YOH – Crossing an Ethical Boundary as an MSP?

In looking at the services procurement market in recent months, I've discovered some behaviors from my research which suggest that a little bit of sunlight might have a sanitizing effect on the conduct of certain organizations. This same observation holds true for suppliers in other markets as well. But in services procurement, specifically, the question of supplier ethics is critical to address. Consider one recent incident I learned about earlier this week when I got a tip off from a staffing firm that works through MSPs to place its team on assignments. My contact told me about a rather interesting circumstance with an MSP which they have done business with in the past. He mentioned that the MSP in question, YOH, is a fairly typical mid-size provider that companies contract to manage their contingent labor procurement.

Like other MSPs, YOH delivers a combination of services and technology to manage the contingent labor process. And they claim to be top of the class at what they do, delivering "24.7% better talent than the competition" if you believe the research they quote on their website. Staffing firms used to like to work with them as well, at least according to my source. The individual at the staffing firm with whom I spoke told me that MSPs like YOH have been lucrative for them, but was now requesting -- perhaps mandating is a better word -- that they become part of a channel/partnership program if they want to have a reasonable chance at gaining new business through YOH in the future.

Sounds reasonable enough, eh? But joining the program as a partner, they learned, was not free. The person I spoke with directed me to a YOH partner website that outlined two tiers of membership with different dollar commitments for each level. For paying these "partnership fees", my contact told me that YOH would all but guarantee business to them at specific dollar volume thresholds and would introduce them to new client opportunities. According to YOH's website, "There are different fees depending on the level of partnership. Silver Partners have an annual fee of $2,000 and Gold Partners have an annual fee of $5,000. This fee is due within 30 days of acceptance of your Partner Application. Also, Silver Partners pay a 1% additional fee on the hourly rates of their contractors. Gold Partners pay an additional 2%. These fees are in addition to the standard fee charged at the customer site for Yoh's services."

What are the benefits YOH claims its "partners" will receive? "Yoh partners will be given expanded opportunities to fill job requirements and provide placements with less competition. Partners will receive job requirements prior to all general suppliers. Yoh partners will have tiered early access to job requisitions prior to general suppliers based on partnership level. Gold partners are our front-line when suppliers are engaged. Yoh will distribute requirements to Gold partners prior to distributing them to anyone else on the list. After Gold partners have had the opportunity to submit candidates, Silver partners will be engaged. Once these partners have had the opportunity to submit candidates against requisitions, the general suppliers will receive the requirement."

This feels like the services procurement equivalent of some Orwellian Animal Farm nightmare. In other words, all staffing firms are created equal, but some are more equal than others when it comes to gaining access to the MSP's user base -- provided they pay to play upfront (versus based on their high performance scores over-time, in the case of other programs at competitive MSPs). An outsider who does not understand the nuances of services procurement might say this makes perfect sense. To them, it might appear as just a paid channel agreement. But what those who aren't familiar with the nuances of the contingent labor market are not aware of is that procurement organizations hire MSPs to manage and administer a contract labor program on their behalf.

In my view, the MSP's allegiances should always be to the company they're serving rather than suppliers (regardless of whether or not they are in the actual billing and payment stream). It should be the MSP's job to recruit and manage the best possible set of suppliers who can provide contingent labor support versus extorting fees from suppliers to allow them to gain a "most favored nation" agreement. Staffing firms already pay MSPs like YOH a management fee in the 2.5-4% +- range based on the volume of work they do through them, not to mention serving as a "bank," financing the working capital necessary for the MSPs to run their business as they wait for payment for 5-15 weeks.

I ran this behavior past someone else in the industry who suggested it was "questionable and unprofessional". But staffing firms must feel like they have a revenue gun to their head when confronted with it. If they do not join the program, "the amount of work they have done through YOH in the past could very well decline," another person I spoke with suggested. If you're curious to learn more about the program, YOH has put some of the details of their "program" on the supplier section of their wesbite for everyone to read. I suspect, however, that when word gets around to their customers, that it won't be there for long.

After all, why would anyone hire an MSP that promises to provide -- and I quote directly -- "less competition" and give its paid supplier partners whose only differences is the services blood money paid up-front "job requirements prior to all general suppliers"? Moreover, I highly doubt YOH will be able to claim with a straight face that they deliver "24.7% better talent than the competition" given the fact that so many of the staffing firms they work with will most likely walk from the relationship after this unless they're truly desperate.

As a final thought, one wonders whether on some levels, practices like these are harkening back to the early warning signs we did not see with Chimes. Granted, I do not suspect fraud at YOH in any way, but something about this does not feel right (nor does it feel like its being done from a position of market leadership). Revenue desperation, perhaps. But not leadership. Most important of all, might staffing firms end up losing their shirts if an MSP they're working through goes under? Each situation would be different depending on how the cash flows and billing relationships work, but it's something to consider. As it is for procurement organizations as well who might get stuck with resources on-site who are looking to get paid.

- Jason Busch