IT contractors seize the upturn to push rates

The sustained recovery in the jobs market is providing IT contractors with the first opportunity since the credit crisis began to push commercial clients for more money.



Pay rise requests have reached IT recruiter Parity Resources, following a steady recovery in private sector demand which the festive season did not significantly arrest.



"There is a little bit of upward pressure on IT contract rates in the commercial space because demand has increased again," said Parity's managing director Alan Rommel.



"To get the best IT people, as a market like financial services wants, clients are finding they need to pay a little more to attract contractors from their existing roles."



The latest study from the Recruitment and Employment Confederation (REC), whose members include IT agents, confirms that more cash is being set aside for labour fees.



Average salaries for permanent staff took their second jump in December, while rates for contractors dipped, but only marginally and by the smallest margin in 15 months.



Contractors are yet to see their pay recover, agreed IT recruiter SQ Computer Personnel, but this will happen "inevitably", said managing director Bernie Potton.



More specifically, rate increases will follow a short time after demand rises for IT skills, which the agency said was only a matter of days away, not weeks or months.



"We've had the busiest six-week period in 12 months since the recession really started to bite", said Potton, who has beefed up the agency's staff as a result.



"The message from all of our clients, including banks and investment companies, is that they are anticipating a busy New Year, with shelved projects coming into action".



Financial services will indeed lead new job creation for IT contractors, and pick up before rival sectors, said Paul Elworthy, a director of financial IT recruitment at Hudson.



But he says there will be more room in the latter part of this year, rather than at its outset, for IT contractors to successfully negotiate on pay.



Meanwhile in the public sector, negotiations on rates for 2010 between contractor and agent are already underway, but they have been initiated by clients.



"We've seen rate reduction programmes applied predominately by commercial clients, though a couple of public clients are carrying out the same exercise now," said Parity.



"This is a little bit behind the curve but done out of necessity…[however], public clients pushing rate reductions are not as forceful as [clients] in the commercial sector."



Bernard Brown, head of business services at KPMG, said this week that the prospect of "possibly extensive public sector job cuts" was reserved for the second half of 2010.



But in public sector IT, the existing rate cut initiatives will be seen by affected contractors as evidence that the belt-tightening has started already, although it will hurt the most from April.



Rommel said: "When the public sector cutbacks take effect, from about the second quarter of this year, there will be a bit of a paralysis for IT contractors within the sector.



"Those on current assignments will be less likely to win extensions, because projects will be stalled, as the new or existing party in power decides which [projects] are critical and which aren't.



"Contractors are likely to see lower duration extensions and a higher proportion of 'stops' than we've seen historically. Public sector contractors will see their extension rate drop to 70% of the time, from 80% today."



The agency signalled that, aside from rate reductions, the challenging conditions for public sector IT contractors are already here: demand is down 15 per cent on last year, it said.



Another drop in the number of IT contracts in the public sector was predicted for March, around the sector's financial year-end, yet the normal 20% reduction tends to recover "fairly quickly."



However, IT contractors skilled in business analysis and project management are well placed to withstand the financial pressures, according to both Parity and SQ.



Liam Doyle, a manager at Hays IT, agreed that project and programme management skills were in demand, particularly at banks working on consolidations, mergers and risk analysis.



He added: "The IT sector is currently experiencing demand for professionals with knowledge of .NET/Sharepoint, architecture, virtualisation and cloud computing."



In contrast, IT contractors in support or development appear the most vulnerable to cuts, Rommel said, due to ample market supply, internalisation and outsourcing.



"A lot of fair-sized SAP projects are also on the shelf, though in the UK. What is still critical is the retention of PM analysis, service management and the skills necessary to manage the outsourcing organisations."



Parity predicted that public sector IT contractors would continue to see downwards rate pressure; potentially with market-wide consequences.



"The public sector is such a heavy user of IT contract staff that it is big enough to influence the rest of the market," Rommel said. "I think their share of IT contractor pay reductions is probably enough to outweigh the increases being seen on the commercial side."