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Have you considered Direct Contracting?

Freelance contracting has traditionally operated as a three-way model with a recruitment agency sitting between the client organisation and the contractor. Increasingly, though, this model is being questioned by enlightened parties from both ends, with the role of the intermediary agency being challenged by a disruptive start-up and called into question.

From the client company perspective, recruitment is increasingly being undertaken in-house, with HR departments being expanded to cover the functions previously provided by recruitment agencies, often resulting in extravagant net cost savings to the employer. The corollary of this is that, when a requirement arises for a contract resource, such companies are no longer used to just picking up the phone and calling an agency, simply because they no longer use agencies! Influenced by the cost savings that they have achieved by bypassing agencies in the field of general recruitment, they naturally seek to utilise their internal recruitment infrastructure when it comes to the procurement of contract staff too.

From the contractor perspective too, recruitment agency involvement in the process has typically been seen as a necessary evil, reducing the daily rate available to the contractor for very little perceived benefit. In fact, contracting directly with clients can be seen as a purer form of freelancing, since the contractor can build up a portfolio of his or her own clients, which in turn has the benefit of improving a Contractor’s status outside of HMRC’s IR35.

So, with more employers looking to procure and administer their contract staff directly, and with both parties keen to remove the agency margin from the equation (which should translate to a cost saving for the employer and a higher daily rate for the contractor), why are so few contractors achieving the holy grail of direct contracting?

By far and away, the biggest single reason is the difficulty faced by the contractor in systematically unearthing genuine direct contract requirements in the first place, for which they can put themselves forward; the majority of contracts are still being offered by agencies, and it is often hard to tell an agency role from a direct one. To make things even harder for the contractor, many opportunities that are described as “contracts” on the job boards turn out to be, after much closer examination, offers of fixed-term employment, or even permanent employment “contracts” and not freelance contracts at all. Sorting the wheat from the chaff is very time consuming for the contractor, and in all likelihood the agency gets the business again, by default, when it comes to signing the next contract.

In the IT sector, though, there is some very good news for the contractor. The game is finally changing, and Contract Spy is dedicated to making it much easier for IT Contractors to go agency-free.

For the first time, a real-time database of verified direct contract opportunities is being made available in a simple and easy-to-use format, giving the IT contractor access to all the latest direct contract opportunities with no agency involvement whatsoever.

The service is offered on a subscription, cancel at any time model, as is best-suited to Contractors engaged in short periods of intensive contract hunting.

By Contract Spy

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8 thoughts on “Have you considered Direct Contracting?”

  1. Richard

    Having spent many years working as a contractor working through agencies and having now become a ‘supplier’, contracting directly to an end client, I am much more confident that I am outside IR35. I work on defined projects that, I think make me fairly bullet proof. My rate has gone up as well.

    There is one major disadvantage though. I have to wait for 90 days to be paid (sometimes up to 120 days if the invoice falls just after the last posting date for my client). The agencies I worked through in the past paid me monthly. This is OK for me as I have a cushion in my business account that lets me smooth out my cash flow. A newbie contractor might not find this an easy hurdle to overcome

    The benefit that agencies offer is often dubious and it is sometimes galling for them to be taking such a cut. Two contracts I have been on ran for years, with the agencies’ cut running into the tens of thousands. But where there is a short contract, it’s not unreasonable for the agency that has done the work to get the money that they’ve earned.

    There is a place for agencies. A small or even medium sized company can’t devote time to maintaining a pool of talented contractors to fulfil short term staffing needs. But where there is a huge HR department, it probably makes sense.

  2. FreelancersInArchitecture.com

    Only ever work direct 🙂

    I also run a small website giving clients free access to freelancers in architecture. Registration is also free FreelancersInArchitecture.com

  3. Colin

    Only ever work direct 🙂

    I also run a small website giving clients free access to freelancers in architecture. Registration is also free FreelancersInArchitecture.com

  4. Gareth B

    In the past many of my assignments were direct and allowed me to have a “portfolio” approach to contracting where I had multiple clients. IR35 was therefore a distant consideration.

    However, in the last ten years I have been in at least 3 situations where I have been “forced” to go through an agency, even though I found the contract myself through my contacts ! It seems corporations do not want to engage individual suppliers as they have the perception that using a third party gives them more cover legally.

    Of course this is nonsense: two of the agencies involved were essentially “one man bands” who had been operating as a company for less time than I had !

    Reading the article, hopefully the market is changing and will allow us “true” freelancers to have the flexibility of working directly with clients whilst avoiding needless government interference and “greedy” agencies taking a cut for very little work.

  5. will

    Unfortunately public procurement directives mean that any public authority spending over a certain threshold on a contract/service (£106k in central government and £164k other authorities) have to run a full OJEU compliant procurement process. Therefore if they want to recruit quickly, they have little option than to use long term arrangements with agencies, which they only have to procure, typically, every 4 years.

  6. will

    Unfortunately public procurement directives mean that any public authority spending over a certain threshold on a contract/service (£106k in central government and £164k other authorities) have to run a full OJEU compliant procurement process. Therefore if they want to recruit quickly, they have little option than to use long term arrangements with agencies, which they only have to procure, typically, every 4 years.

  7. Contract Spy

    Regarding the Public Sector it is the stated intent of the Cabinet Office that by 2020, £1 of every £3 spent on Government contracts will go to SME’s so expect the number of contracts to rise, as individual departments commission smaller projects. This is good news for our sector. Contract Spy often features short-term contracts (and some long ones!) that are under the £164k threshold.

  8. Ying Tong

    One effect of the structured recruitment layer is that is serves to maintain rates. Plainly it’s in the interests of recruiters to ensure their commission is calculated on the highest number possible. Recruiters are aggressively efficient at identifying role opportunities and getting candidates before clients. Personally speaking I’m much more competent at working with systems than I am at marketing, telephone sales, CRM, market research, surveys and all the other tricks the agencies use to stay competitive. From what I’ve seen of fellow contractors I’m not alone. The recruiters have substantial fixed overheads and bidding down doesn’t help to meet them.

    In other markets where a direct line from the client to contractor has been created it has resulted in a downward spiralling bidding war. Uncoordinated, unrepresented, desperate contractors would soon drag the whole market into the $10 for two days work territory with the non-strategic thinking for which they’re famous. “I’m not doing anything else,” or “I have a mortgage to pay,” or “summat is better than nowt.”

    A well known consumer advice site which was recently sold for £90m was built in middle Europe for less than $100 after a direct bidding war amongst web developers. Careful what you wish for.

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