As a junior software engineer, I worked at a large UK bank.
Senior management routinely seem baffled that they could announce redundancies or hiring freezes, yet technology costs would continue to rise.
One pattern I saw repeatedly was a contractor being let go, only to return via a large outsourcing provider. The provider must have added a substantial markup despite supplying the same engineer back to the same team, without having incurred any procurement costs.
I once asked a more senior colleague how this made any sense. His answer stuck with me:
"You can’t stop people from doing their jobs. If someone thinks their job is to deliver X, they’ll find a way to deliver X. Sometimes that means working around processes and incentives in ways that look very strange from the outside."
Most large corporations treat these categories of employment as different budget line items with different rules and limitations: (1) full-time employees, (2) individual contractors, and (3) large contractor "body-shops" or outsourcing providers. Many times in my career, I have seen layoff a few from (1) then way over spend on (2) or (3). The mid-level manager who makes the decision gets to "claim" that expenses were reduced in (1) and "win" at year-end reviews. Yes, I know: This is total non-sense, but I have seen it many, many times at mega-corps.
Related to this, the massive advantage of AWS is that it allows staff to buy infrastructure without having to raise purchase orders. If you ask permission for spending, it's a very onerous and frustrating process. If you just deploy stuff and get billed for it, it's much easier! Even if that's more expensive than having your own cloud. Worse, if you have on-prem, you have to have staff. They might even be permanent. Businesses hate having to have important staff.
Not coincidentally, this results in massive overspend until someone notices and has to painstakingly go round checking what all your instances are for. And AWS is very profitable (well, margin rather than accounting profit).
Now, look at the billing model of AI, especially once flat rate goes away. People can spend millions on tokens without ever having to ask a manager! Obviously this is going to rake in money hand over fist, because it will be years before anyone catches up to ask "are we actually getting value for money here?" rather than "quick spend more tokens".
> If you ask permission for spending, it's a very onerous and frustrating process. If you just deploy stuff and get billed for it, it's much easier!
This point is underappreciated as it appears in many forms and can really help reconcile things that seems obviously wasteful (they may actually be wasteful, but sometimes financial structure makes this hard to determine in an honest capacity).
Capital costs and operational costs are a similar dichotomy. When I was in graduate school, the university was breaking ground on new buildings at the same time that staff layoffs were underway. On its face this seems grossly unreasonable, but staff salaries were paid from one funding bucket and capital improvements (new buildings) were funded by a completely independent state-level allocation process and those buildings that were breaking ground had essentially been locked in 5 to 10 years prior.
There are only a handful of companies in the world that AWS would be more expensive than having your own cloud. Just the baseline costs of having 24/7 availability requires minimum 5 full time engineers (3 shifts + cover for sick / vacation). So that's $1 million a year right there, and we're already well over the cloud spend of the vast majority of companies. If you want multi region that's now $2 million. And we're still just covering the cost of the people who have to be on call to deal with hardware issues. Now how much is it going to cost to develop the software tooling required to manage the whole thing from your office?
I agree with the basic premise and math here but getting to true 24/7 uptime in the cloud will require a minimum of 2 full time cloud engineers or infra people. If you're spending another 500K in usage costs you're almost at a million. For most, the cloud is the right option because maintaining servers is a pain and modern clouds offer a lot of additional features that may be useful, but it doesn't mean it's a massive win for the bottom line. There are lots of small and large companies that could run servers on prem or in their own datacenter and it would make financial sense, but they'd have to attract the talent to build and operate, which is harder than just paying enough.
This is apples and oranges, though. AWS does not manage your whole product. Are you going to have 24/7 on call for the parts that you manage? If not, why do you need it for the parts AWS manages? The reality is that most smaller companies do not need this level (and frankly I think most people significantly overestimate the overhead of running your own box. A heck of a lot of cloud deployments could be two servers in a co-location with one of them being a warm spare, and have equivalent service levels for their product in practice).
Eh this is true but in practice "my RAM stick went bad" is 0% of our downtime. It's almost always that we screwed up something in the app layer. And my company of ~100 does have 5 engineers on call 24/7. It's baked into our salary to do that.
(1) is considered a cost while (2) and (3) might be called an investment. Company can lie to investors that (2) and (3) costs could be removed at any time without interrupting any important business processes.
when i worked for an australian bank, one co-worker in a nearby team had been working on the the banks systems as a sysadmin for over a decade.
the bank would go through cycles of "we need to reduce our headcount and outsource everything" and then 4 years later "we need to reduce spend on contractors and retain more knowledge and expertise in house". he'd survived multiple waves of it, switching back and forth between being an employee or a contractor through some external agency, as management trends changed, while essentially doing the same job.
