you have a significant spend that you can leverage, which means you have a wider number of options to consider when it comes to evaluating your sourcing options in this regard.

On the other hand, a $10 million program will find fewer firms that can provide what is most often considered a cost-effective, full-service MSP solution separate from VMS. At that small program size, it is that much more difficult to get effective economies of scale that would enable you to negotiate an effective deal with two separate firms. Conversely, a company with significant spend is much more likely to be able to negotiate a fair deal for the services regardless of the solution selection. So the first step in deciding what program model to consider is looking at your own program spend.

Another question that you would need to answer is how risk averse your company is. After the Chimes bankruptcy a few years ago and some of the recent events in Europe, risk management and supplier viability have taken center stage in the contingent program space.

As one Fortune 500 program manager has said, "The risks of having to deal with situation similar to Ensemble/Chimes debacle are mitigated with multiple provider solution " While there are a myriad of ways to mitigate this risk, this is still a common and not entirely unreasonable assumption.

Many program managers feel that selecting their VMS tool and MSP separately, employing two different vendor contracts instead of one, will minimize their risk in the event one vendor runs into financial trouble. Obviously, there are ways to manage your risk should you opt for an integrated MSP/VMS solution as well -- through appropriate contract structuring and clear transition language -- but it is definitely a growing trend to keep the vendors separate. We are seeing more and more of these sourcing decisions being driven as a means to manage risk.

While financial risk is an important consideration, performance risk is another one. When looking to outsource a core function, there is always an element of faith in the final decision. You may have run the most effective, transparent and thorough vendor selection process but at the end of the day you do not know with 100 percent, bet-the-farm certainty how the business relationship is going to work out until some point after program rollout. Most deployments take a few months at least, and final deployment sign-off may not occur until 90 to 180 days after that. This could take even longer if you factor in scope creep or the inevitable technical issue that slows implementation. Using this logic, it is not unreasonable to consider a process would take over a year from RFP to final sign-off on the MSP.

There are a million things that could happen in a year that could have a negative impact on service delivery in the relationship -- acquisitions, divestitures, layoffs, lawsuits, etc. If you have service failures as a result, you would be less able to transition should you have all of your proverbial eggs in one basket. Having your MSP and VMS separate can mitigate some of this risk. Should your MSP function poorly, you would be able to terminate the contract and keep the separate VMS technology in place, maintaining continuity in the user experience. Likewise, should you have performance issues with the technology, your MSP would be able to assist in identifying a replacement and help ease the transition.

Another common perception in the marketplace is that choosing the VMS and MSP separately provides better access to the "best in breed" as opposed to a unified solution. This may or may not be true, depending on your circumstances and projected footprint. For example, if you have a significant initiative centered on Statement of Work management, you may want to consider an MSP provider that has a strong practice around managing this type of spend. At the same time, they may have not been able to deploy a technical solution which meets your requirement for a global footprint. In this situation you may find that by selecting the solutions separately you can choose providers that more closely match your program goals.

The Counterpoint
Integrated solution providers do often have advantages as well when considering solutions design. Very often the provider has a competitive edge in understanding the nuances of a technology in question if they come from the same provider. This would result in a faster rollout and possibly deeper integration of the solution into your operations.

I have seen many clients blanche when, after having been told by their MSP provider that such a functionality is not offered, I tell them I have seen it in place at other engagements! Also, a unified solution may be less expensive to deploy when you consider that there is a greater spend to leverage. Finally don't forget the benefit of having "one throat to choke" or "one back to pat." With a unified solution, there is just one point of contact for issue resolution as opposed to what you would have with multiple suppliers. Of course, there are exceptions to this rule, as as issues can be managed through appropriate contract and program structures.

As you can imagine there are always considerations and conditions that make one solution appropriate for one company and not for another. There are dozens of providers in this space that offer a robust technological solution as well as a cutting-edge MSP offering -- while remaining fiscally sound. Additionally, there are many VMS-only and MSP-only providers that deliver exceptional services and value, while providing flexibility and focus. That being said, only by understanding your key decision drivers and working with your end users can you make a decision.

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