Contractor Agency Relationship – A Radical New Way It Can work?

Another way for the contractor agency relationship to work
Another way for the contractor agency relationship to work

Contractor Agency Relationship

Is it time to re-work the Contractor agency relationship?

Is there another way that contractors and agencies can work together?

The normal way of working is for agencies to add on a fee to a contractors rate and charge the client that.

However, with the EU Agency Workers Directive, contractors can now go direct to clients at the end of their contracts. That is provided they have not taken up the IPSE negotiated ‘opt out‘ from the legislation.

Agencies have argued that it is not fair. That’s because they put in a lot of work behind the scenes to win the client and keep him, in order to get a contractor some work. They feel that if the contractor then goes direct at the end of their contracts it threatens their livelihoods.

However, there has always been a bone of contention with contractors when agencies continue to take a large chunk of money from them after contract renewal. This is when they are no longer adding any value to the relationship. However, they are able to continue to extract more cash. They have clients and contractors in a legal headlock (although this was never tested in court).

Now things have changed.

Agency to Charge an Upfront Fee

Another option would be for the agency to charge an upfront fee and then charge just a small administrative charge in the future. This would be proportionate to the value that they are adding.

If the agency charged the upfront fee (to the contractor or client) then they could say that is for the matchmaking service.

If they followed that with a weekly or monthly add-on fee of say 5% to 8%, for administrative duties, then I doubt if the contractor or client would baulk at that.

It would even be OK if the agency spread that initial charge over a period of time. This could be deducted from the contractors invoice or added to the client’s invoice.

This would be more appropriate as it would unbundle their two services:-

1. Matchmaking

2. Invoice and timesheet processing.

Matchmaking Services of Agencies

Agencies deserve to be recompensed for their matchmaking service. This is is a lot more work intensive and complex than contractors normally imagine.

However, anyone can see that it is ridiculous if agencies are still taking 20% to 25% of the income paid by the client for the contractor 2, 3 or 5 years after the initial matchmaking service. This is when the agency is no longer adding much value beyond invoice processing.

This would be solved if they had the initial matchmaking fee (spread perhaps over the duration of the first contract). This would be along with an administration fee, which would endure past the first contractor and onto future contracts.

Few clients or contractors would quibble with that. It would also disincentivise contractors from going direct at the end of their initial contracts.

So, is this another way the contractor agency relationship can work?

See further articles on Dealing With Agencies.

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