TCS to revise rates for staffing firms

MUMBAI :Tata Consultancy Services (TCS) Ltd is revising the rates it pays to about 1,000 staffing firms for every engineer deployed, the first such revision by India’s largest information technology (IT) services company in the past six years.

The Mumbai-based company communicated to the staffing firms last month that the new pricing structure for engineers, depending on the skill sets, will be effective from January, according to two executives privy to the development.

“The vendor contracts get renewed every September/October and are valid for a year. However, TCS informed us that our existing contracts will apply until December (of this year), and a new one will come into effect in January,” said an executive at a staffing firm on the condition of anonymity as discussions are private.

The company’s rate card includes candidate placement costs, including compensation, vendor costs, and insurance, among other expenses. Introducing a new pricing structure aims to boost transparency and could benefit both staffing firms and TCS as a higher rate could lead to the IT services company attracting better candidates, according to a second industry executive. A spokesperson for the IT services major did not respond to Mint’s queries.

“Over the last few years, skill sets like artificial intelligence (AI), full stack and a combination of different programming languages became popular, and while other IT firms change the costs every couple of years, TCS had not,” the first executive said.

“The rate cards are not dynamic and are done after taking stock of the existing talent in the marketplace. The rate card changes, in this case, are for contract staffing employees who make up a large chunk of the workforce and not for permanent employees since the latter’s billing depends on their individual compensation structure,” the executive added.

The ability to hire temporary workers plays a vital role in managing profitability at IT services firms, including TCS, which ended with $27.9 billion in revenue and an industry-leading operating margin of 24.1% in the year ended 31 March 2023.

TCS does not disclose the number of subcontractors it hires in a year, but it spent about 9.2% of revenue or about $2.6 billion last year on these temporary hires. This is in addition to $12.3 billion, 44% of revenue, the company pays in salaries.

TCS’s new pricing for engineers sourced from staffing firms is part of a broader effort to revamp the way it works with such companies after a bribes-for-jobs scam was unearthed at the company. TCS initiated an investigation in response to two whistleblower complaints in February and March about how some executives were favouring some staffing firms over others and allegedly took money to get people a job at TCS. Subsequently, it sacked the former head of the resource management group, E.S. Chakravarthy, and eight other executives from the group, which oversaw hiring temporary workers. TCS also blacklisted six staffing firms.

“TCS would continue to enhance its governance measures, including a) regular rotation of personnel performing key roles in the resource management function, b) enhanced analytics on supplier management, c) periodic declarations by vendors on compliance with the Tata Code of Conduct and know your supplier process to cover additional declarations and d) vendor management process audits,” the company told exchanges on 14 October.

Still, executives maintain that the new rate card will be structured, keeping the cost pressures in mind. “We invested significantly when the supply environment was challenging. And utilization as well as some flab sitting on the direct cost itself, are levers…productivity, utilization and in the given environment, the subcontractor costs also, continue to be levers in Q3 and Q4 (December and March quarters),” said Samir Seksaria, chief financial officer for TCS, during the July-September earnings call.