I want through the same processen three times already.
I work in civil service but in a very specific job that needs certain degrees by law.
I've heard they were going to outsource my job (because civil servant are expensive) and registered a company that delivers the requested services. I entered a public procurement and upped my price a little because I knew there aren't many people with the right certifications. I won the public procurement and went from a civil servant to a self employed expert with a company car and all the perks.
Near the end of my contract they thought about hiring their own expert again because... money.
I applied for the job and went through an external hiring process and got selected. Because legislation changed my job went from middle management to a senior management position with extra benefits. Had to drop the car though...
A few months ago my colleagues were doing prekilinary budget talks and considered on finding an external company to do my job and getting me another position. I had to point out the cycle they fell into and somehow they forgot about it.
I love this, reminds me of a automation engineer, i got to see on quite a few projects, who always came in wearing the company t-shirt or jacket of the sending company. Its so funny, when its always the same guy coming in for different companies.
That's actual genius. You should write this up in detail!
It's hardly complicated!
OP is simply describing what is common throughout government in the UK. This is known as the Revolving Door.
Private Eye magazine wrote a special report on it some years back as, frankly, it is scandalous https://www.private-eye.co.uk/pictures/special_reports/revol... [PDF]
The revolving door is a completely different phenomenon, and it is a problem for a completely different reason. It's about politicians in positions of power over an industry later becoming business leaders or highly paid consultants in said industry. This is a huge problem because it works as a long-term bribe: instead of paying for the politician today and inviting inquiries and problems, you make an implicit promise to employ them when they get out of power as a future reward for preferential treatment today. This is an issue of corruption and excessive business influence of public policy.
In contrast, the issue with civil servants being let go and re-hired as contractors is a simple issue of inefficiency. The same person doing the same job has the same incentives, they're not being corrupted. However, our public resources are being spent inefficiently to hire the same person to do the same job for more money, with an added bonus of spending resources on the acquisition process itself.
Not to take away from your point, but the revolving door is also good because the experts should be the ones who make the rules. There are too many details about every niche that smart non-experts will get wrong and so we need experts.
Good luck reconciling these two conflicting points.
I don't think that's hard to reconcile - that only involves people in industry moving to government, which is far less problematic.
What happens after the job they were hired to do is complete?
I didn't say it is complicated. It is unusual for individuals not at the top of the ladder to set up their own companies and get exactly the same job twice. That's not what the "revolving door" is typically talking about.
Prompted and delivered!
Managers love the idea that contractors can be fired more easily than employees. Except that this flexibility comes at a cost; people insist on being paid more to have an insecure job.
The uncertainty never goes away. You can pay someone else to suffer it, but it will always cost more than dealing with it yourself.
And that can be ok. Just don't fool yourself into thinking you're getting a bargain.
> Managers love the idea that contractors can be fired more easily than employees. Except that this flexibility comes at a cost; people insist on being paid more to have an insecure job.
This is true, but it's not the whole of it. In some cases the manager goes to a cabin in the woods to drunkenly shoot at moose with the head of the contracting company.
It's a saying that "the purpose of a system is what it does". I think it's a pretty dumb saying. But it is often worth talking a look at a system and see if the "mistakes" it makes (such as wasting money on contacting companies) aren't in fact desired by some people in the system.
There’s a tricky variable called trust. As an employee hiring consultants, how do I build trust that you and your consultancy is going go deliver and make me look good? It usually involves building a relationship, activities like hunting or golf are classic examples of these activities.
> if the "mistakes" it makes [...] aren't in fact desired by some people in the system
This process goes both ways. The people in the system align to the process. So maybe the "mistake" wasn't desired to begin with, but once it's there someone things: if that's the way they want it let's change our ways to fit. That's why these things seem to dumb from the outside.
This doesn't happen nearly as often as people think. I'm involved in multiple single digit million contracts with vendors, and not once has anyone at our company even met the vendor AMs in person. If I choose a vendor that is twice as expensive as a competitor I am going to have to justify that to the VP I report to and "we had fun on the golf course" is just not going to cut it.
There's always going to be a slight mismatch between the supposed aim of any organisation and the incentives of the management and every single employee unless they're all shareholders and even then...
