16 June, 2011

Should contractors be the first to go?

I've written earlier that your trainee intake should be one of the last things you cut, not one of the first. I also noted that culling contractors is a typical early step for companies facing difficulties, which to me begs some questions.

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 functions 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.

First posted November 17th, 2008

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