IT contracting in 2014-15: change, growth and optimism

2014 has so far been a year of change, growth and optimism for the IT contracting market, writes Michael Bennett, director of IT staffing firm ReThink Recruitment. These three themes look set to play out in the first quarter of 2015 as well; but perhaps even more so.

Change is a big theme this year because certain technologies like Big Data and the Cloud finally started to undergo the maturing process that tech evangelists have been promising for some time would happen. This has resulted in a reliable level of demand for IT contractors in these still niche areas.

Change also happened in 2014 because while such freelance IT workers were handed ‘take it or leave’ rate reductions (which they’ve had in previous years), these ultimatums -- for the first time -- weren’t immediately adopted by lots of similar clients and didn’t instantly spread through the sectors they surfaced in.

Actually right now, and across all sectors, there is an ongoing demand for contract business analysts and freelance project managers. This is indicative of increasing investment into IT-business projects intended to bring about ‘change’ in organisations. So BAs and PMs are currently in demand to kick-off change management projects. But there’s another change on the horizon. Our agents expect that there will soon be even greater demand for contractors to support the next phase of activity in the project lifecycle - in particular developers and testers.

The final obvious change at present relates to the skills IT contractors might want to possess. Although the traditional ones are doing very nicely (as I will outline in the next sections on ‘growth’ and ‘optimism’) what’s hot now in IT contractor training isn’t necessarily going to be hot in 2015.  

Growth is probably the defining theme of IT contracting in the UK in 2014. Indeed, twice this year demand for IT skills on a temporary basis reached historical heights: firstly in August, when opportunities for IT contractors climbed at their quickest rate in 16 years, and then in September, when demand for IT contractors hit its highest level in 15 years. It's interesting to compare these peaks (as measured by staffing body the REC) to what we and the IT directors we quizzed in this year’s first quarter suggested that the IT contracts market would go on to look like in 2014.

Released in March, our survey had 10 key findings, some of which inspired us to make predictions. I’m pleased to reveal that most have come true. Workloads for IT departments (not just contractors) have fattened and demand for external staff resources (contractors) has increased. And despite less than half of the directors forecasting at the time that their IT budget would get beefed-up, 2014 actually saw a rise in the number of our clients who have freed up budgets or gained additional funds to support projects.

It’s largely as a result of purse strings being less tight than anticipated, or at least being loosened in some areas, that IT contractors’ pay rates have increased.

Indeed, 2014 is the year of growth for IT contractors because, in general, rates have risen. Just ask IT contractors working in the retail sector, where demand has been consistently strong thanks to retailers updating their IT systems and maximising sales opportunities through their online channels. In the unlikely event that such contractors claim to have not had a rise, then it’s likely they would have got something else instead. Even right now, ahead of the frantic shopping season, many IT contractors on our books are currently negotiating with retail clients for perks other than pay, such as the ability to work from home.

The growth story for IT contractors in 2014 really comes alive near the traditional IT contractor skills, such as PHP and Java. These specialist developers are currently experiencing significant rate rises due to the gap between supply and demand. This is a trend that has remained dominant throughout the year, and is evidenced in numerous 2014 editions of the REC’s Report on Jobs.

Given that the gap between supply and demand for PHP and Java developers shows no sign of closing, we predict that rates for these contract IT professionals will continue to grow in the near future. 

However, it is important to note that some of these observations about pay and prospects may not be visible across the board. Demand, rates and trends will understandably vary depending on sector, geography, projects, budgets and even the type of expert skills available. 

Optimism is a key theme of IT contracting in 2014 largely because of the growth (outlined above) that its practitioners have experienced, in terms of rates and contract availability. But also because of messages by those placing IT contractors, even back in August, saying such freelance workers can take their pick of any of the UK’s seven regions. The message from IT contractors themselves has been broadly in line. In fact, in that same month, the proportion of them saying that their number one priority was having to stay 'off the bench' fell back to its level in 2006-07, before the recession began. Even in the more constrained public sector IT market, optimism came in March when the stock of consultancy posts recovered to a double-digit percentage.

Today, the sector we are seeing the most optimism from is financial services, where there is strong IT contractor hiring levels from banking and general insurance clients. This spike in tech recruitment activity can be attributed to the growth in big change projects which are underway. Right now for instance, there is a number of brands in this sector hunting with us for business analysts and project managers. These candidates will welcome the latest G20 conference, as once again it focused on the regulation of financial services, meaning it is likely that projects in the industry will continue to need PMs and BAs in the near future.

If you’re still hungry for optimism, just look at the latest forecasts for IT contract opportunities and IT contract rates; both are pointing in positive directions.

So what’s in store for IT contractors in 2015?

Looking at the remaining two months of this year and into Q1 2015, we’re predicting a busy period for IT contractors. While we expect activity in December to take the traditional trajectory this year and drop due to the holiday season, we expect it will pick up again in January to meet – if not exceed – current levels. So at present we don’t foresee December being a peak month for IT contractor demand, as it was in 2012 and 2013, but the New Year could bring even higher growth (and in turn even more optimism) for IT contractors than there is currently.

We also expect that contractor demand in the technology sector will continue to be driven by change management projects and growth in investment, as well as merger and acquisition activity. As confidence returns to the economy and big brands look at M&A opportunities, there will be stronger demand for integration work, so that means an additional requirement for project managers and other IT contractors, such as system integrators.

Those companies that remain cost-conscious next year will be engaging IT contractors too. Typically, these companies will still want computer specialists on a temporary basis to streamline processes, as contractors are often a more financially viable choice than pricier consulting firms. As more businesses recognise the added value that efficient systems can bring, we expect demand for IT professionals who can deliver such value to grow further. And because it’s not just the cost-cutters who want efficiency, which of course goes beyond just systems, the general conditions for contract IT staff as we approach 2015 appear very fertile indeed, especially for those specialists who can demonstrate an eye for an end-user’s bottom line.

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