> Managers love the idea that contractors can be fired more easily than employees. Except that this flexibility comes at a cost;
I noticed this early, and spent the first half of my career leaning into it. If you negotiate every gig as a contract, you get to double (or more) your salary. And the only thing you're trading away is job security which, if you pay attention, you'll notice doesn't actually exist for your salaried counterparts either.
To nitpick, you also have to pay for your own health insurance. So subtract $200/month from that extra $15,000/month for the sort of catastrophic coverage plan that a 27 year old needs.
What happened that made you switch away from contracting?
The problem was that every time I stopped contracting for somebody, they stopped sending me money. Building software products fixed that:
https://expatsoftware.com/articles/guy-on-the-beach-with-a-l...
I remember your blogabond posts from way back when on HN. I think you were the first to really popularize the "coding while traveling" idea.
I didn’t get to use any of the cool terms for what I was doing though. FIRE and Digital Nomadding hadn’t been invented yet.
I've seen this happen because of accounting/corporate finance policy.
Payroll is an ongoing commitment. Consultancy is a temporary service. Moving people from payroll to consultancy means they can reduce overhead in financial projections. Even though consultancy costs more, and employs the same people, it makes sense to do if it means you can convince shareholders and analysts that Opex will shrink in the future, and therefore profitability increase, and therefore the share price increases.
The problem arises when moving someone from payroll to consulting creates the illusion they are not necessary.
That's not Accounting's problem.
This is one of the many situations where counting beans creates idiocies, because GAAP has no concept of context, and management can play games to make the numbers look good while destroying real value.
That's Level 1 of the problem.
Level 2 is conscious fraud, either of investors or by investors. There are always startups that look suspiciously like their only purpose is to extract money from investors based on future promises that are... unlikely.
You can spot them because the promises keep being delayed, and/or they pivot to some other activity, but keep pretending to be a serious viable business with Exciting Plans™.
Level 3 is the one described by OP, where startups are cynically used by an incubator to extract fees and other income. This can overlap with genuine investment. It can be a triple win. No IPO? A nice cut of investor money. Unicorn IPO? A nice cut of a different kind of investor money. Successful business? A nice cut of the income stream.
Level 4 is straightforward investment fraud by banks and brokers. There are many, many variations on this, from "questionable relationship practices" to risk washing, to outright pump 'n dump, and even the occasional classic Ponzi.
The bottom line is that capitalism is inherently corrupt. There is no free market of rational actors inventing wealth and value for a glorious shared future.
There's an infestation of opportunists, fraudsters, and hucksters at all levels, and governments regularly have to step in to hide the mess and glue the pieces back together - sometimes because the people involved own parts of the government too, and it's better to make millions of working people poor than to go to jail.
> capitalism is inherently corrupt
People are inherently corrupt. That's just life. The Soviet Union was corrupt as hell.
If you want to put down capitalism, feel free, but don't blame it for something that isn't unique to it.
At a glance, maybe. But we also see this in government. The US has outsourced 10s of thousands of “permanent” jobs over the decades. The entire DC metro economy is based on this.
Also because of corporate policy. I know of a company where the VPs are heavily targeted on headcount reductions. Contractors are not headcount.
> if it means you can convince shareholders and analysts that Opex will shrink in the future
Isn't that just fraud?
No. Fraud is a much higher bar than making a prediction about your plan for the future that may or may not pan out. There’s no deception here, management fully intend to end the contractor relationship in future, whether they’re able to or not.
A vague promise which you pretend to beleave and can make believable to other is just business advice unfortunately.
It doesn't actually make sense tho. It just "makes sense" within the rules of a fundamentally nonsensical system.
That system however is no law of nature. It's just broken nonsense no one bothers to fix because we haven't yet run out of money.
I wonder if this explains why I hear about this more from Europeans than from the SF tech scene. California is at-will employment, so you can fire an employee as easily as a contractor. Ironically this makes companies more willing to hire and retain employees, since they're not worried about getting stuck with a bad one — and most employees aren't bad, and are better for the company than contractors.
Its not about employees being bad, we have 6 month trial periods over here in the EU where you can be fired quite easily. Thats the excuse they use to keep at will employment. In reality they want to be able to reduce Opex costs which looks great on their end of year budgets. If you can then offload that cost into a project run under Capex, even at a higher cost, then its budgeted differently and the shareholders get their payout.
A stable environment with a great culture has lower costs.
