Many margin-busting preferred supplier list (PSL) agreements are breaking up because of intense labour market competition, the chief executive of listed recruitment company Quantica has claimed.

Les Lawson believes his firm has benefited from the collapse of these kind of agreements, which often require recruitment companies to lower margins in return for promises of an increase in business.

As the recruitment market has begun to heat up, some of these PSL agreements have been rendered useless because recruiters are refusing to work for the low rates stipulated in them, Lawson claims.

“If you are selling on a PSL with a single digit margin and you have a contractor you can place for 25% somewhere else, you are not going to give the contractor to a client on a PSL,” he said. “Companies with PSLs are not getting the staff they require, so line managers break out from the agreements set up by the procurement people.”

Contractual obligations, which penalise firms failing to complete projects on time, often forced line managers to ignore PSL agreements anyway, he said.

Lawson added: “This means margins go back up, contractor rates go back up and everybody’s happy, apart from procurement people, and who cares about that?”

Quantica has adopted a strategy of refusing to sign up to PSLs, saying they are not profitable enough.

Peter Flaherty, chairman of the Recruitment Investment Group and former chief executive of IT recruiter MSB, said: “I am not surprised; why do business at 8-12% when you can do business at 20%?”

Quantica has unveiled strong full-year results, with turnover up by 24% to £30.8m and pre-tax profits up 150% to £2m.