Companies are realizing their contract labor rate cards are frighteningly out of date.
Companies establish rate cards to give budget holders a sense of how much contract work will cost, and to control the costs of that work. Essentially, rate cards are guardrails within which companies would like their requisitioners to remain when buying contract labor. Most companies (and the MSPs that work for them) aim for 90%+ rate card compliance, meaning that at least nine out of ten contract assignments should be costing less than the maximum rates set by the company on their rate cards. For the record, 90% is not great; many companies shoot for 95%+.
Our TDX Platform has the largest (and growing every day) dataset of actual contract labor transactions; we see companies’ rate cards, we see how much they are actually spending on contract labor, and we can analyze the delta between the two. The results aren’t so pretty. Currently only about one in four companies has compliance at 90% or higher. Roughly half of companies have compliance rates of 50% to 90%, and about one in five companies is struggling with less than 50% compliance (for the exact percentages, see Figure 1).
Figure 1. Distribution of Rate Card Compliance Across Companies
Why is rate card compliance so horrific right now?
There are two main reasons:
First, bill rates have been changing rapidly; and,
Second, updating rate cards is painfully time-consuming.
Let’s take a look at both challenges, and what can be done about them.
Bill rates have been changing rapidly
Since the beginning of 2021, U.S. contingent bill rates have been rising on average, requiring managers to allocate 9-11% more of their budgets to the same amount of contingent work (see Figure 2).
Figure 2. U.S. Contingent Bill Rate Trends
Typically, rate cards are not built at a national level but at a regional or metro area level, and the national averages hide a lot of changes for specific locations, skillsets, levels, etc. And to update a rate card, you need current market information to set your rates. Unfortunately, many companies rely on contacting individual workforce suppliers to ask them how markets are changing for specific skill sets. Suppliers obviously have an incentive to report their “rack rates”—the bill rates they would like companies to pay them. An inefficient process with an unreliable outcome.
Our TDX platform allows companies to see the distribution of actual bill rates, pay rates, and supplier markups for 1,400+ contract labor job titles at the city level in over 40 countries. As one illustrative example, we looked in TDX at the bill rate trends for contingent Senior .NET Developers in the Washington, DC, and Columbus, OH, metro areas. Bill rates for that skillset are down 4% in DC but up 8% in Columbus (see Figure 3). Without up-to-date objective data on actual local markets, it is very difficult to update a rate card in an easy and credible fashion.
Figure 3. Bill Rate Trends for Senior .NET Developers (Select Locations)
Updating Rate Cards is Painfully Time-Consuming
The process to update a rate card is usually long (6-8 months is not uncommon) and painful. First, someone has to compile (usually from a Vendor Management System and/or other transaction systems) what the company has been paying recently for all contract labor roles, levels, and locations. Then, someone has to find current market rate data for all those roles, levels, and locations, plus current market rate data for any new roles the business might need in the near future. Typically, this information comes from individual workforce suppliers (with the shortcomings noted earlier in this blog), which for most companies is dozens if not hundreds of suppliers. All this disparate data needs to be reconciled together, usually in a giant spreadsheet. The project team then needs to make educated guesses about recommended changes (sometimes up, sometimes down) to individual rate card rates in light of the company’s strategy for each category of work (those strategies could be cost control or rate consistency or improving speed to fill, etc.). Then comes the arduous task of convincing stakeholders (procurement, finance, business line managers, MSP, etc.) that these changes to the rate card are the right changes.
A Better Approach
Brightfield’s newly expanded TDX Rate Card Manager tool cuts months off of the usual process to update a rate card; the tool reads a company’s current rates and provides instant recommendations on specific changes (including to SOW rates) to reduce costs and improve times to fill open positions (see Figure 4 for a sample screenshot).
Figure 4. Screenshot from TDX’s Automated Rate Card Manager
Using TDX’s Automated Rate Card Manager allows you to:Tune to Current Conditions
Identify the specific markets where over-spending and the specific markets where the company is losing battles for talent with low ratesExpand Rate Cards to SOW Roles
Target the SOW channel, which typically has the largest opportunities for savingsBalance Business Objectives
Continue to manage for cost outcomes but also optimize for speed, risk, and quality (see Figure 5).
Figure 5. Attributes of a Balanced Rate Card
If you would like help updating your rate cards, please contact us at www.brightfield.com/contact.
Brightfield’s TDX provides the world’s most trusted market intelligence on the Extended Workforce. We track bill rates, pay rates, and supplier markups based on actual transactions of 1,400+ contract labor job titles at the city level in over 40 countries. Our customers can also see recent trends and forecasts of rates for individual job titles, locations, levels, etc. If you would like to learn more about the power of this market intelligence and other TDX tools request a demo below.