IT contractor using laptop

IT contractors bear brunt of downturn

IT contractors are facing tough times as budgets bounce and new projects are parked. E&T details the pressures at play on the jobbing freelancer.

After several good years, IT contractors took a hit in 2009. The very nature of being reliant on the fluctuating requirements of other parties meant that they were among the first victims of the economic downturn, and according to figures from the Professional Contractors Group (PCG) the number of general computing freelancers in work fell by 12 per cent in the first quarter of last year, despite the additional funding being made available for IT projects as part of recent quantitative easing programmes (see E&T, Vol 4, #13).

Moreover, competition for open contracts increased as a growing number of techies hit the freelance trail when their staff positions were closed.

Projects earmarked for contractor involvement were shelved, or turned over to in-house IT personnel for the time being. Added to this were changes in human resource policies: with the advent of regulatory compliances, the hiring of individuals to manage enterprise ICT became a more rigorous process, slowing the recruitment process, and obliging some contractors to accept lower remuneration rates and shorter project durations.

“We are seeing opportunities being advertised, but when candidates are put forward there are long delays in the process and often nobody is recruited,” says Kali Bagary, managing director of consulting firm JMR UK. “As the recession has taken hold we have also seen a reduction in rates, and the length of initial contracts is much shorter.”

PCG members, meanwhile, were asked in May 2009 how they foresaw the economic outlook for the following 12 months, and 63 per cent responded saying that they saw it getting worse. Their outlooks have, however, grown more positive, as when asked again the following October, that figure had shrunk to 36 per cent, suggesting a change of feeling.

Some analysts warn that the recovery should not be regarded as a near-term expectation. For instance, TechMarketView believes that the IT contracting sector will not recover in the UK until beyond Q3/Q4 2012.

“The IT contracting market has definitely improved over this last quarter of 2009,” says Anthony Brown, contracts manager at specialist technical recruiter, Arrows Group. “There has been an increase in contractor requirements and a dip in the number of candidates available as confidence returns - businesses are feeling more confident about their budgets and candidates are feeling more secure.”

IT recruitment trends

One positive development that contractors have been able to take advantage of has been recruitment freezes. This has seen a rise in contractors being brought in to help with projects that cannot be put on hold interminably, despite prevailing budgetary constraints.

The pros and cons of drafting in third-party expertise for tactical imperatives have been much debated in the IT industry over the last 25 years. In very basic terms, some argue that the time taken for a newcomer to become familiar with an existing system or new project, plus the risks involved in letting him or her loose on possible critical systems, outweighs the perceived overheads of tasking permanent IT staff with it. However, it is also true that outsiders can often ‘see’ a project from a new angle untrammelled by internal squabbling and politics, and also find solutions that staffers were too close to spot.

“Engaging a short-term contractor for a specific project, with specific skills, makes much more sense for a firm, and we are seeing evidence that this is happening,” says Iain McIlwee, head of commercial development at PCG. The issue is not IT expertise and competence per se; it is technologically-informed project management skills.

“There is most definitely a trend for contractors being used to help with projects while the economy recovers,” says Arrows Group’s Brown. “Many companies can’t commit to hiring senior staff on a permanent basis - they need flexibility, as budgets have only been allocated for short periods due to uncertainty about the times ahead. Cost strategies also mean that many organisations cannot afford the overheads that come with hiring permanent staff - but the IT work still needs to be done, meaning contractors are the perfect solution.”

ICT visa reform

The question of imported contract expertise seems set to be one of the more contentious trends likely to affect IT contractors as we head into the 2010s. “One of the biggest issues for UK IT contractors is the competition for roles coming from non-European Economic Area (EEA) workers as part of offshore outsourcing,” highlights McIlwee.

“Clearly, the free movement of labour benefits PCG members as well as providing additional competition, but with regards to offshore outsourcing, we believe the UK Border Agency’s Intra Company Transfer (ICT) visa system is badly in need of reform, and has the potential to undermine the longer-term competitiveness of the sector in the UK if action is not taken.”

UK contractors are “all too frequently” finding themselves displaced by workers on ICT work permits, PCG’s Iain McIlwee adds, in “abuses” of the current rules.

