Subcontracting is a Dirty Word
The term subcontracting in security is often seen as a dirty word. Let’s look at why, and if there can be a place of legitimate subcontracting that actually supports client requirements.
Clients engaging in security services have a number of options. They can employ security services internally, embed security services from a contractor, they can outsource security programs entirely to contractors or they can use a mix of the above.
Employing services internally comes with the benefit of direct control and dedicated services, but means the client bears the time and cost of recruitment and project management. Embedding security services from a contractor allows clients to utilise dedicated staff backed by a third party, but this may come with additional expenses and less certainty over the stability of the program.
Contracting services entirely to an external service provider can be convenient, but the quality of the service will still need to be managed and if the provider fails to deliver, the client suffers the results.
Subcontracting in security, and in general, is where the contractor hired directly by the client, outsources the work allocated to them to a third-party provider. This can occur with or without the clients’ knowledge. In some instances, this work can then be outsourced again and again creating a convoluted arrangement. Some jurisdictions regulate or even prohibit the use of subcontracting but many don’t.
Where Subcontracting in Security Can Work
Subcontracting can work. Let’s refer to this as Network Partnering to differentiate. Network Partnering allows a contracted provider to outsource work when it benefits the client and has a legitimate rationale behind it.
Examples could be when a client requires services to be dramatically ramped up over a short period of time like for an event, when a client requires services in a new jurisdiction not currently operated in by the provider, or when the client requires services outside the direct scope of the contracted service provider.
The client may choose to work with the contracted firm to project manage and source the requirements on their behalf. The contractor may still make some money in the process of subcontracting the services to Network Partners; However, they remain responsible for the outcome and the overall project success. They are still working for their money.
This works when companies that specialise in a particular set of services, build up relationships with other specialist suppliers and work together as services are required. They may just be referred directly, but they may work under one banner.
Company A is contracted to provide Executive Protection services to a travelling client. They internally employ the PSO, a support CPO, and an Advance Agent who remains constant across the entire task.
In some locations, they subcontract Security Drivers to Network Partners which ensures local knowledge and reduces the logistical burdens. At one particularly high profile location, the client requires TSCM and so this is again outsourced to a dedicated provider of these services in the relevant location.
Company A works within its networks to source, vet, and deliver the subcontractors and oversees the provision of the services to the agreed standard. It remains in control of the project for security and quality purposes.
Whilst company A may profit from the subcontracting arrangements, the profits would generally be relatively minor and essentially cover the costs of the project management. The client receives the services required with one known and trusted point of contact and one invoice.
Where Subcontracting in Security Fails
Some providers will tender for work that is simply outside their ability to deliver, either in terms of resources or expertise. They might be geared solely to deliver profits and not products that benefit clients.
With this model in mind, some of these providers take work that they cannot sustain, or that they simply have no intention of sustaining with the sole view to outsource it to a smaller and cheaper provider.
They’ll take the contracted figure from the client, gauge the profit margins and pass it on without doing any further work on the contract. The subcontractor then has to find ways to operate and make money.
Sometimes, the subcontractor will see that the only way they can make money is to subcontract the subcontract and the process continues, losing its profitability each time. This leaves the staff and the client as the losers as initially or eventually, the last company in the process will have to cut costs from areas such as wages, compliance requirements, resourcing etc. to make a profit. This type of subcontracting in security is a genuine business model used by providers globally and it’s more common than some may think.
Company A tenders for a Security Contract but to ensure it is successful, it tenders at an extremely low rate. Knowing that there is so little profit in the contract, Company A decides that rather than putting in all the admin and logistics at their own expense, they subcontract the work to a smaller firm (Company B) less the majority of the profit.
Company B has to reduce its operating costs to manage the workload and maintain a profit and as such, they reduce staff pay and take away their overtime. They pay less insurance than they should and stop supplying resources to their staff on operations. In the long term, this attracts less qualified staff to work for Company B and the quality of the product being delivered to the client is significantly reduced.
Assessing Contracting Options
If you’re a smaller company being offered a subcontract, protect yourself by:
- Asking if they are the partner contractor or a subcontractor;
- Asking if the client is aware of the subcontract arrangement;
- Providing the subcontract at a price that you quote and that you know works, not just a rate that the contractor offers or wants it done at;
If you’re a client, protect yourself by:
- Putting subcontracting clauses in your contract with providers and clearly establish the terms under which they can subcontract (if any);
- Being aware of contractors that claim to be able to deliver resources that sound a little too large or broad and have them justify their supply model;
- Acknowledging that Network Partnering can be a sound process, but asking the contractor what vetting process they have followed when selecting their subcontractor;
- Asking the contract why they subcontract program elements. If it’s about quality service delivery then that’s good. But if it’s because they’ve driven the price down initially and now cannot sustain the work, then neither can the subcontractor;
At the End of the Day
Experts working collaboratively together gives clients access to a range of quality providers under one project manager and one invoice. Subcontracting in security for the purposes of profit gouging is ruining the industry and the quality of the product clients receive.