Fees over value solutions – why Bournemouth shows the change required in both the Recruitment industry and Government

Tuesday, April 7th, 2009 - Article, contractors, interim management, recruitment, regulation

Interim Management

Rest By The Pier
Creative Commons License photo credit: spjwebster

On April 3rd, the Daily Mail ran a story about Bournemouth Borough Council paying £200,000 a year via employment agency Penna to employ Scottish-based James Duncan as transport manager – a position which normally has a salary of £50,603.

Uncovered by independent councillor Ron Whittaker under a Freedom of Information Act request, it was revealed that between January 2008 and February 2009, the council paid Penna £206,014.65 for Mr Duncan’s services. The council can claim back the VAT on that, reducing the cost to around £175,000. It is not known how much the agency passes on to Mr Duncan, but it is understood to meet his travel costs. Councillor Whittaker commented:

With two million people unemployed there has got to be someone out there who is more than capable of doing this job for the right salary and save taxpayers more than £100,000. You cannot pay an employment agency four times the salary scale and then turn round and complain that the council has no money to maintain services. The individual is doing an excellent job, but not at that fee. They should increase the salary offered when they advertise the job, then maybe people will go for it. This has gone on for too long. It is unacceptable and they need to do something about it in days, not weeks.

Mr Duncan’s boss Mike Holmes, the council’s service director of planning and transport, said the council had been praised for its road safety education, and had saved schools £80,000 on bus services. He commented:

We recognise this is a lot of money, but it is the market rate for a quality individual. Some £800,000 of government grants depend on us continuing to do well in this area and we cannot afford to risk losing that.

Susie Squire, of the Taxpayers’ Alliance, commented:

We are in the grip of a recession and Bournemouth council should be doing all it can to deliver savings to taxpayers. It raises concerns about the hiring practices of councils using agencies in this way. It is absurd.

On 7th April, a spokesperson for Penna, told Recruiter magazine:

Clearly, the Daily Mail doesn’t understand the concept of interim recruitment. This is a more expensive way of recruiting somebody, but this is the appointment of an experienced and specialist executive into a role that has to be filled.

Lets break this down financially:

  • January 2008 to February 2009 is 61weeks, assuming Mr Duncan didn’t take any holiday
  • RyanAir run flights from Bournemouth to Edinburgh, cost booked for this week is £156.95 inc tax/VAT
  • Bournemouth Council’s offices are located at BN2 6DY, for which the nearest hotel according to Yell.com is the Norfolk Royale. Rates are from £75/night, but lets assume they put him up in a decent room and paid food costs and travel – £150/day, £600/week for 4night, plus £100 on taxis either end is £700/week on travel, food and accommodation plus RyanAir costs
  • A mobilephone with 1200mins/month is around £50/month, plus £25/month on broadband and a similar amount of other comms costs means £100/month on communications. Break that down to £25/week
  • Total costs of the travel, accommodation and communications for the 61week period is hence estimated at £56,909

Typically, an interims cost to an organisation is at least double that of a permanent hire. So Duncan’s cost to Bournemouth would have been around £118,722 for the period. A minimal margin for the agency would have been 20% out of that cost, so Duncan would have been paid £94,977 and Penna £23,744.

There is additional margin for Penna here, so I am assuming much as though Bournemouth can claim VAT back on the travel costs, the Penna fee for wiping this through their books would negate that – an additional £9,959, for a total estimated fee to Penna over the period of £33,703.

On an interim contract valued at £175,000, I don’t consider that an unreasonable margin.

But I do when you take into account that the interim role with their client will last some 20months if Bournemouth hire a new manager who starts in August 2009.

There are two problems here:

  • The recruitment agency market is driven by bookable fee’s, not client value. If it was driven by value, then why didn’t Penna suggest to Bournemouth to increase the base salary or total package (eg: include moving costs, add a better car, etc) to entice more applicants? We don’t take on work at Ajiri until we know how many candidates there are both available now and in the total market – and a Government sector specialist like Penna should have known this
  • Councillor Whittaker has done Bournemouth a favour by bringing this situation to the fore, and asking the question: This has gone on for too long. It is unacceptable and they need to do something about it in days, not weeks. Paying £200,000 at quadruple the rate is not value to the tax payer to save a grant of £800,000.

Agencies need to think about total client value; while councils need to have more regular reviews of value when such justifications are made. As an interim project it is reasonable, but the duration is not to either party.

Good Luck!

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