But then they have to hire good managers and for that you need to be a good manager yourself.
The cynical me believes that there's not way kickbacks are not involved. A lot of times a third company acts as an intermediate on hiring those contractors, and their fees and markup easily make the same worker costs sometimes 2x their original salary.
The usual excuse for that is that labor is classified as OPEX, while hiring consulting companies can be classified as CAPEX, and the stock market likes when companies lower their labor costs to "invest" more.
Have y'all hit the "can genai do his job?" phase yet...
Early on I used to try to explain that things don't work as advertised. There are a lot of advantages but you need a human reviewing and directing.
These days I don't even bother. Call it being desensitized to the bullshit, but I'm waiting for some fancy AI agent to take out stuff in a way that no one can do anything. Past that I don't see a way for C suite to wake up.
> Past that I don't see a way for C suite to wake up.
Didn't you mean to temporarily realign? I mean give it 2 years and another manager to show up, ready to get their bonus for the next attempt at it.
That's our reality and how we've structured our markets
I honestly don’t get why anyone would give up their mental health like that and work for such places. In my reality there are plenty of honest and decent places to work at. I’m seen dark places yes but only as visitor - why would I want to be in hell for more than a day or two.
There's the thought that all places are potentially s** in one way or another. This isn't entirely true but there's a significant possibility that any move could be just as bad or worse.
You look at your monthly outgoings and think about how long you have to look before your cash runs out.
I stuck it out too long several times. The most recent one left me unemployed for quite a long time and I was lucky to be in a position for it not to matter.
Now I'm in a job that's a step down - in a sense it's humiliating. On the other hand it more than pays the bills, it's low stress, I've lost 13 kg and I don't wake up in the middle of the night and instantly start thinking of the terrible things that happened in the week so that I can't sleep again.
Now I spend my spare time working in the garden instead of desperately trying to build the new feature on time. I'm digging a driveway. Perhaps this won't last but I realise how much I was killing myself by trying to stay in something bad.
Places are bad essentially because of bad people - it only takes a couple of idiots and it's impossible to fully judge that from an interview. You always get bad vibes from someone or other but you're trying to convince yourself it's ok because you need a job.
I don't see why that'd be humiliating by any sense of the word. We don't live long, and there's pretty much nobody who at the end of their life bemoans 'I sure regret not having spent even more time at the office.' More humiliating, at least from my perspective, is the person who works their life away, trying to find contentment from the accumulating of things which, of course, never succeeds. It's like society is full of people playing out what used to be the comical trope of a man in a mid-life crisis, and his new yellow convertible.
> I honestly don’t get why anyone would give up their mental health like that and work for such places.
Mostly for money, of course. And all the attendant improvements that can bring to one's life. Some people need it more than others, e.g. a H1B worker who is attempting to pull a whole family out of poverty.
I bet many go in thinking they will do it temporarily, until they pay their college debt, to give one example. But money is very addictive.
I agree with you, but I feel like leaving is much harder in reality for most people.
Life gets in the way, you don't have the energy to apply, you're afraid of rejection, you are afraid you might end up in a worse environment, you justify it to yourself in any number of ways.
Inertia, herd mentality and self-deception are much more powerful IRL than most people online seem to think (or at least write).
Add having a family to the mix and it gets worse. Being a sole provider for a family is scary when you go job hunting, especially if you live in an environment that is very expensive (where the jobs that pay decent are located normally).
Yep, I left one project because I think I was underpaid there. I could not find another job for like 3 months. I finally found one and I was also very stressful. No it is better, at the same project and I think I make more money than I would ever be able in a project I left. But on the other hand it was very stressful for my family. Was it worth it in the end? I do not know because even if money is better and company is bigger I could damage my kids development by being angry, sad and depressed for two years.
Because companies tend to enshittify over time. Especially if they get acquired. Doubly so if the buying company is PE.
Really small “lifestyle” companies might be fairly immune, but it doesn’t take much for them to fail, there’s a different risk profile.
> In my reality there are plenty of honest and decent places to work at.
Like wich? In my experience all workplaces have something that's gonna be wrong with them, and you just need to compromise if what's wrong with THAT ONE is acceptable to you.
Like for example honest and decent places to work at tend to also come with lower pay, or pigeon-holing career-limiting type of work, discriminatory gatekeeping, or other such compromises. There's no free lunch where you can have your cake and eat it too, unless you're very lucky.
Many times places change because a manager changed and then you have the boiling frog thing where it doesn't become awful all at once.
