Success in the staffing industry is largely a numbers game. The retail security industry is quite similar. When crime plummets and peace of mind flourishes, alarm sales wane. After a major event, one that instills panic or the fear of compromised safety, alarm sales soar. Staffing isn’t much different. The profits of outsourced staffing providers are intrinsically tied to the fluctuations of the market. Their livelihoods depend on the prevailing human capital needs of the moment, as influenced by economic conditions...particularly those of their prospective clients. These conditions, however, are highly dynamic. What’s the point? The financial stability and foreseeable solvency of your would-be vendors, that’s what.
On January 8, 2008, the business world awoke to the shock of learning that Axium International, the entertainment industry’s largest payrolling services provider and parent company to Ensemble Chimes, closed up shop.
For the entertainment industry, Axium’s closure left hundreds of workers stranded without pay. Several Axium clients told the Los Angeles Times that prior to the announcement they were required to deposit a percentage of their payroll amounts to Axium for processing. Many Fortune 500 companies relied on Ensemble Chimes to supply their contingent workforce. According to estimates, Ensemble Chimes provided more than 2,000 workers for non-entertainment industry companies. It shuttered its operations owing millions of dollars to staffing firms.
A year later, hardships facing the U.S. economy caused another VMS provider to announce its closure. On January 19, 2009, Vendtegrity shut down and executed a “general assignment for the benefit of creditors.” Total debt in this case was more than $1 million, and 99 percent of the creditors were staffing firms.
Your outsourced labor program will work only if the vendors you select remain profitable. That’s the incentive. So on one hand, if you want to maintain a productive vendor-client relationship, you must commit to making the service provider’s efforts worthwhile. But more importantly, you need to ensure that the vendor will be around long enough to meet your needs and fulfill its promises.
Asking for financials in an RFP is fairly common. And those questions deserve to be asked. But ask wisely.
If the vendors you’re courting are publicly traded companies, receiving accurate financial information is easy. Sarbanes Oxley enforces a level of fiscal transparency that makes validating the vendor’s stability a simple process for your team. But a good number of staffing firms, RPOs, MSPs, and VMS providers are privately held corporations. Best practices would recommend that private companies operate as though under the rules of SOX. But you can bet not all of those organizations do. Here are strategies for drafting the financial section of your RFP.
DO send out mutual NDAs to all prospects prior to releasing the RFP. Mutual NDAs protect your interests and those of your bidders. An NDA also removes any objections a privately held vendor may concoct to justify withholding information you need.
DO NOT issue unilateral NDAs. Honestly, you’ll come off crooked, and savvy vendors may just walk away. I wouldn’t blame them. You could be losing out on partnering with an intelligent, ethical, and risk-averse vendor. Also be aware that vendors who eagerly execute such agreements are desperate for business. Under no circumstances should you sacrifice any aspect of your program for a desperate vendor, even when that firm undercuts the pricing of all other bidders. It’s a relationship doomed to fail and end quickly. But you’ll be the one playing janitor with the mess.
DO mandate that vendors send you copies, audited or otherwise, of their three most recent years of financial statements. You have finance and accounting teams at your office. They are experts. Let them review the documents and make informed determinations about a vendor’s financial health.
DO NOT provide a table for vendors to populate with data from their balance sheets, in lieu of financials. You’re essentially asking them to self-certify their information. Don’t. Err on the side of caution. You have no business reason for believing anything they tell you without supporting evidence. That’s why you’re using an RFP instead of a sales meeting, right?
DO NOT require vendors to send financials and then ask them to fill out a table requesting the same exact information. We see this all the time when responding to RFPs. It’s redundant busy work. There’s no reason to do this. Just request a copy of the financials and scrutinize the figures.
DO NOT ask a series of fluffy questions about finances. Again, just review the documents the vendor submits. Time and again, we encounter bizarre questions that beg for narratives. It’s largely unnecessary and can’t be validated.
DO ask brief and pointed questions about the following: whether the company has filed for bankruptcy (demand explanations for positive responses and bind vendors with penalties for failures to disclose situations you might uncover later); whether the company is involved in any mergers, acquisitions, or divestitures; whether the company has any legal issues you should be aware of (demand explanations for positive responses and bind vendors with penalties for failures to disclose situations you might uncover later); whether the company has escrow, credit, or trust accounts established to ensure vendor payments should financial problems arise; and get a copy of the company’s contingency plans related to the discontinuation of its operations. Demand to see some real data to support every response in this section of your RFP.
Even private companies have financials, business continuity plans, exit strategies, etc. If they don’t, you’ve already pierced their corporate veils. Avoid such “companies.”
If a privately held vendor refuses to submit financials or basic documentation that should exist for any incorporated entity, disqualify the proposal. Don’t entertain or further consider non-answers such as “We don’t typically release this information in this stage of the relationship,” or “As a privately held company, we don’t disclose our financials.” Waste no more of your time on these people. If they have something to hide, you can’t trust them as business partners. Putting sour milk in the fridge won’t make it taste any fresher a week later. File the bid away and move on to the next one.
2014. Licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.
