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Cost savings on IT contractors: How to get the best rates

I was talking to IQNavigator the other day. They have software that helps companies manage what they spend on contingent workforces, such as IT contractors, and on vendor services, among other things.

Companies also outsource the management of things like invoicing and time cards to them.

What was interesting was how much money people were losing or overspending in these areas and didn’t even realize it.

For example, companies have a set rate for hiring contract laborers, but many hiring managers skirt this rate to get the best person for the job, or don’t track a contract worker once they’re hired, leading to contractors being with the company for five or more years. That opens a whole can of worms regarding whether they are full-time employees who deserve full-time benefits. Or, some vendors bypass the agreed-upon rate for their services by calling up departmental managers instead of the central procurement office.

When it comes to IT vendors and IT contractors, the CIO should take charge and enforce a consistent rate for services instead of letting your departments deal with suppliers on an individual basis. Put out an RFP and be clear on your rates. If you’re a big enough company, you should be able to reduce your number of suppliers and get them to agree to a set price.

If they don’t agree to it, then they shouldn’t be on the list of your providers, whether for labor or technology services, points out Kieran Brady, vice president of business solutions for IQNavigator.

Now while IQNavigator and other vendors offer services procurement software and spend management tools, in tough economic times such a system might not be realistic to install now (although if you really need to get your arms around spending, such an investment could pay for itself). What are your thoughts: Do you know how much you’re spending on IT contractors and services? Would software help you get your arms around it, or can you do it well enough through policy?

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As a manager who has hired contractors, I must strongly disagree. Those of us who are close to technology know that the best people are sometimes three, four or more times as productive as the worst people. Frequently inadequate work must be thrown away and started over, or at least greatly fixed and modified at very high cost to the project, causing serious delays. As manager, it's my duty to get the work on my watch done, so if I know of someone with extraordinary talents I need the flexibiity to pay accordingly.
Maryato, Thanks for countering this article. For some reason CIOmag likes to tout this approach and overseas outsourcing quite a bit. At a company where I recently worked (IT contractor), they had a project involving 10 Indians in the US and 15 in India fail after running for a couple of years. With a minor change in the requirements, we saw it as a 10 'quality' person project in our team in the US. I am simply amazed at how people can see a cheap rate and think they are getting a 'deal'. It just doesn't work that way. How can a person who rose to the stature of a CIO see a $125/hr person in the US and think he is getting a deal for someone half way around the world at $35/hr that will yield the same result? There are so many factors that weigh into that $35/hr that make it a more expensive option, not including the intangible costs of security and day to day quality. That same person who just opted for the cheap rate will then leave work at the end of the day and drive away in their high quality, expensive Mercedes. You get what you pay for I guess.