Renegotiating Process

Monday, March 26, 2007

A summary of the process goes as follows:

Notify Manager
It is good practice to alert the manager (usually via letter) that a rate analysis is being performed and that their input will be needed during the process. It is important to communicate to the manager that the goal is NOT to lose the contractor, but to determine, if any, the amount of savings that may be realized based on current market rates.

Market Rate of Job
This analysis will allow you to determine the market rate for the skill sets you require.

Market Rate of Worker
This analysis will allow you to determine the market rate for the contingent worker. This can be a valuable step in identifying potential retention issues prior to negotiating.

Discuss with Manager
This step in the process requires analysis and caution. Once you have the market information, you must compare it to the pay rates and markups of your existing contingent workers. Where differences are identified, discussions must take place with the contingent worker’s manager and a negotiation strategy must be agreed to. Strategies will be based upon the magnitude of any differences identified, length of assignment, ability to replace the contingent worker with a comparably skilled worker at market rates, any unique circumstances, etc. It is important to remember that any bill rate negotiations will take place with the agency representing the contingent worker and not directly with the contingent worker. The agency must understand that the Pay Rate and Markup must be kept separate in all negotiations in order to avoid negative impact on the contingent worker. By negotiating Bill Rates only, an agency may cut the Pay Rate for the contingent worker and not reduce its markup to yield the Bill Rate reduction that you target. By negatively affecting the Pay Rate, you may put yourself in a position to lose the contingent worker.

Discuss with Agency
During most renegotiation efforts, the goal is to reduce the agency's Markup rather than reducing the contingent worker's Pay Rate. Staffing agencies provide valuable recruiting and retention services to your organization for the contingent workers they provide. A competitive Markup, consistent with the services provided, will bring value to your company and incentive to your Staffing Agencies. You should expect higher markups from agencies that provide paid holidays and vacations, health benefits, training, bonuses etc. Therefore, it is important to understand the makeup of the markups that agencies are using. Many times agencies are willing to reduce markups without impacting the level of their services in exchange for higher volumes of placements.