At some point I just work here man, and my job is to do whatever dumb shit management wants me to do this quarter, no matter how dumb it is.
I think it is that cycle where old projects will eventually seem less important with huge budgets for new projects by a new manager, that will have bigger allocations, and the bonuses will follow along with the brownie points to that genius.
This is what I do believe will happen.
I still have new „business„ guys joining org who try to make „cloud migration”.
We are cloud as a SaaS, we are running on VPS with virtual networks. But they come in and think „to be professional” we should be in „real cloud” like Azure or AWS.
Just got my morning coffee and read "genai" like some elusive Japanese person's name.
So, can Genai san do his job?
That's a pet peeve of mine with improper capitalization surrounding this. AI = Artificial Intelligence. Ai = a Japanese name. ai = "love" in Japanese.
Also, "jenai" (which sounds like an uncapitalized "genai") means "not."
> So, can Genai san do his job?
If not, will become Genai Sans job.
Oh stop it.
In my defense, it was Father's Day and I had to.
Sir Humphrey explains the role of a civil servant
https://www.youtube.com/watch?v=wKDdLWAdcbM
"Bernard, I have served eleven governments in the past thirty years. If I had believed in all their policies, I would have been passionately committed to keeping out of the Common Market, and passionately committed to going into it. I would have been utterly convinced of the rightness of nationalising steel. And of denationalising it and renationalising it. On capital punishment, I'd have been a fervent retentionist and an ardent abolitionist. I would've been a Keynesian and a Friedmanite, a grammar school preserver and destroyer, a nationalisation freak and a privatisation maniac; but above all, I would have been a stark, staring, raving schizophrenic."
I hope he was able to get a paybump each switch!
Sometimes(most of the time?) that is the only way to get a pay bump.
I know a large public sector organisation that had two extremely experience engineers take an early retirement package because there was a big restructure and they were getting 20 grand under private market rates. Six months later, they're hired back in for a year at 20 grand *over* market as contractors.
And they wonder why they're pissing out money like a drunk in a bus stop.
Did that include the ~40% of employee overhead?
This is what I do.
I love watching them cringe when they see my new daily rate.
Something I hated about working in corporate America was surviving multiple leadership regimes, watching the same lessons being learned over and over, having to recount history to new regimes, it got really tiring, and particularly dealing with the attitudes and self regard of some.
I have often thought this - a wave of people learn something and on come the next wave to relearn it all. They can read books but they don't really "get" what the books say and have to learn it all from personal experience all over again. It's not just America.
I've seen that in a large management consultancy company. Part of their risk management procedures (both for the company and in terms of some EU law) meant they couldn't keep contractors for longer than x years. They'd have to convert to employee or separate for 12 months.
Bit that doesn't really work in knowledge systems. Even with the best documentation people will build up knowledge that no one has, and their departure is costly.
Equally at the end of their contract a lot of time will need to be spend on a handover which slows down others even more.
So what happened? The contractor went via another middle man, which checked the correct boxes on the form, and everybody was happy.
> Even with the best documentation people will build up knowledge that no one has
I think that's the part management teams are missing. They assume that employees are just human resources and they can replace a senior engineer with a 100% equivalent one when needed.
I worked for a large US bank that has a 10% biannual attrition target at all levels across the company. Twice a year they PIP 10-15% of staff, most of whom take a substantial buyout. Institutional knowledge is constantly being lost and experienced staff are being replaced with fresh cohorts of new grads, who then get replaced themselves right as they start becoming useful.
I knew multiple people there who made more in signing bonus, pay during training, and severance than they made for work actually performed.
The CEO is convinced that this is the path to "top tech talent."
That sounds like Enron. It breeds a culture of short termism, arse covering, and often... bending the numbers a bit
If we called it by the literal term, decimation, you would get a good sense of the effect. "I have a new policy, I'm going to decimate my own company"
I assume management thinks this will lead to better documentation practices and standardized processes so it becomes easier and cheaper to introduce new employees. In practice the opposite happens, employees get scared for their jobs, hire bad new employees so it's the new people that will get PIP-ed.
Oh, I think I know who is this. The CEO is fantastic (he is very technology oriented) but he is super convinced this is the right way. It has all kinds of perverse consequences. The constant loss of experience shows everywhere. Cliques are formed as means of protection. People focus on being seen, rather than in doing a great job, etc.
Does the approach apply to senior management?
