My friend told me that he works for a big company in the USA that hires contractors from a preferred vendor who is free to get contractors from other vendors, if they do not have a contractor on their database for a particular position. As you might know, each vendor will take his share of the hourly pay of my friend for the entire period of the contract, leaving the parent company with a big bill and the contractor with a smaller piece of the pie. I think this is what they call
corp-to-corp employment in the industry. Example:
Company = $100/hr vendor1 = $16/hr (preferred vendor) vendor2 = $8/hr vendor3 = $8/hr contractor = 100 - (16+8+8) = $68/hr
It seems fair and okay if the preferred vendor takes a significant cut. As you can see in the example above, the middle men vendor 2 and 3 are adding $16 to the cost without adding any real value in the chain. Hypothetically, out of this $16, the company could save maybe $10 and offer $6 more to the vendor. The contractor could then get $4 of the $6. Everyone would be happier.
I don't know why companies would want to do this instead of working directly with one vendor. Everyone would make (or save) more money and the contract would attract more quality contractors. Besides, it would reduce the cost of software significantly if a company is dependent on a lot of contract labor.
To satisfy my curiosity, I requested my friend to ask his boss the actual rate for the position and also why they accept middle vendors, but he does not feel it is appropriate to ask such questions. Since he won't ask his boss, I am posting the question here to get some answers as to why big companies would be open to such arrangements.