Many large companies struggle with how to effectively hire and manage their contract work force. Recent years have seen the growing popularity of Vendor Managed Systems (VMS), which are basically a way to outsource the procurement of contract workers.
Here’s how the system works: A company provides its requirements to the VMS, which then passes along these requirements to a number of staffing firms. This allows a company to benefit from having a large number of staffing firms servicing its requirements, without managing a large number of staffing firms.
The VMS is responsible for the contracts with the staffing firms, making sure all contractors meet the hiring criteria. The client company pays the VMS for the contractors, which then pays the staffing firm. In the meantime, the staffing firm pays the contractor who is on site at the client.
A Win-Win Scenario?
In theory, this is a win-win scenario, but in reality this is a lose-lose–lose scenario. Because of the intermediary steps, the hiring process is prolonged, impersonal and in many cases makes it difficult for companies that use the VMS system to compete with companies that do not. The client company has little control over how its contractors are treated by the staffing firms that ultimately employee them.
Earlier this month, Axiom International, the parent company of Los Angeles-based Ensemble Chimes Global, filed for bankruptcy protection. Chimes billed itself as the world's largest provider of management services for contract labor, helping Fortune 500 heavyweights such as UnitedHealth, General Motors, Ford and Morgan Stanley and non-profits like AARP and the American Red Cross keep track of their contract work forces and outsource everything from secretarial help to IT services.
Axiom filed for bankruptcy with no notice to Chimes’ client companies or to the 20,000 contractors employed through its staffing firms. Chimes had collected money from its clients companies for these contractors but had not paid its staffing firms since November. Losses to these staffing firms amount to tens of millions of dollars.
Contractors Put At Risk
Contractors provided to Chimes by its staffing firms have for the most part been paid for the work they did, but in many cases have been terminated because there is no money to pay them. Chimes’ client companies have been scrambling to find a way to put in place direct agreements with staffing firms so these 20,000 contractors can return to work.
Under the bankruptcy laws, the first claim to the assets will be made by Chimes’ creditors and investors. Somewhere down the line the staffing firms may recover some of the money they lost. Then again, they may not.
The long-term effects of the Chimes saga will be significant. At a minimum, end clients will more closely screen the financial viability of VMS companies they do business with. Many large organizations will simply stop VMS systems. Staffing companies will re-evaluate the value of the whole VMS system.
