Is the Agency IT contractor a dying breed?

IT Consultancy vs IT Recruitment Solutions

If you're a senior IT leader in a mid-to-large organization that oversees a portfolio of change projects, you will undoubtedly rely on an interim IT workforce. Traditionally, you would probably approach a recruitment firm and hire IT contractors if you want temporary project staff. If you want complex solutions designed, you would ask an IT services firm. The latter is usually regarded as a costly service.

Do IT consultancies services cost more than Agency Recruitment?

Before we address that question with a use case, let's look at how the world has changed in the past 2 years. In 2019, revised IR35 tax legislation was introduced, resulting in a number of issues for mid to large organisations.

1. Administration: more legal and tax administration to ensure you correctly ascertain the employment status of the contractors you're hiring (or risk HMRC penalties and tax liabilities).
2. Cost : you could place all your IT contractors under a blanket 'within IR35' status and pay them PAYE at higher rates to raise their net pay 
3. Contractor attrition: you accept higher contractor attrition rates as they leave for their next better paid 'outside IR35' contracts.

Compounding all the woes of IR35 on industry and contractors alike, has been the Covid-19 pandemic. In the context of using IT contractors, Covid has forced organisations to rapidly adjust working arrangements and accept that as a majority, UK contractors are much less inclined to want to work in a centralised office.

These changes have encouraged forward-thinking IT leaders to question why they pay recruitment agencies to introduce interim IT staff instead of IT consultancies to advise on and deliver IT solutions.

How does an IT consultancy differ?

1. Hassle: IR35 should not apply nor be a concern for any engagement you have with an IT services consultancy. Firstly, you are paying for IT services (often fixed price) and not for named individuals and your consultancy should also be sharing in the financial risk of the delivery of your IT portfolio. Big tick.
2. Cost: Pick a consultancy that specialises in small to mid-sized organisations, and you'll find your money will go a much longer way than you expect. Couple that with the fact you are paying them to deliver a solution and not a person; you'll also find that they'll have a heavy focus on getting things done as quickly and effectively as possible. This reduces your project costs.
3. Consultant attrition : this is simply not a factor when you work with an IT consultancy. Their contracts will guarantee to deliver a service and their staff or associate consultants will be incentivised for delivery. Also, if they use contractors, they will likely be reusing them on multiple clients so loyalty is much stronger.

It's not all about the money ...

IT Projects are, by definition, temporary organisation structures to deliver change in an organisation. Their workloads contract and expand during their lifetime, but their organisational structure tends to be less flexible. The reason - a project frequently consists of a percentage of interim professionals that are agency contractors. These freelancers will typically work under full-time contracts (9:00 am - 5:00 pm, Monday to Friday) on a quarterly or half-yearly renewable basis. 

For an organisation using this model, the arrangement is relatively rigid. The contracts don't offer flexible working arrangements, so you can't switch your resourcing on and off with the demands of your projects. In addition, regardless of how they are badged up, they are resourcing contracts with no contractual commitment to the quality or the deliverables of the freelancers. 

Why can't agency freelancers flex? 

The answer to this is that historically, agency freelancers are used to working five days a week for one client. Agency contracts don't permit freelancers to work for multiple clients simultaneously, even if they wanted to or have the capacity to. The minute you discuss reducing a contractor's hours, they will be looking for a new and exciting role elsewhere... and you can't blame them; they want stability.

The time and materials agency model does have its advantages - especially when you want temporary IT staff, and this article is not 'rubbishing' the approach. The model works well in some use cases. Still, there are genuinely better, lower cost-of-ownership alternatives when you are resourcing to deliver business outcomes via Change portfolios. 

Resource forecasting and staff utilisation on an IT Project

Projects frequently don't require highly skilled project management consultants for 100% of the project duration. An IT project often needs a more highly skilled 'thinker & shaper' consultant for the beginning, and then once the scope and roadmap are shaped, there is more demand for more project-operational activities, including coordination, oversight, and governance. 

We can apply the same reasoning to using other lead roles like Solution Architects who are required for their solution design expertise at the beginning. However, once the designs are agreed upon, they may only be required at touch-points throughout the programme for architecture oversight and change control activities. Specialist technical consultants or engineers can again be transient to offer advice in the detailed design phase before more active involvement in the build and test phases. 

What can frequently happen when using the agency model is that the client organisation subconsciously acknowledges that freelancer teams have limited flexibility. As a result, under-utilisation is the 'elephant in the corner' that project leaders accept.

However, all of the accumulated under-utilisation of your project staff adds up to a significant amount of cost and waste, which can be eradicated if you utilise a service that can offer that flexibility.

The IT consultancy alternative

The alternative solution is to utilise a Project Management as a Service model where the correct levels and skills of leadership and resources are provided at the correct time in the project schedule and the service takes accountability for the project's success.

What is Project Management as a Service?

Project Management as a Service (PMaaS), is a service offering whereby a specialist project delivery organisation will take on accountability for the delivery of a project, programme, portfolio, or function on your company's behalf. When we say 'function', examples would be the Project and PMO Leadership, Business Analysis, Architecture, Security, Testing or solution engineering. 

How will it be measured?

The service should be measured through contract Service Level Agreements (SLA's) or Key Performance Indicators ( KPI's ). These measures will provide guarantees against the performance of the service, the team, the quality and even monthly milestones.

They can be measured on a weekly, monthly or annual basis and should be aligned to the PMaaS service charges so if your supplier doesn't deliver what they have promised then there are financial penalties they must incur. 

How does PMaaS compare to Agency contractor resourcing on a project?

1. IT Specialists: The first obvious difference is you're partnering with an IT consultancy firm that specialises in IT solutions and projects - not a recruitment firm specialising in finding interim people. The former means that the provider fully understands what you're trying to achieve in your Change portfolio and can advise and guide you in addition to delivering the people, process, and teams.

2. Project Delivery Guarantees: The second clear differentiator is PMaaS is offering project delivery guarantees in the form of milestones, SLA's and KPI's. At Techolony we call this our Performance+ model.

3. Shared Risk, Shared Success: Thirdly, with an IT consultancy, the service and supplier shares risk to the project's success in regards to time, cost and quality, whereby with an agency resourcing model, the agency does not.

4. Pay as you go: Finally, there is also one clear and very important differentiator. An IT consultancy offering Project Management as a Service can share their specialists across multiple clients and can flex the utilisation levels of individual consultants and teams up and down to follow the peaks and flows of your project. This can typically reduce 20+% of your people costs during a project delivery lifecycle. 

Summary

If you have a new IT project or even better, a portfolio of projects coming up in your pipeline, consider trying an alternative approach to deliver than using a recruitment agency. More knowledge, less hassle, less risk and less overall cost. You'll be pleasantly surprised at the outcome.

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Techolony specialise in Cyber Security, Project Change, and Infrastructure solutions complemented by 24/7 SIEM and Service Desk support solutions. 

If you'd like to learn more, call 0161 209 3922 or click below to book an appointment.

We look forward to speaking to you!