Welcome to this issue of The Contingent Compass. Each week, I send two essays to help you navigate the complex world of the Contingent Workforce. If you need support on your journey, upgrade to a paid subscription where you’ll instantly be able to interact with the community through group chat, live Q&A’s, gain access practical program tools and useful how-to guides.
(Part 2 of the Commercial Conundrum Series)
When I wrote The Commercial Conundrum, I broke down one of the most obvious flaws in the contingent workforce world: MSPs tying their fees to a percentage of client spend. Success - cutting spend - actually shrinks their revenue. Failure - spending more - fattens it.
That piece struck a nerve. Dozens of leaders reached out and said, “Yes, that’s exactly what we’re stuck with.” But here’s the problem. That misaligned fee structure isn’t just a quirky footnote in the MSP playbook. It’s a symptom of something much bigger.
The entire commercial DNA of our industry is upside down. And until we fix it, programs will keep failing - no matter how good the technology, how slick the suppliers, or how compelling the MSP sales pitch.
The Misaligned Game Everyone’s Playing
Let’s be blunt.
Clients want savings and agility.
MSPs want volume.
Suppliers want margin protection.
VMS vendors want bigger contracts with more features (whether or not they’re used).
And the result? Everyone is pulling in different directions.
Here’s how it plays out in real life. A client spends $50M on contingent labor. They bring in an MSP who promises 10% savings. But after two years? Spend has actually increased by 8%. Why? Because every dollar of efficiency the MSP delivered cut into their own fees. So instead of pushing harder for cost reduction, the MSP chased more transactions.
Or take suppliers. A global staffing firm with a $30M enterprise contract will always prioritize that over your $300K mid-market deal. Can you blame them? That’s where their incentive lies. The misalignment starves mid-sized clients of attention - and then everyone wonders why “fill rates” and “time-to-fill” look poor.
💡 Reflection time: Do you know where your partners’ incentives really point? Because it’s not always at your outcomes.
The Myth of ‘Free’
For two decades, MSPs have sold themselves with the same seductive promise: “no cost to the client.”
It sounds irresistible in a boardroom. Why wouldn’t you outsource if someone else will foot the bill?
But here’s the catch. Costs don’t vanish. They migrate. Suppliers are forced to absorb them in higher markups. Compliance add-ons creep in. Or fees are hidden in convoluted rate structures that nobody outside procurement can fully explain.
The workforce industry has normalized inefficiency because inefficiency funds the model. It’s like buying a car with “zero percent financing” and acting surprised when the dealership still makes money. You’re paying for it. Just not where you think.
Why the Industry Evolved This Way
To really understand how we got here, you need a quick history lesson.
In the early 2000s, “vendor-neutral” MSPs exploded in popularity. The pitch was simple: we’ll manage your suppliers, we won’t compete with them, and it won’t cost you a dime. CFOs, scarred from the dot-com crash, loved it.
At the same time, VMS platforms emerged with pricing models built on transaction volume. The more requisitions, placements, and timesheets processed, the more revenue vendors earned. Efficiency wasn’t the business model - throughput was.
Fast forward twenty years, and those habits calcified. “No cost MSPs” and “volume-based VMS” became the industry norm. Everyone forgot to ask: what do these incentives actually produce?
The answer: exactly what we see today. Programs that look good on paper but fail in practice.
The Ripple Effect
When incentives are wrong, the failures cascade.
Clients pay too much and see too little.
MSPs nickel-and-dime change requests instead of driving transformation.
Suppliers disengage, protecting margin instead of innovating.
Workers feel like cogs in a machine, because the system isn’t designed to reward quality placements.
And let’s be clear: this isn’t about bad people. It’s about bad incentives.
💡 Reflection time: If your suppliers, MSP, and tech vendors win by maximizing your spend, why are you shocked when your spend keeps climbing?
What Could Work Instead
In Part 1, I outlined some alternatives to the percentage-of-spend model. Let’s expand on those here, with practical realities.
Fixed-Fee MSP Models
Straightforward: you pay for the service, not the size of your spend. It creates predictability. But the challenge? If the scope isn’t crystal clear, fixed fees can quickly lead to disputes over “out of scope” work.
Outcome-Based Pricing
Fees tied to speed-to-fill, quality, or retention. It forces alignment. But only if the KPIs are defined upfront, tracked consistently, and trusted by both sides. Get the measures wrong, and you just shift the misalignment.
Shared Savings Agreements
Simple in theory: MSP gets a cut of the savings they deliver. But define “savings” poorly, and it can become smoke and mirrors. Done well, though, it motivates the MSP to aggressively hunt for efficiencies.
Shared Risk & Reward Models
This is the boldest. Fees tied to business impact: faster launches, project ROI, reduced compliance risk. MSPs become true partners, not administrators. The difficulty? It requires trust, transparency, and mature data infrastructure. But the potential? Huge.
💡 Reflection time: When was the last time you sat down with your MSP and asked, “If you win big, how do we win big too?”
The Boardroom Blindspot
Here’s the uncomfortable truth: most CEOs and CFOs don’t know how their contingent partners are paid. They see line items for program costs, but not the hidden incentives driving behavior.
That’s a problem. Because commercial models aren’t just operational details. They are strategy in disguise.
If leadership ignores them, inefficiency becomes baked into the P&L. And when 30–40% of your workforce cost sits in contingent labor, that’s not a rounding error. That’s EBITDA.
💡 Reflection time: If a third of your workforce cost is governed by a model that rewards inefficiency, what does that say about your growth strategy?
The Future Nobody Wants to Talk About
Contingent labor is on track to reach 50% of the workforce by 2030. Pair that with AI-driven sourcing and automation, and here’s the scary part: without fixing the incentive trap, we’ll just automate inefficiency at scale.
Instead of transforming workforce management, we’ll lock in the same broken DNA - just faster and shinier.
This isn’t just about procurement headaches. It’s a systemic risk. If your commercial DNA rewards the wrong outcomes, your entire future workforce strategy is already compromised.
💡 Reflection time: Are you preparing for a future of efficiency - or are you building infrastructure for systemic failure?
Closing Challenge
The Commercial Conundrum (Part 1) was about fee structures. Part 2 is about something bigger: the incentive trap the entire industry is stuck in.
So here’s the challenge: look at your own program and ask yourself - “Does the way we pay our partners encourage the outcomes we actually want?”
If the answer is no, you’ve solved the mystery of why your program underperforms.
Because it’s not your suppliers. It’s not your MSP. It’s not your tech. It’s the DNA. And until you change the incentives, you’ll keep getting the same outcomes.
The only real question is: do you want to keep paying for inefficiency, or do you want to design a model where efficiency finally pays?
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If you need support on your journey, upgrade to a paid subscription where you’ll instantly be able to interact with the community through group chat, live Q&A’s, gain access practical program tools and useful how-to guides.