NSW Government agencies use contingent labour to help deliver services to the community. The NSW Public Service Commission (PSC) defines contingent labour as people employed by a recruitment agency and hired by government agencies to provide labour or services. Agencies use contingent labour to fill a gap in skills or capability, for example, to fill a position while a staff member is on leave or where specialist knowledge may be needed on a short-term basis. The PSC estimated that in 2016 the contingent workforce represented 2.3 per cent of the public sector workforce, equivalent to 7,571 full-time employees.

The PSC recommends that contingent labour only be used when it is the most efficient and effective option available to respond to an agency’s business needs. It also recommends that agencies’ use of contingent labour be informed by workforce planning. 

Government spending on contingent labour has increased significantly over the last five years, from $503 million in 2011–12 to $1.1 billion in 2015–16. To reduce spend in this area, the NSW Government has introduced the Contingent Workforce Renewal Strategy, overseen by NSW Procurement. The Strategy aims to achieve greater efficiency and effectiveness in the use of contingent labour. It has four pillars:

• prequalification scheme – a list of approved contingent labour suppliers
• vendor management system – an information system to manage contingent workers
• managed service provider – a recruitment agency broker
• contractor management organisations – organisations that manage a contingent labour database, which agencies can source labour from.

The prequalification scheme is mandatory for public sector agencies. Agencies are progressively rolling out the other pillars. The vendor management system and managed service provider are together called ‘Contractor Central’.

Within the context of sector reform aimed at promoting efficiency and effectiveness, the objective of this audit is to assess whether agencies’ approach to purchasing and managing their contingent workforce meets business needs and delivers value for money. In making this assessment, we reviewed three agencies each at a different stage of the reform:

• Department of Education (Education) – Contractor Central introduced in August 2015
• Department of Industry (Industry) – Contractor Central introduced in November 2016, after our review
• Transport for NSW (Transport) – Contractor Central not in place.

The use of contingent labour neither informs nor is informed by agency level workforce plans

None of the three agencies we reviewed had an agency level workforce plan in place. Agencies could not demonstrate that they had analysed their use of contingent labour at an agency level, including how it is being used to address any skills gaps. An agency’s executive is responsible for ensuring that an agency level workforce plan is in place. An agency level workforce plan helps hiring managers to make decisions on the best resource strategy to meet their business needs. This is important because contingent labour should only be engaged after considering all other recruitment options and the agency’s workforce plan.

Contingent workforce data is not always reliable or accurate

The accuracy and reliability of contingent workforce data varied significantly across the three agencies we reviewed. In Industry and Transport, information on contingent labour is difficult to obtain because it must be drawn from different data sources, affecting its accuracy, reliability and timeliness. This information is also incomplete, with these agencies not having a full picture of their contingent workforce. Quality data is important because it improves an agency’s capacity to plan and monitor its use of contingent labour to ensure it meets business needs.

At the time of our review, only Education, through Contractor Central, was able to obtain timely and accurate data on its use of contingent labour. Contractor Central has also improved its reporting capability, with the agency’s executive now receiving quarterly reports on its contingent workforce. In contrast, executives in Industry and Transport received ad-hoc reports on the use of contingent labour that only gave them limited oversight of their contingent workforce.

Long tenure of contingent workers is an issue in agencies

We found that the maximum tenure of contingent labour varied across agencies from nine to more than 20 years. In Education and Transport, staff reported that hiring managers assume contingent workers are automatically renewed at the end of their contract, with no formal consideration about whether contingent labour is still needed. Also, contingent labour is used for significant capital projects in the information technology and infrastructure areas where a project may run for several years.

None of the agencies reviewed undertook an analysis to determine how to reduce tenure while ensuring business needs are met. This is particularly important for long-term use of contingent labour for large capital projects. Understanding whether contingent labour represents best value compared to other recruitment options, such as secondments or temporary employment, is essential. Contingent workers are engaged under different working conditions to employees. Long tenure can pose an industrial relations risk to agencies because contingent workers may believe they are entitled to the same working conditions as employees.

