The Department of Industry, Transport for NSW and the Department of Education were not able to demonstrate that the use of contingent labour is the best resourcing strategy to meet their business needs or deliver value for money.
1. Executive Summary
None of the three agencies we reviewed were able to demonstrate that contingent labour is the best resourcing strategy to meet their agencies’ business needs or delivers value for money. There are three reasons for this. First, agencies’ use of contingent labour was not informed by workforce planning at an agency level, with limited work undertaken in this area. Second, two of the three agencies have limited oversight of their contingent workforce. Information is not reliable or accurate, reports are onerous to produce, and there is limited reporting to the agency’s executive. Finally, none of the agencies routinely monitor and centrally document the performance of contingent workers to ensure services are delivered as planned. Together, these factors make it difficult for agencies to ensure contingent labour is engaged only when needed, at reasonable rates, and delivers quality services.
Some of these issues will be addressed by Contractor Central, which had only been introduced at Education at the time of our review. The new software program enables staff to easily obtain real-time reports on its contingent workforce. The recruitment broker also has the potential to improve value through better negotiation and benchmarking of pay rates. However, Contractor Central will only address some of the issues highlighted above. Better workforce planning and performance monitoring are needed to ensure an agencies’ workforce, including contingent workers, meets its business needs and represents value for money.
What is contingent labour?
The Public Service Commission (PSC) has developed guidelines to assist NSW public sector agencies engage and manage contingent labour. The guidelines define contingent labour as ‘people employed by a contingent labour supplier and hired from that supplier by a NSW Government agency to provide labour or services’.
The PSC recommends that agencies only use contingent labour to meet business objectives when:
- there is an immediate and short-term need to fill a vacancy, pending recruitment action
- there is a specific capability gap that needs to be filled
- there is a time-limited need for additional resources or specialised knowledge that will not be required within the ongoing workforce.
In addition, the PSC recommends that agencies avoid using contingent labour for long periods, i.e. more than six months. Contingent labour should also:
- be the most efficient and effective option available for meeting business needs
- inform and be informed by whole of organisation workforce planning and development.
Procurement Benefits Roadmap: the contingent workforce initiative
The NSW Government established the ‘Procurement Benefits Roadmap’ in 2014. The Roadmap established a number of procurement initiatives to maximise savings across all major categories of expenditure. Contingent labour was identified as one of 11 whole of government initiatives that could realise a net saving of $52.3 million between 2013–14 and 2017–18.
NSW Procurement is responsible for overseeing the government’s Contingent Workforce Renewal Strategy. The Strategy aims to achieve greater efficiency and effectiveness in the use of contingent workers. It was created to address a number of issues in this area, such as data inaccuracies, inconsistencies in pay rates, and a limited number of contracts awarded to small and medium enterprises.
The Strategy has four pillars:
- prequalification scheme – a list of approved contingent labour suppliers that are engaged based on the scheme rules, including a set supplier fee
- vendor management system – an information system to engage and manage contingent workers with the ability to automate processes, benchmark pay rates, forecast trends, and produce real-time reports on contingent labour use
- managed service provider – a broker between hiring managers and recruitment agencies that manages end-to-end processes, including consolidated billing, supplier performance and policy controls
- contractor management organisations – organisations that manage a database of contingent workers. Agencies can search the database and source labour from these organisations.
The vendor management system and managed service provider are together called ‘Contractor Central’. The prequalification scheme was introduced in 2013 and is mandatory for NSW public sector agencies. The other pillars are being progressively rolled out by agencies. As at November 2016, seven clusters had implemented Contractor Central. Transport for NSW, the Department of Premier and Cabinet, and NSW Treasury are yet to implement Contractor Central.
Contingent workforce: general trends
Government spend on contingent labour has risen sharply from $503 million in 2011–12 to $1.1 billion in 2015–16. In the 2016 Workforce Profile Report, the PSC estimated that the contingent workforce was equivalent to 7,571 full-time employees, representing 2.3 per cent of the public sector workforce (In 2016, the PSC reported that there were 324,477 public sector annual full-time employees). Nearly 60 per cent of contingent workers had contracts that were above the PSC six-month recommended tenure.
In 2015–16, the Transport cluster accounted for 34.2 per cent of contingent labour spend, followed by the Department of Finance, Services and Innovation (11.5 per cent) and the Department of Family and Community Services (10.1 per cent). See Exhibit 1 below.
4. Key Findings
4.1 Effective oversight of contingent labour
4.1.1 Accurate and reliable information on contingent labour
4.1.2 Use of contingent labour and workforce planning
4.1.3 Requirements for using contingent labour
Business rules are in place to assist managers to hire contingent labour
All three agencies have established business rules to assist hiring managers engage contingent labour. Examples of these rules include that:
- Director or Deputy Secretary approval is required to engage contingent labour
- contingent workers cannot have financial or human resource delegations
- hiring managers cannot be contingent workers
- hiring managers with personal knowledge of contingent labour candidates should declare any potential conflicts of interest
- timesheets must be approved by the assigned manager
- contingent labour should not be engaged for more than six months, unless a specific need for it can be established.
Business rules around tenure varied across the three agencies, with only Industry adopting the PSC’s recommended six-month tenure guideline for hiring contingent labour. The other two agencies have business rules which take effect when contingent workers have been engaged for 12 months, which the PSC considers to be a long-term engagement. Despite these business rules, we found that contingent workers were being engaged for periods longer than 12 months in all three agencies reviewed. We discuss this further in section 2.2.
Some guidance is in place about when to use contingent labour versus other options
All three agencies reviewed have some guidance in place to help hiring managers make decisions about when to hire contingent labour compared to other options. For example, Transport has a recruitment checklist which outlines the different options to fill a vacancy based on the duration of the vacancy and required start date. Options include contingent workers, temporary employees, new employees, or staff members on higher duty allowances.
Education’s procurement manual advises hiring managers to first consider whether or not the skills required are available internally. It also outlines the difference between consultants, contingent workers, and contractors.
Having these guidelines in place, however, does not guarantee that hiring managers will comply with these when using contingent labour. There must a step in the engagement process to prompt hiring managers to consider other labour options in line with the agency’s workforce planning. We discuss this further in section 2.1.
4.2 Delivering value for money from contingent labour
4.2.1 Processes to assist hiring managers engage contingent labour
4.2.2 Processes to 'off-board' contingent labour
|Department of Industry||Transport for NSW|
|Maximum||>7,300 (or >20 years)||3,195 (approx. 9 years)||4,377 (approx.12 years)|
Source: NSW Procurement, Department of Education and Department of Industry data.