The true cost of SIA licensing

As far as Security Industry Authority (SIA) licensing is concerned, it's fair to say that we now know what we don't know. We now know, for example, that the licence fee has been set at £190, that it will last for three years and that there's an additional one day's training required on top of the standard three-day Basic Job Training (BJT) package.

We've also been warned that the licensing process will remove 20-30% of security operatives from the labour market. This will inevitably have some kind of impact on wage inflation, but by just how much nobody can predict. We're also fairly sure that licensing will delay the recruitment process and, accordingly, increase support costs... but we've still to see any of the detail. On the plus side, we're being advised that the Approved Contractors' Scheme will offer genuine advantages to professionally-run security companies.

Given all of these varying commercial factors, it's very hard to predict the true cost of the licensing process. What's becoming increasingly clear, though, is the fact that the licence fee – and who pays for it – is the least of our problems.

To choose a sailing analogy, we're worrying about a fee that will probably only scratch the sides of our boat while at the same time we ignore at least two icebergs in the water ahead that threaten to sink us. Those icebergs being the licensing process itself – just how much will it hinder us in terms of staff recruitment? – and the inflationary spiral that it's going to create in the marketplace as we lose one quarter of the industry's workforce and fight to attract and retain licensed staff.

Cost of the licence fee
By way of setting all this in context, let's look at the financial models of each 'approach'.

If we assume that three-day BJT is already taking place, the extra cost of licensing works out as follows: licence fee = £190. One day of extra training (say) = £70. Course costs = £40 (say). That makes a grand total of £300.

If we then assume that the average security officer remains in the industry for around 18 months or so, and works an average of 48 hours per week, he or she will work for 3,744 hours of chargeable time. This works out at eight pence for every hour worked. Clearly, with a settled team the cost per hour comes down. With a more turbulent environment costs would inevitably rise.

What about the cost of the licensing process itself? Let's assume that it costs £500 to recruit and screen each applicant that eventually attends training (these costs could well be higher in some parts of the country and lower in others, of course). The process will radically affect the costs of recruitment in a number of ways.

For starters, if the officer has to pay for his or her licence, perhaps 50% of the original applicants will drop out of the recruitment process altogether. Employers will need to double their advertising efforts and double their interviewing resources in order to process the original number of candidates.

In addition, even if the employer or customer agrees to fund the licence fee, the time pressures involved with recruitment will demand that applications are made well before training commences. Otherwise, staff will be lost during a waiting period after training commences. Therefore, there's going to be a number of wasted applications.

There's always high levels of staff turnover during classroom training, site familiarisation and the first three months of employment. However good the interviewing process might be, nothing truly prepares new recruits for the working practices adopted within our industry. So again there'll be a number of wasted applications and, in addition, wasted training costs to bear.

Given the choice, potential recruits will select a similarly paid job in an alternative service industry rather than pay the £190 licence fee. Asking officers to pay would be a false economy

Assuming we wish to achieve the same levels of service for our customer base, these three factors alone could drive up the cost of recruitment by an extra £1,000 per person.

Using the same formula as above, the additional cost of the process is conservatively estimated at 27 pence per hour. Please note that this applies to new or replacement officers only and not to established officers, emphasising once again the commercial value in reducing staff turnover.

Wage inflation: what it means
This is the biggest of the icebergs by far. When licensing truly grips us all, perhaps come the end of next year (or possibly later), wages for new sites or replacement staff will rise from anything between 10% and 25% depending upon the rates in place at the time. For example, a middle grade security officer position currently paid £6.50 per hour for a 56-hour roster in London may need to move to £7.25 per hour. An increase of 11.5%. That said, will 56-hour rosters retain the same appeal in this Brave New World?

What if we can only recruit staff by offering improved working conditions? If this is the case, wages may need to move to £8.00 per hour or more, representing an increase of 23%. Taking into account wages and their on-costs (such as National Insurance contributions, holidays, sickness and training), we're therefore looking at an increase of anything from 90 pence up to £1.80 per hour.

So who should pay?
In addressing this particular question we first need to separate out the costs we can realistically predict (ie the licence fee, training and extra support costs) from those that are unpredictable (such as increases in wage rates). The latter costs are so significant that any discussion about who should pay for them is most certainly meaningless.

Quite clearly, suppliers and customers need to work on this problem together in order to reduce the impact of wage inflation – either by better use of technology, more intelligent working or by adding value to the service.

Turning then to the predictable costs, the employer will obviously pick up additional support costs in terms of recruitment, vetting and training, but who's going to pay for the licence fee? The three most obvious methods are as follows:

• the officer pays for the licence fee;
  
• the employer pays for the licence fee, but asks the employee to sign a training contract which would allow some financial recovery should the officer in question leave the company within a three-year window;
  
• the employee pays for the licence fee and recovers the cost on a weekly basis by deduction from his or her payslip.

In my opinion, it's unrealistic to expect security officers to pay for their own licence. Officers aren't paid particularly well in the first place. If they're then asked to pay for their licences they'll surely seek an increase in gross pay to compensate, or will move to a new employer who's willing to subsume the cost for them. Recruiting new staff will become even more difficult. Given the choice, potential recruits will select a similarly paid job in an alternative service industry rather than pay the £190 licence fee. Asking officers to pay would be a false economy. One that will adversely affect a supplier's ability to both attract and then retain members of staff.

Finally, turning to the rather tricky question of just how much of this additional cost to the security service the client should bear, I've heard it suggested that this whole ' licensing thing' is a matter for the industry and isn't really the customer's problem. I would suggest to the readers of SMT – and, indeed, the industry at large – that such a view is naïve.

I'd contend that, with very few exceptions, security companies don't make the sort of margins that can absorb these extra costs. If they did, why have the buyers been letting them get away with overcharging for all these years? Put simply, the licence fees, the training and the additional recruitment costs are all operational costs that will have to be reflected in the price of the service if standards of delivery are to be maintained and/or improved.

Of course, the buyers out there can continue to play hard ball. They can drive the suppliers' margins down still further, and propel the service providers closer and closer towards extinction. However, given the sheer scale of the second iceberg, and the wages inflation lurking around the corner, what do they stand to gain by doing so? By saving a few pennies today, it will cost them much more tomorrow.

There will never be a better time to challenge the way in which security services are purchased. The only way forward is for buyer and seller to share the same side of the table.