Should contractors be the first to go?
Yesterday, I argued that your trainee intake should be one of the last things you cut, not one of the first. I also noted that culling contractors was a typical early step for companies facing difficulties, which to me begs some questions. Several people have asked me what I meant.
My first questions would be - why did you hire the contractor (or consultant) in the first place, and what has changed that now obviates the need for the contractor?
- Specialist outside expertise to address a short-term need. Presumably you still need that outside expertise, or was the project not really justified?
- Extra capacity to fill a short term need. What is the cost and time needed to transfer the task to someone on the permanent payroll, including the cost of delayed realisation of the business benefits from the task? Will the permanent employee do as good a job, as quickly as the contractor? Again, was the need really justified?
- Inability to recruit a permanent employee? Why couldn’t you recruit someone? (Presumably not remuneration, since you’re prepared to pay contractor rates). If you can do without the contractor now, why were you recruiting at all?
Politicians seem to have a particular predilection for bagging contractors - as if contractors are by implication an expensive and undesirable resource. However, I am a strong believer in utilising external resources, both for flexibility in workload capacity (I’ve had 2/3 of my workforce as contractors at times) and for specialist short term expertise. I also believe in contracting out non-core activities, to keep the business simple.
However, despite my support for using contractors, I believe in treating them differently to employees; eg. they can come to team drinks on site, but not company briefings or company-sponsored social events (PS: unless in an interim senior leadership role). “Membership has its privileges,” to quote the Amex ads. That will strike many people as harsh, but if it is not absolutely clear to both your contractors and your staff that contractors are not employees, you risk future grief and trouble. I usually impose a finite term on any individual contractor, especially when filling a recruitment gap, to avoid the potential for them effectively becoming just an expensive employee. That term may be a few weeks or a year, depending on the need and context, eg. if a major strategic issue needs to be resolved before a permanent role can be scoped. I look askance at any extension of a contractor’s engagement.
But, returning to my main theme, simply saying “stop using contractors” is a mindless tactic. Of course you want to look after your permanent staff. Of course you’d cull your contractors if the job still needs to be done, and your freed-up permanent staff have the expertise to quickly take over and do the task, But if not, you may need to keep those contractors, and you probably need to cull your permanent staff harder than you’re already doing.
Tough decisions to survive tough times. Not everyone can make them.
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November 17th, 2008 at 8:20 pm
Hi Jim,
While I agree with most of your comments, I disagree totally with your comment that contractors should be treated differently to employees. Most companies will have some sort of requirement to use contractors at some time, be it for a project or to fill shortfalls in permanent staff. That contractor is then as important to you and your business as your permanent staff so why would you treat them any differently?
If you are in a position that requires you to reduce staff then perhaps now is the time to look closely at culling the low/average performers amongst your permanent employees. This will not only help you in the short term but also help you in the long term also.
Cheers,
Steve
November 17th, 2008 at 9:01 pm
Good timely post.
Part of the cost of being a contractor or consultant is that when times are tough you can expect to be amongst the first to go.
I have no problem with that.
Indeed I’ve led contractor reduction efforts at more than one client with very significant (and easy) cost savings. (It’s all about counting them, assigning responsibility and setting targets).
I’ve also been at clients myself with new CEOs/management teams that just said “no consultants”, and we left days to weeks later. That’s part of the deal. It’s great in boom times to be taking home the contractor dollars, but in bust times you catch a few contractors looking earnestly at those steady employee paychecks.
I do though believe in treating contractors, while they are there, as part of the team. You’ll get a lot more passion and results out of them if you do. Indeed I recall being very touched and motivated by one company giving me a Christmas hamper and royally pissed off and demotivated when another one didn’t.
So overall I agree with you Jim- stopping contractors mindlessly is most often wrong. But there is plenty of money there if you are smart about it.
November 17th, 2008 at 9:12 pm
Absolutely agree Steve that contractors should be treated well and respectfully - the point I’m making is that somehow you’ve got to make sure that especially if they’re around for a long time that it’s clear to everyone (especially your own permanent team) that they ARE contractors, and WHY you have contractors. I’ve seen staff get angry and bitter when contractors are laid off because they forgot those facts. This may be less of an issue in the IT sphere but in a factory it is a very real problem.
November 17th, 2008 at 9:21 pm
Lance - agree that there is much saving to be made - especially if there are questions about why the contractors were needed in the first place. In large organisations, it can be very easy to just put contractors in but not deal with recruitment and retention problems, etc.
November 18th, 2008 at 7:57 am
Jim,
I agree, treat them respectfully and with integrity, but there are differences. The majority (not all) of the contractors i know act differently, they aren’t ‘on the hook’ so to speak. Less skin in the game means less priviledges