Senior leaders in large companies I've worked at always had a fairly high turnover just because they all tend to be hyper competitive and engaged in their own Game of Thrones type competitions - which someone has to lose.
There's some level where it stops, but that's after you've got 100+ reports.
I don't know that I interacted with anybody senior enough to avoid this process in the time I worked there.
It's very possible that this occurred during the IR35 shake-up - HMRC moved the liability for unpaid income tax (in a situation where a contractor was determined to be a de-facto employee) from limited company contractors themselves onto the client (the bank, in this case).
Banks had a very low risk appetite and so had to let these people go. What was going on in a lot of places was that vital staff who had to be dumped were intermediated by outsourcing providers. These companies either then paid the staff a very high salary and sold them in as temp labour, or took on the risk themselves and hired them as contractors for the same purpose.
This all made sense, but for a lot of contractors at the time, it felt like the apocalypse. The net effect was that HMRC exchanged flexibility in the labour market for immediate tax take. This may not have been a sensible decision.
> One pattern I saw repeatedly was a contractor being let go, only to return via a large outsourcing provider. The provider must have added a substantial markup despite supplying the same engineer back to the same team, without having incurred any procurement costs.
When I worked (well, was a contractor at) a very large company, they'd kicked out all their small contracting providers only to get the same people back via a single big one. I was told this was part of a vendor consolidation move, because maintaining their existing direct relationship with literally hundreds of thousands of vendors had a huge cost in itself.
I doubt they were dumb enough to think there was no markup, but going direct isn't free either. There ain't no such thing as a free lunch.
Now, was it a net good move? That's both above my pay grade and not my expertise. But from the fact it took me a month of billed time to buy a license of that same company's own product[1], I wouldn't have called it an efficient bureaucracy.
[1] all purchases of own-company product had to be done through the 99% internal billing discount program.
I have a friend who left BigCo and then rejoined it as a contractor, plus some additional employees that he manages now. He cynically says "My job is to convert OpEx to CapEx when the finance department tells some director they can't have more headcount."
The same way cloud is about doing the exact opposite.
Understanding a bit of accounting / corporate finance opened my eyes to many things.
How is hiring a contractor Capex?
>the finance department tells some director...
Don't shoot the messenger. The finance department is implementing the board's policy.
Because they will work on new projects, which are considered as CAPEX.
Basically big4 and accounting firms fucked worldwide organizations.
> Senior management routinely seem baffled that they could announce redundancies or hiring freezes, yet technology costs would continue to rise.
I dont think they're baffled, they just trying to show they're attempting to keep costs under control.
Lots of shouting on one particular occasion left me with the impression that they genuinely had not anticipated this consequence of simultaneously pulling the "no contractors to be renewed" lever and the "any MD can sign contracts up to $1m with approved suppliers" lever.
The people involved weren’t stupid. They were trying to achieve one outcome and got a different one because the rest of the organisation adapted to the incentives in front of them.
How do you call when someone repeatedly does the same thing expecting a different outcome each time?
> One pattern I saw repeatedly was a contractor being let go, only to return via a large outsourcing provider.
That's 'normal' in Canada and France.
I think I have a simpler answer: quarterly results.
Management just really needs to make the next earnings look like what it should look. Next quarter is next quarter's problem.
In my experience, it's probably due to differences in budget line items. Usually, regular labor costs and outsourcing costs are budgeted separately. Some teams may not have the authority to hire an additional full-time employee, but they do have the authority to use external contractors. On top of that, the internal political landscape differs as well. When it comes to office politics, increasing headcount in a particular department means increasing that department's influence. There are also additional benefits and administrative costs that come with hiring permanent staff. Moreover, standard contracts usually come with overhead for contract management personnel and procedural costs, and these are often handled by the vendor side. In other words, direct employment comes with long-term responsibilities for performance and benefits, but when you outsource, most of that liability shifts to the external vendor.
I've told this story before, but I worked for an ISP that was obsessed with things like CAPEX vs. OPEX and staffing vs. outsourcing (they always mixed those two for some reason, even if I'd say that buying consultants and salaries are both OPEX). In any case, it resulted in outsourcing 50% of development to a another company, at twice the cost, then keeping those consultants on for a decade. The saving, had they hired instead would have been massive. The reasoning was: Well we can fire the consultants in within two weeks... sure but you can fire staff within a month or two. Six months at the most. Right now you're just announcing that you suck at long term planning.
