Managed Services Provider…Should they own your vendor contracts or not?

by Julia Fournier, HCMWorks, Managing Partner

Managed Service Providers (MSP) have the responsibility in most instances for the overall performance of the supplier that they manage.  It is important, when setting up a managed service program to lay the right foundation. Most importantly the foundation should enable your chosen MSP to effectively execute and deliver the desired corporate outcomes.

There are two schools of thought on whether or not to transition the existing supplier contracts with the company to the managed service provider or leave them direct with the company.  First, is that the company deriving the benefit from the suppliers will be disadvantaged as a result of not owning the contractual agreements. The second is that the managed service provider will not be able to achieve the desired results without the authority given through contract ownership.

As is always the case with any choice, the risk of outsourcing the contracts can and should be carefully considered and quantified. Some companies are prepared and comfortable to incur that risks and are interested in a “one throat to choke” relationship with their MSP.  Others however, are not and want to keep the contractual agreements separate.  Again, in the interests of providing clear direction on how to achieve the highest performing partnerships, all risks should be qualified and the ultimate goal of the outsourcing relationship considered.  One of the possible risks that might occur when assigning contracts to an MSP is that the supplier wouldn’t enable their contract to be transferred. To which that risk would present itself at the early stages of the transition.

Both the MSP and supplier all have a similar goals; greater revenue and a bigger piece of the pie. Suppliers and MSP’s  don’t tend to “play nicely in the sandbox” if there is a potential scapegoat for performance issues.  Passing performance blame between MSP and suppliers provides the company zero value.   If you establish a partnership between multiple service providers in the provision of a joint service offering, it is important to understand the dynamic that could present itself.  Empower your MSP to deliver results.  Be careful not to debilitate their abilty to effect the change and behavior necessary to ensure success.

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11 Comments »

1. 

   In today’s large CW program space, this is becoming more and more common. With this in mind, suppliers need to begin viewing the MSP Provider as their client and embrace this evolution of the CW space. In a traditional Master Vendor engagement, we looked to our client to say “what can we do to be best in class in providing a solution”…now that the client has changed, we need to be asking this of the MSP Provider.

   Comment by Ray E. Culver, SPHR — July 8, 2010 @ 4:13 pm

2. 

   Thank-you for your responses, interesting to have others share their views.

   Let me ask you this, “is it your opinion that our “space”, that of a Managed Service Provider, has evolved to the point that we have demonstrated to our clients and prospective clients that we can manage these vendor relationships effectively and collaboratively?

   Do you think that our clients and prospective clients should be concerned about outsourcing there contracts in their entirety, in what is now multiple service categories? What would be their biggest perceived risks?

   Comment by Julia Fournier — July 8, 2010 @ 4:14 pm

3. 

   Early on in the MSP/VMS arena I think there were some advantages to having the client own the supplier agreements primarily because the suppliers that were being on-boarded into the MSP program were typically the incumbent suppliers who already had the relationships with the customer. Therefore, it made it a little easier to get suppliers to agree to the program. However, given its more mature stage, I think it is more accepted that the MSP hold the contract. I also agree with many of the advantages of having the MSP own the contract as noted in the article.

   Ray – It’s interesting that you mention that suppliers need to begin viewing the MSP as the client because when I was implementing large MSP program in my prior job, it seemed that most suppliers hated us, not treat us as the customer. I am now on the other side as a supplier to MSP programs and happy to say that we completely embrace MSP programs and treat our MSPs as the client. In fact, our entire business model revolves around servicing MSP providers and we have been very successful under this model. It’s amazing how good the relationship can be between the MSP and supplier when the supplier embraces the MSP model. Bottom line, I think the MSP should own the contract with suppliers.

   Comment by Bill Wetherbee — July 8, 2010 @ 4:16 pm

4. 

   Thank-you for your replies. It appears as though most are in favor of Managed service contract management which is refreshing to hear. I think that solution serves our client’s more effectively, and it should be embraced. One of the opportunities created not only for the client’s of a managed service provider but also for the vendor is the elimination of bias which leads to the reward of increased revenue based on performance. It is encouraging to see that that is the desired outcome of so many in this space.

   In today’s large CW program space, this is becoming more and more common. With this in mind, suppliers need to begin viewing the MSP Provider as their client and embrace this evolution of the CW space. In a traditional Master Vendor engagement, we looked to our client to say “what can we do to be best in class in providing a solution”…now that the client has changed, we need to be asking this of the MSP Provider.

   Comment by Julia Fournier — July 8, 2010 @ 4:20 pm

5. 

   I think the notion of an MSP — or (potentially) even a VMS-only provider — owning the Supplier contracts is a good one. In theory.

   Unfortunately, the industry — temporary / contingent staffing, MSPs, VMSs — isn’t nearly as mature as we’d like to think. While the program offerings are relatively consistent, the quality of the programs, and the relationships that are created between the suppliers and the 3rd-party (MSP, VMS, etc.) vary WIDELY.

   Witness Mr. Wetherbee’s comment: his suppliers hated his program, and that was only a year or so ago (I’m making an assumption based on his job chronology).

