Are Managed Service Providers (MSPs, for short) a necessary and efficient way to do business with larger clients, or are MSPs taking advantage of smaller staffing companies?
Depends on who you ask. And the MSP in question.
What is an MSP?
For those who might not know what an MSP is, a little background: MSP in the staffing industry refers to an outsourced agency that manages the temporary staffing program of a client company. MSPs are the “face” to large corporations that need to hire a large quantity of temporary employees in multiple locations, meaning that the independent staffing company acts as the subcontractor collecting, screening and submitting resumes to the MSP.
The other day I came across an article with advice for small staffing companies on how to avoid the pitfalls of MSPs, or rather how the system is “gamed to use and abuse” small staffing businesses. The author discussed how MSPs negotiate with large clients to deliver low hourly rates and favorable reimbursement terms (net60, 90, or even 120), and that the small staffing firms are left owning the responsibility for these onerous terms. I would add that the MSP is also doing this while taking a piece of what is already a razor thin margin.
Understanding your contract
The author’s advice to small staffing firms – which I agree with – is to not get roped in to unfavorable “pay when we get paid” type contract with an MSP. I would go further and say that understanding the contract you are signing is key. Beyond just payment terms, you should be looking at the rate terms, scorecard measurements, and insurance requirements. Is it a sliding scale in terms of rate? Can you realistically meet the requirements of the scorecard? Does your pricing need to reflect a higher insurance rate? These are all questions you should consider when signing a contract with an MSP.
Instead of signing with an MSP, the author recommended marketing to smaller companies in a niche where you can negotiate your own terms, or partnering with other independent firms when bigger opportunities arise. I agree with that sentiment, and part of my job at Advance is to help our clients find suitable partners for teaming and big projects. It is a great way to have a shot at those bigger contracts that you might not otherwise get.
What are clients saying?
Something that I see on the other side of the coin is that some big companies are frustrated with MSPs because they aren’t getting high quality workers and the service they expect, particularly when the MSP is placing in non-local areas in low skilled jobs. I am seeing complaints of workers not showing up, or behaving unprofessionally. When you take a local resource out of the process, things a brick and mortar vendor might have screened out slip through the cracks.
While working with an MSP has its challenges, not every MSP is taking advantage of smaller firms. As long as companies need workers to fill in the gaps, there is room for both independent staffing firms and MSPs in the staffing space.