Staffing - temp agency

[SmBiz owner]

I wasn’t sure where to post this question, but thought this was a good place to start. First, let me describe our situation.

· We are a small business with a CPFF contract

· All staff members are at the Client site

· Contract requires Client approval of all new personnel (sometimes done via resume review – sometimes direct interview of candidate)

· All positions require a security clearance and fairly unique skills (i.e., difficult to fill positions)

· Contract includes a Consent to Subcontract clause

· We have several large business subcontractors

· We have had difficulty filling several positions and our large biz subs have failed also

Since we (and our subs) cannot fill open positions, we have considered using a staffing agency. A typical headhunter fee is 20% of the first year salary. Paying $20K for a $100K employee is not affordable – much less when you multiply that times 4 or 5 positions.

Several staffing companies have offered an alternative approach which they assure us they do for other government contractors. They will employ the candidate for 6-9 months at a certain rate after which the candidate comes to work for our company. During that 6-9 month period, the company earns their fee through the hourly rate – meaning the fee is absorbed as a direct cost, not indirect. The problem is that the new hire is not our employee. Our invoices clearly indicate each employee by name and employer (with appropriate indirects and fees), so the individual’s employer would be clearly visible to the client. We have no desire to do anything underhanded or deceptive - we just need a way to fill these positions. Headhunters have huge databases and recruiting methods that even our large business subs cannot duplicate.

So, the question is – can we use a staffing agency in our situation, and if so, how?

An obvious answer is to add them as a subcontractor. But that is a process that takes a significant amount of time and effort (and is discouraged by our client – especially approaching the end of the fiscal year).

The staffing agencies say they “do this often” with other companies without being considered a subcontractor. They use a Professional Services Agreement (PSA) or Master Services Agreement (MSA) rather than a full-blown subcontract. But I suspect they are filling positions that may be internal company positions or roles on Fixed Price contracts or other contracts that do not require subcontracting consent.

There are employees and subcons. Is there a third category that can be utilized in the environment I describe above?

[Guest Vern Edwards]

They will employ the candidate for 6-9 months at a certain rate after which the candidate comes to work for our company. During that 6-9 month period, the company earns their fee through the hourly rate – meaning the fee is absorbed as a direct cost, not indirect.

I'm not sure I understand that. You would hire the staffing company and they would employ the candidates for six to nine months pending their approval by the government? You would pay the staffing company for the candidates' work at an hourly rate, from which they would take their fee and pay the candidate? After six to nine months you would hire the candidates yourselves and the relationship with the staffing company would end? Is that right?

[Retreadfed]

SmBiz, is your contract subject to the Service Contract Act, and if it is, will the people hired by the temp agency be service employees?

[here_2_help]

I wasn’t sure where to post this question, but thought this was a good place to start. First, let me describe our situation.

· We are a small business with a CPFF contract

A typical headhunter fee is 20% of the first year salary. Paying $20K for a $100K employee is not affordable – much less when you multiply that times 4 or 5 positions.

Charge the staffing fee to overhead. Don't charge it direct. There is no requirement to charge the staffing fee as a direct cost. Treat it is an indirect recruitment cost.

Hope this helps.

[SmBiz owner]

I'm not sure I understand that. You would hire the staffing company and they would employ the candidates for six to nine months pending their approval by the government? You would pay the staffing company for the candidates' work at an hourly rate, from which they would take their fee and pay the candidate? After six to nine months you would hire the candidates yourselves and the relationship with the staffing company would end? Is that right?

As noted, the candidate must be approved by the client before showing up at the client site - regardless of whether we hire them, a subcontractor hires them, or a staffing agency hires them. Government approval must precede hiring. The rate charged by the staffing firm would include the candidate pay along with the fee and whatever fringe/OH charged by the staffing agency. Yes to your final question. After the 6-9 month "trial period" - assuming the candidate is viable, he/she would become our employee and the relationship with the staffing agency ends.

SmBiz, is your contract subject to the Service Contract Act, and if it is, will the people hired by the temp agency be service employees?

Our contract is not subject to SCA.

[SmBiz owner]

Charge the staffing fee to overhead. Don't charge it direct. There is no requirement to charge the staffing fee as a direct cost. Treat it is an indirect recruitment cost.

Hope this helps.

Our entire annual recruiting budget is less than $10K. Paying a ~$20K recruiting fee for each candidate (for 4-6 potential new hires) is a bit outside of our budget. Maybe we should increase our recruiting budget to $120K next year... I'll take a look a what that does to our overhead rate.

[Guest Vern Edwards]

There are employees and subcons. Is there a third category that can be utilized in the environment I describe above?

It depends on how you define subcontractor. If you define subcontractor in accordance with FAR 44.101, then the answer to your question is no, there is no third category.

[Navy_Contracting_4]

Why couldn't/shouldn't the recruiting fees be charged direct and be reimbursable per FAR 31.205-34(a)(6)? That's assuming the fees are "not in excess of standard commercial rates."

[Guest Vern Edwards]

Why treat the fee separately? Why not simply treat it as a component of the labor rate?

[here_2_help]

Navy,

When SmBz said "paying $20K for a $100K employee is not affordable" I assumed the affordability related to contract funding -- i.e., there was no budget in the contract for anything in excess of employee salary and salary-related costs. Certainly, if there are sufficient funds the recruitment cost can be charged as a direct cost to the contract.

My point was that total cost includes BOTH direct and indirect costs. If the $20K was charged indirect then it might not have the same dollar-for-dollar impact as it would if charged direct. If the employee generates $100K in additional direct labor then the rate impact is even further mitigated.

SmBz doesn't want to take that suggestion and I'm fine with that.

Vern,

Not sure if you were directing your question at me, but see my answer to Navy, above. I suspect that DCAA might have some trouble accepting a recruitment fee as a component of labor, unless the subcontractor billed it that way (and that approach does appear to be a possiblity, even though discouraged by the customer). If it's billed that way then all is good, assuming consent is obtained. And why wouldn't it be? Does the work need to be performed, or not?

H2H