   My guess is that there are several reasons underlying that tension …

   1. Mr. Wetherbee’s program was implemented and run by Kelly — a competitor to the incumbent suppliers. That’s a no-brainer. (In fact, I wouldn’t be going out on a limb if I suggested that Supplier-owned MSP programs are likely the source of MUCH of the hostility in the marketplace!)

   2. Many times, Supplier-owned MSPs aren’t *really* MSPs at all — just a different name for an attempt to grow their business. (I’ve seen this one a lot, and been accused of it, given that Comensura / Guidant was a peer to a staffing company)

   (OK, #2 is a subset of #1)

   3. They say that people who have waited on tables in their past make the best restaurant customers — those folks know what it’s like to be on the other side of the fence. That is likely true of the MSP space as well, except that there aren’t many people who have moved from the MSP chair to the Supplier chair. Which is just to say that there is a lot of myopia in the industry … those who “dislike” companies / programs that are different (MSPs, VMSs, RPOs, etc.)

   SO, who “should” own the supplier contracts? I think the correct theoretical answer is “the MSP”, because, at the end of the day, they are the ones who are on the hook for delivering.

   But until / unless we come up with the right definition of an “MSP”, and we work to staff the programs with the right people, and we build support programs to help those “right people”, the answer has to be “it depends” — on the client, on the incumbent supplier community, on the scope of the MSP program.

   Yep, that’s right: there is no one “right” answer. But … isn’t that always the case?!

   Comment by Joseph Marsh — July 9, 2010 @ 12:51 pm

6. 

   You bring up perhaps the most compelling point of the discussion and that is contract ownership by a competitive firm. No brainer actually. As an MSP and one that isn’t in a competitive position to a company that would ever own our contract I can sympathize with the firms that might be faced with that predicament.

   Stay tuned for my next blog – stick to the revenue, and to your core competency. Do staffing companies want to be in the MSP business if so, are they prepared to give up the revenue associated with the margin they drive from staffing to do it right? Let’s do the math.

   Comment by Julia Fournier — July 9, 2010 @ 12:53 pm

7. [...] Managed Services Provider…Should they own your vendor contracts or not? [...]

   Pingback by Managed Services Providers…conversation PartII | HCMWorks « HCMWorks — July 12, 2010 @ 10:52 am

8. 

   I don’t think one model is right for every client or program. PrO has clients who relish maintaining that direct relationship with suppliers. Other clients want an MSP to hold all the contracts, some clients ask us to contract with only commercial staffing but they perhaps keep IT, or keep certain vendors who are more strategic such as those providing large projects, outsourcing services or some of their large offshore providers. Regardless of whether the MSP is the signatore of a contract, they are still capable of doing all phases of supplier management, up to and including contracts administration on behalf of the client. And regardless of contract ownership, all the spend is controlled, tracked and reported on.

   The industry, buy and sell side, has matured and with it has come a variety of options for the client who wants a progressive program that reflects their unique requirements,

   Comment by Terrie Weinand — July 14, 2010 @ 6:00 pm

9. 

   I think that Terrie’s comments are right on. These are complex engagements and the clients have varying perspectives on both contract management and risk tolerance. Perhaps it may be optimal for the MSP to hold the contracts. However, this does not mean that programs in which the clients hold the contracts are not effective, quite the contrary. These are long term relationships and most program goals are achievable as long as there is a solid relationship and enough “creative flexibility” on the part of the MSP.

   Comment by John Thornton — July 14, 2010 @ 6:03 pm

10. 

    I agree that Terrie has summed up the state of the industry perfectly. A one size fits all solution does not work in the marketplace. As long as each client understands what they are buying and the solution is the right economic and tracking model that they seek its a win win for everyone.

    As the EVP of a recruiting company that works in all facets of nothing but VMS/MSP recruiting opportunities in IT and non IT all we ask is that we understand the parameters of the programs before we decide whether we want to engage.

    We have accounts that have a variety of Vendor Neutral definitions. One for example we are still allowed to walk the client halls and meet the managers. There definition of Vendor Neutral is that there is a defined amount of vendors that all have the same advantages and therefore the company gets the best price out there. The system is used for tracking submittals and interviews and payments like other programs.

    Others definitions include vendor neutral where in the MSP that owns the contract gives a larger discount on the back end fee. In exchange there internal recruiting company get the reqs 48 hours before the other 20 staffing vendors. From our perspective as long we are told that due diligence up front we can make an intelligent decision from a recruiting standpoint whether or not to engage.

    When a company understands the different options to them and employs a program and has upper management roll it out and enforce the policies and understands the inner workings these long term relationships can be effective and profitable for all sides

    Comment by Ron Abell — July 18, 2010 @ 9:39 am

11. 

    Hi Ted,

    that’s an interesting dilemma there! Reading the responses to your blog, there is a tendency for “equally important” to “domain expertise preferred”. Let me add something to the other side of the scale. Knowledge of the market, cost composition, etc. is of course valuable. Yet, normally, this knowledge should be readily available in the focal organization. I think that the greatest added value in the CM-role is identifying, organizing and applying this information by developing CM-strategies and action plans. To my opinion a good process-orientation, helicopter-view and sourcing/project management skills can make the difference for the content. ‘In the kingdom of the myopic, the one-eyed man is king”.

    Comment by Edwin Rutten (Netherlands) — August 3, 2010 @ 10:50 am

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