At one point they were convinced that the operations team was horrible inefficient and outsourcing would be cheaper (they'd already pulled operations back from IBM, because IBM is expensive and incompetent). Luckily someone decides to get some other consultants involved and actually measure the inefficiencies, before taking action, so the savings made from outsourcing the team (again) would be more clear. They didn't expect to be told that they had one of the speediest, leanest and most efficient operations teams in the country.
Same company handed out 20% raises one year and the next we were apparently almost broke. Then no on wanted to work there, because there were no prospects of a raise in the future, so they started hiring new people at MUCH higher starting salaries. They'd start people out on the salary levels you'd expect to reach after 5-8 years, so they would avoid having to budget in raises.
At some point companies just get top heavy with incompetent business types, who doesn't tend to stick around, at least not in the same role for to long. They forget the past and start their playbook, which always happens to be the reverse of what happened two years ago.
This doesn't seem to answer why an engineer is let go and gets rehired through an outsourcer.
In some cases it could be driven by the shape of the work & where the funding is allocated:
If there isn't enough guaranteed recurring work, it might not make sense to have a full time position, particularly in a country where its difficult to lay people off & if employees have additional overhead (pensions, employer funded heathcare or insurance, etc) vs contractors.
But, if there's funding allocated for some key project that's framed as a 6-12 month project, there might be a good business case to hire a contractor. Maybe the funding comes out of the project bucket, not the core funding for legacy product X bucket.
If the contractor is someone who was recently let go & has a good reputation within the company as someone who gets stuff done and is easy to work with, it's probably a no-brainer to re-engage them as a contractor vs rolling the dice on an unknown quantity.
Whoever is managing the budget of their old team gets a win as they were able to reduce headcount to fit in their budget
Whoever is managing the new project gets a win as they find a great contractor for their key project
The former employee returning as a contractor probably gets a win, as they get paid at a better daily rate while the project is rolling, provided they're able to line up more projects or land a new permie job once the project is completed.
If there's an outsourcer involved, they win by taking a cut. The former employee might also win by having the outsourcer involved if the company has some baroque process for engaging contractors with many compliance hoops to jump through -- in extreme cases (think banks, or public companies that need to demonstrate they don't do business with suppliers engaged in slavery, or so on) it could save the worker months of paperwork and tens of thousands in legal expenses to set up their own one-person agency and go through the compliance process to be able to work for their former employer, so they might not be able to win the contract work without piggybacking on an outsourcer who already has the contracts & compliance stuff sorted out.
At one of my old jobs contractors just cost what they cost.
Benefits are the obvious one but there were also Corporate Costs which were calculated based on headcount - Exec salary, office space rental, laptop costs, etc all were line-items based on department headcount.
The ratio ended up being 1/3 employee and 2/3 contractors so plenty of desk-sharing, "war rooms", etc.
most large companies have a 2-year limit on contractor employment so what they tend to do is they'll hire the same guy through a different contractor with another two-year agreement..... that's to get around the situation where if someone is working as a contractor for more than 2 years they can legally claim that they're actually an employee....see Vizcaino v. Microsoft Corp., 120 F.3d 1006 (9th Cir. 1997) [0]...
this is just a guess by the way but it seems like a plausible one, as I've seen it happen in Fortune 500 a lot, where the same guy comes back through a different vendor 2 years later if he was really good and they needed him to come back....
[0] https://law.justia.com/cases/federal/appellate-courts/F3/120...
The military is like this. Higher Headquarters decides to contract out maintenance and logistical support for $aircraft_fleet. Uniformed maintainers go home in Friday and show up Monday making a lot more money to do the same job but without risk of getting posted or deployed.
Contractor fees come out because of a different pot of money, so perverse incentives abound.
This is almost formalized in UK trains under TUPE. Train companies like Avanti exist as shells; they don't own track, trains, or stations, and when the franchise shifts to a different company the vast majority of the staff are taken on. Because - guess what - they're the people who can do the job and are in the right place.
Someone called this form of privatization accounting "playing at shops". It is slowly coming to an end as they are re-nationalized.
Don’t those uniformed maintainers get reassigned to other military jobs or are they allowed to work as a contractor while being active military?
Yes, GP's description is incorrect (to be kind, it's just bullshit). If the position is removed (say H-60 maintenance at some base is now contracted out) then the enlisted members doing the work would not switch to contractors over the weekend or even over the span of a few weeks, they'd be moved to another base or another job on the same base.