The ICT visa scheme is controversial. Many UK contractors are seeing firms use this government scheme to move employees from overseas bases to UK jobs, leaving many struggling for work as they are crowded out by non-nationals. The visa allows overseas employees to work for their company in the UK if they have six months’ experience, are paid an appropriate salary, and are not taking the job of a permanent UK worker. The ICT profession has been affected by this legislation more than most others. Approximately 50,000 such visas are issued every year, with two-thirds of the total being assigned to IT and telecommunications workers.

Many contractors feel bitter, believing the scheme to be exploited, with overseas workers undercutting them. Concerns have been raised that companies are paying ICT visa staff lower incomes, saving themselves money but giving contractors fewer opportunities. This may be resolved this year however, as the UK border agency is tightening the rules in approving such visas, as well as investigating any allegation of scheme abuse.

Taking a global perspective from within the UK can go some way to dispelling the gloom around future prospects for IT contractors, however. Those who have focused on international rather than solely UK work faired relatively well through these straitened times.

“We found that members who had a wider geographical spread over the last year or two have fared better than only UK-based workers,” reports Marilyn Davidson, director of the Association of Professional Staffing Companies (APSCo). “What tends to happen is that different parts of the world have their recession at different times, so when one company is having a very tough time, another, elsewhere, may be coming out of the other side.”

“Our business, traditionally, has been split 50/50 across the UK on one hand, and continental Europe on the other,” says Ed Hopper, business director of consultancy firm B&M Europe. “The UK market has been much more adversely affected by the slowdown than the EU marketplace which has remained reasonably stable throughout the downturn.”

Skills backfilling

As mentioned, it has been traditional practice in the IT sector for contract staff to be assigned to work on new IT projects, or to take them over once in-house staff have seen through their initial phases. However, there is an alternative approach, and it is one that is finding greater proponency in enterprises: that of re-assigning permanent IT personnel to new projects, and hiring contractors to do the grunt-work of business-as-usual systems, applications, and end-user support. The advantage here is that staffers can acquire additional knowledge and competences in a mode that fits well with a culture of continuous professional development.

An evident benefit here is that when a project is completed, goes live, and is rolled out into the hands of the BAU contractors, the permanent staff are still around to refer any operational issues to - whereas if contractors had overseen the roll out, the experience and knowledge they have gained goes with them when the contract terminates. If an employer supports common IT skills reference models like the Skills Framework for the Information Age then all the better.

An advocate of the ‘backfill’ approach is Abbey Ewen, IT director at leading law firm Simmons & Simmons, who undertook a major international project to overhaul her entire IT system and chose this strategy, allowing her permanent staff to go hands-on with the new systems, and so forth.

Ewen explains: “As part of the project we took people out of the IT department and onto the project, backfilling their role. So, instead of employing a systems integrator and loads of people who would learn a lot and take it away with them, we made sure we embedded all the knowledge of the new environment in our people.” This strategy works best for large organisations that have more in-house expertise to draw on, and small organisations where IT staff are more agile.

“This depends upon the skills being called for by the specific project - often skills are not available in-house,” says B&M Europe’s Ed Hopper. “Where skills are available in-house, however, it is true to say that clients prefer to use their own permanent staff to undertake the core work, with contractors providing backfill BAU support. This is both to enable the client to retain the skills in-house once the project is completed (and contractors would have left for new assignments elsewhere), and also because in-house staff already have a high level of site-specific knowledge which is often required to implement new systems related to the project. This enables the in-house staff to be productive more quickly than new externals.”

So is now a good time to be a contractor, or even make the move from salaried staffer to freelancer? The economic downturn has seen well-established contractors take permanent salaried roles for the sake of medium-term career security; but already many are actually biding their time, waiting to return to the contract environment where they can again start to negotiate higher fees. Seasoned IT contractors know that they work within a market that wanes and thrives on a cyclical basis, and this element of assured change, variety - and unpredictability - is one of the qualities that attracts them to the freelance life - that and the fact that when times are good they can command high rates.

“There is never a ‘bad time’ for any particular individual to move into contracting, it always depends on individual circumstances,” highlights Iain McIlwee at PCG. “It is by no means an easy move, but many people have been successful contracting, even in these dire economic times.”

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