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consulting company (body-shop) rant

How do companies (employers) benefit from dealing with consulting companies that are essentially match-makers?

Note that in this case, I'm only discussing the companies that unite employer and employee and then proceed to take their 'fair share' of the hourly rate.

My POV, is that these companies have a list of customers (employers) that they get 'help wanted' lists from.  The post the jobs on Monster, HotJobs, etc and then wait for their Inbox to fill up.

Granted some companies serve as filters so the employer doesn't have to sift through hundreds or thousands of resumes. However, most I've found only look for candidates that would not embarass them terribly by submitting their resume.  This is what a headhunter asked me once...

HH: I see you've been working with MTS.  Have you ever done anything with COM?

Me : ...

My biggest gripe is that once I'm in the door, why should these companies have a right to the money I'm making for them. I've been with a company for the last year and a half at the same client.  They pay half my health-care, take care of my social security and take care of my taxes.  (Which they get right approximately 60% of the time, I might add.)  And they gladly take $20 out of each hour I work.

I understand how developers benefit (with respect to GETTING the job), but I don't understand how companies (employers) benefit.  Any ideas?

Anon
Monday, May 13, 2002

I think you answered it.
Companies benefit by not having to search for people.
No placing ads, no sifting thru resumes, no fielding calls.
also, agencies may also do the initial screening, as you said.

It's no cost to the firm, *you're* paying the agency.

Bella
Monday, May 13, 2002

Their paying an inflated rate though.

If I make $20/hr they're paying $40.

They're paying a premium for the length of the engagement for the luxury of not having to sift through some resumes.

Anon
Monday, May 13, 2002

>> Their paying an inflated rate though.

Back to grammer school, should I go...

They're paying an inflated rate though

Anon
Monday, May 13, 2002

Get over it! Recruiting firms take 1/3 of an annual salary for doing far less. I'm so sick of people complaining about business practices that aren't that bad.

pb
Monday, May 13, 2002

pb, I realize that's how the game is played. 

Also, if you noticed my first post, I'm only talking about companies that continue to take their cut through the life of the engagement.

Doing some rough math, I can say the consulting company I'm working for has pulled in roughly 91% of my yearly salary in the 18 months I've been here.  Given, they pay some of my health care, so you could knock that down to 75%. 

I can understand I 'finder's fee' type setup.  But these companies aren't DOING anything 18 months after the fact.
Except screwing up my local tax deductions, but that's another story. ;-)

Anon
Monday, May 13, 2002


It depends.  Does the company provide a paid vacation?  How about paying you while you are "on the bench"?

If the answer to both of these is "yes", then you have your answer:  The consulting company is providing a service in that they remove the uncertainty ("fear") from the consultant by absorbing it themselves.

In other words, they are taking a risk - granted, a relatively minor one, because if business _really_ goes down, they will do layoffs, but they are assuming some risks.

Plus, they are doing all of the "selling side" of consulting:  Networking, Gathering contacts, selling services, etc.

In conclusion:  Don't compare consulting companies to regular employment, compare it to consulting on your own.  By absorbing some of the risks (and providing you with multiple _different_ assignments, guarenteeing you'll get a variety of skills without making you look like a job-hopper)  these companies are entitled to some compensation.

How much of that comensation is equitable is up to you.  If you think it isn't worth it, don't do business with them.

just my $0.02,

Matt Heusser
Monday, May 13, 2002

I forgot to mention that this arrangement also avoids any "headcount" issues for the company. Not only are hiring costs avoided but so are firing costs.

pb
Monday, May 13, 2002

> Their paying an inflated rate though.  If I make $20/hr they're paying $40.

I disagree.  They set the rate.  Then, the body shop finds the person who will work for the lowest amount, and pockets the difference. 

It's more like, they pay $40, but you can either make $20 or $40 (direct).  Doesn't matter to them.

Bella
Monday, May 13, 2002

If the deal was so bad, the employers wouldn't take it.  It's obviously worth it to them.  Hell, paying someone 2x what they might take otherwise is only part of the deal.  I've signed contracts where the client was on the hook for a lump sump payment of a FULL YEAR of salary if they took me on full time.  I've seen clients pay that fee (not for me).  Some companies will outsource all kinds of tasks at what appear to be hugely inflated rates over what it would cost them in house.

Body shops can also worthwhile to the contractor, who doesn't have to do all of the bush-beating and relationship managment.  Certainly, the individual who has their own client list will make more cash, and the smart people use recruiters to build their client list.  Work for a place you got through a job shop once, then later they may hire you again directly.  The recruiters know this, so they get as much money out of you on your first job as possible, figuring they're only going to be able to place you at a given job once, unless you're such a yutz that you don't maintain a direct relationship with the client after the first job is over.