Now, the people being hired by the contractors are often former enlisted maintainers, but it won't be the ones doing the job previously because of a switchover like this. Those crews will have PCS'd.
Sometimes they do but often they quit because the work life balance is much better.
If you’re enlisted (or even commissioned in most cases), you quite literally don’t get to quit.
Depends on your terms of service and their expiry date. The google term you're looking for is "voluntary separation". Despite what you see in media, nothing in the military bureaucracy is iron-clad. People can and do leave all the time. Usually they keep you for 6 months and then you're off, sometimes without certain benefits depending on circumstances.
The exceptions prove the rule. The situation OP described (military members just ‘quitting’ on short notice and working private sector) aren’t possible for 99% or more of service members.
They're dismissed due to a reduction in force.
That’s pretty rare in the USAF. Most servicemembers will be sent to be retrained on a different airframe or even into a different career field unless their date of separation doesn’t make it worth it. Voluntary separation programs do sometimes pop up but they’re not that common.
It is common to have people separating and coming back immediately as contractors into basically the same job, but that’s usually because there is already a contracted workforce in place and they made connections while serving.
But it is the same affect as what the OP said. In a large organisation, attrition is so high that if you slow recruiting you will soon have a lower headcount. So yes the uniformed deployable military are replaced with civilian 9-5ers. But not the very same people, just the very same roles.
I don't think this changes how I feel about it.
s/in Friday/on Friday/g
That's because the bankers didn't realize they're not in the banking business anymore - they're in the IT business (which has a focus on tracking money).
I have made this same argument to a C level person in the US capital markets and told I don’t know what I’m talking about. As long as the check clears, I have no strong feelings on the topic, it’s just a performance on a stage.
> Sometimes that means working around processes and incentives in ways that look very strange from the outside.
At my last performance review, at my last job (this is going back more than a decade now) one of my agreed KPIs was to take the lead on a 3-6 month project, making all the required technical decisions etc. and successfully delivering it on time and on budget.
I never got the opportunity, and quit that job six months later to start my own business, but still did contract work for them.
Got a social call a year later from my old boss (who also left, before I did) and got to tell them “so I hit my KPI, you’ll never believe what I had to do to make it happen…” :D
At the risk of injecting recent US politics into this, the shipyard I used to work at had five employees laid off under DOGE and replaced by the exact same individuals (there aren't actually that many naval architects in the US), now working as contractors at a higher base pay. I feel like there's a lot of that out there.
The defense and security-related sector is legendary for this. I had a friend who worked at a three-letter agency ~20 years ago who saw multiple colleagues quit, get hired by contractor firms and sold back to the agency to work on the exact same projects they had been working on as employees. They got a 2-3x pay bump, and the government paid 3-5x for their services. In one instance, my friend said, a guy clocked out on a Friday and came back to his exact same desk on Monday, with a new "employer" and a higher salary.
Per a friend, they are told to use more contractors in the government. Its also not clear if the contractor is actually making more money. Government benefits are significantly better than most contractors will give (I will be all of them).
The contractor has better take home pay. For them, it's maybe a wash whether they get the extra pay or the better benefits, but what they are paid is only a fraction of what the government pays to the contractor's company. For the government, giving those benefits is definitively a much better deal than using a contractor.
> For the government, giving those benefits is definitively a much better deal than using a contractor.
This is not necessarily the case. The large part of the benefits are to be paid in the future, and this makes it possible for the government to spend much more than makes sense on whatever the project is that the employee is assigned to. You can get into situations where the employee doesn't pass a cost-benefit test.
The contractor is less cost-effective; you get less work per dollar spent. But because you have to pay for the contractor at the same time they do the work, you aren't subject to this effect of being trapped by an illusion of cheapness.
Who actually pays for what and how is so mangled that if you want to reallocate someone to another project (or even just pay them out of a different pool of funds!) often the easiest approach is to rehire them through a contractor, or a different contractor.
This is especially useful when projects are wound down. Let's say you've contracted to an org for support or management on a project that you want to kill, you've already obligated some amount of funds, and you don't really want to make that organization angry by ripping millions away from them (the pool of contractors is not large). What to do? Well, you could take Joe and give him a raise by suggesting he work for the contractor instead of you directly. Money's already spent, anyways. So you save your own money that you can use for your pet projects or whatever, Joe gets a raise, the contractor doesn't get a termination that pisses everyone off. Everyone happy, right? Smh.
This is extremely common at govenments in the Netherlands as well.