On and off-boarding processes could be strengthened

Agencies have processes to engage and release contingent labour, also called on boarding and off-boarding. This includes access to IT systems, building access, and the return of property. However, not all agencies had on boarding or off-boarding checklists with specific requirements for engaging or releasing contingent labour. In addition, agencies’ off boarding guidelines did not always provide for knowledge transfer. This was identified as a key risk by staff because it is important to ensure that critical skills and knowledge are retained.

Risk that agencies are being overcharged when engaging contingent labour

We found that in agencies without Contractor Central, there is limited assurance that recruitment agencies charge in line with the prequalification scheme fees. NSW Procurement estimates that the government was overcharged $1.3 million in 2015–16. In addition, there is a risk that hiring managers do not have sufficient information to benchmark pay rates when negotiating contingent labour engagements. Agencies with Contractor Central may be more likely to get reasonable rates by using a recruitment broker who has specialised market knowledge.

No system in place to monitor the performance of contingent workers

None of the agencies we reviewed had a system in place to monitor the performance of their contingent workforce at an agency level to ensure it delivers value for money. Hiring managers are not required to evaluate whether contingent labour delivers the services for which they are hired. For example, hiring managers do not routinely assess and centrally document the quality of services provided, including whether services are delivered on time and within budget. This means contingent workers who are not performing may be re-hired by other managers or agencies. With the implementation of Contractor Central, there is the means to capture agency-wide information on the performance of contingent workers.

Contractor Central has the potential to improve value for money

Contractor Central has the potential to improve value for money. This is because the recruitment broker has specialised market knowledge and is able to promote competition, and benchmark and negotiate pay rates. In addition, the new software can streamline invoice processing and ensure correct supplier rates are charged. Education reports that it achieved a net saving of $944,600 from August 2015 to May 2016 due to the introduction of Contractor Central. Industry also expects to achieve similar results with Contractor Central, which it advised was implemented in November 2016.

The Department of Industry and Transport for NSW should, by December 2017:

1. improve the accuracy and reliability of their data on contingent labour

2. routinely report the use of contingent labour to agency executive.

The Department of Industry, Department of Education, and Transport for NSW should:

by December 2017:

3. ensure agency-wide on-boarding and off-boarding guidelines or checklists detail the specific requirements for engaging or releasing contingent labour, including provisions for knowledge transfer.

by March 2018

4. ensure that contingent labour informs and is informed by workforce planning, by:

• analysing agency-wide business needs, staff capability, and skills gaps
• understanding how gaps are filled by contingent workers or other recruitment options
• assessing whether long-term contingent worker engagements are the most economical and effective labour option
• evaluating whether contingent workers meet agency business needs and deliver value for money.

5. assess and centrally document the performance of their contingent workforce to ensure that services are delivered as contracted

6. implement processes to ensure that hiring managers consider other recruitment options prior to engaging or re-engaging contingent workers.
    

Sector-wide learnings

This audit identified learnings that government agencies across the sector should consider when procuring and managing contingent labour:

1. Contingent workforce planning should be part of an agency’s broader workforce planning.

2. Using information systems to manage and procure contingent labour improves the accuracy, reliability and timeliness of contingent labour data. This information enables agencies to consistently assess contingent labour rates and to identify persistent skills gaps in their workforce.

3. Routine reporting of contingent labour to agency executives provides oversight of an agency’s use of contingent labour.

4. Hiring managers should consider all recruitment options, with advice from human resources staff, before engaging contingent labour to ensure that it is the most appropriate solution for a specific need.

5. Regularly assessing long tenure contingent labour engagements helps to ensure that such engagements are still the most economical and effective labour option.

6. Planning the engagement of contingent workers, including provisions for knowledge transfer, maximises the potential to obtain value for money from the use of contingent labour.

7. Assessing and centrally documenting the performance of contingent labour against agreed deliverables helps to ensure services are delivered as planned, including in terms of quality, and timeliness.