James Montebello
Monday, May 13, 2002

Some other benefits to the company are tax and insurance related. The headhunter is often the "employee of record" which protects the company from IRS issues. The head hunter may also pay workers comp and other insurance.  It is just a way to handle potential legal problems.  Look at the problems Microsoft had with their temps.

John McQuilling
Tuesday, May 14, 2002

The question asked why firms prefer using a body shop  instead of going direct.  (not the pros/cons of contractors vs. FT emps.)

Either way, they are dealing with another corporation..    I suppose the whole Microsoft contractor bullshit lawsuit could be one reason, to avoid reclassification of long time contractors.  Can't happen if they're officially W2's of another firm (the body shop)

Bella
Wednesday, May 15, 2002

Thanks Bella, glad somebody was paying attention...

Anon
Wednesday, May 15, 2002

I'm only talking about companies that continue to take their cut through the life of the engagement.  I can understand I 'finder's fee' type setup. But these companies aren't DOING anything 18 months after the fact.



For your sanity, think of it like this....If it wasn't for them, you'd never be working there in the first place, even 5 years down the line.  So they take their cut every hour, every day.   

However, I have turned down higher paying agency contracts (ie: I'd have netted more even with an agency cut)  in favor of direct contracts just to spite the middlemen (and the give the client a much better deal on my services)

Bella
Wednesday, May 15, 2002

Stop complaining about body shops! Experienced guys with a good reputation get jobs without "body shops", it just takes time. The other issue is the body shop guarantees you get paid on time even if the client takes longer (your risk is minimum).
If you are only an average guy thén you will always need the body shop to get you an above average salary.
You win either way!

ian owen
Thursday, May 16, 2002

I didn't see this listed previously in the thread - sorry if I just missed it and am being redundant here:

One reason employers may want to deal with a body-shop instead of directly with an individual is E&O (errors and omissions) insurance. Many individuals who contract directly do not buy any insurance. I've worked on gigs where the client required that anyone they contracted with had a minimum of $1 million in errors and omissions insurance. Certainly not all clients require this, but it's not uncommon, either. Typically, the body-shop firm carries the E&O insurance and they are the ones in court if there's a problem later with the client.

In looking into it for myself and my own S-corp, I was getting ball-park quotes a couple of years ago of around $3500 / year for an insurance package that included $1 million in E&O, workman's comp and some other things in the mix. That was just for me, also, not for a staff of contractors -- I suppose the premiums go up if there were more people being insured, but insurance isn't my bag.

F.J. Weiland
Thursday, May 16, 2002

> Many individuals who contract directly do not buy any insurance

All of my direct contracts stipulated that I had a certain amount of general liability insurance

Bella
Thursday, May 16, 2002

Anon, employers don't necessarily benefit from working through recruiting firms, but the system continues because recruiting firms do extensive marketing to employers. This is neither good not bad: it's just another business.

This is a business in which you are the product being sold, wrapped up and marketed, and the recruiter's profit is the difference between what you ask for and what the employer will pay.

If you're starting to think you're exploited, the answer is that, yes, you are. The profit recruiters make on each placement is generally higher than the person concerned would agree to in open negotiation, and sometimes is exorbitant. For example, recruiters might place you for $150 per hour and then pay you $50 per hour, which happens.

Recruiting, as a business, works because programmers reply to job ads and employers respond to marketing. Recruiters sometimes are good at assessing candidates and advising them, and sometimes very bad.

The industry is like advertising, where it's said that half the money is wasted, but no-one knows which half.

Hugh Wells
Saturday, May 18, 2002

A number of years ago, I received a lot of business through a NH-area contracting agency, and I really valued their services.  They found me interesting clients, took less than 20%, provided sensible business advice (if you cared to ask), and once handled collections for me when they accidentally assigned me the Client From Hell(tm).

In exchange for a ridiculously low free ($150/quarter) they even offered to reduce their take to 8%, but I told them, "You're doing a GREAT job!  Why should I suddenly decide to pay you less money?"

They had sane policies for long-term contracts, and for contractors who got hired.  And, when I once used them to *find* a programmer, they found top-notch talent quickly.

So, why do companies do business with huge, dishonest body shops when there are  true pros who charge less?

I think it's the same reason some companies hire bad programmers at low wages to work on critical software: stupidity and incompetence.

If possible, try not to work for people like that. :-)

Eric Kidd
Monday, May 20, 2002

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