Why IT contractor pay packets will get fatter still

Demand for their skills in 2014 going beyond its highest level since 1998 hasn’t led to the same historical significance in the pay stakes, yet daily rates for IT contractors are up and will stay up into 2015, writes Dominic Trott, senior analyst at Pierre Audoin Consultants (PAC).

In fact, our database of UK IT services pay shows an average hike to daily rates of 1.2% this year, when compared to 2013. The database[1], which is populated by rates that were actually paid in the UK to IT contractors, can be used to make rate forecasts for next year. Once again, the percentage rise in question isn’t epic, but it’s safely away from going into the red and, if it’s accurate, it means that the average IT contractor should be even better paid in 2015 than in 2014.

The UK’s economic growth has played a part in this positive trajectory that IT contractors’ daily rates are going along. In short, expanding operations are additive to IT services requirements, thereby pushing up rates on the basis of supply and demand.

But in the UK’s case this year, a rising tide does not lift all boats. The first quarter appeared to be particularly stormy, as the Office of National Statistics, then Barclays and then RBS each offered their IT contractors ‘take it or leave’ rate reductions.

The thrifty approach by the ONS tallies with our research into public sector IT services rates, which for the 2013/14 period showed a decline -- in line with the government’s initiatives to drive efficiencies in IT.

But the rate-cutting ultimatums being imposed on IT contractors at Barclays and RBS are in stark contrast with our findings. Indeed, we found that the financial services industry was the strongest driver in 2014 behind IT services-related rate increases, at least from a vertical market perspective.

So what is behind this disparity? To find out requires delving beyond scrutinising individual organisations in order to look at the trends within the IT services market as a whole.

Of the six dimensions that our team at PAC analyses to generate daily rate information, the ‘solution’ area (i.e. technology platforms) offers the greatest insight: while back-office and commoditised areas show sluggish growth for rates, there are some clear ‘winners’: BI, CRM and SCM/SRM.

So why have purse-strings been loosened for contractors skilled in these more front-office solution areas? Cross-referencing our daily rates findings with our analysis[2] of spending priorities among IT decision-makers provides a clear answer. It is that daily rate increases for BI, CRM and SCM/SRM solutions can be directly linked to the prioritisation of budget increases in the areas of Analytics and Digital Transformation.

The logic behind this trend is clear. In a post-crisis reality where the UK economy is showing growth but where confidence remains low, IT spending controls have slackened but only partially. New investment is arising, but it is being targeted at those areas where organisations can gain a competitive advantage, and it is Analytics and Digital Transformation that are seen as the keys. The repositioning of late by banks, such as Lloyds and HSBC, to target digital channels is just one area where this is being seen visibly, and felt by IT contractors on the ground.

BI, CRM and SCM/SRM are directly linked to these spending priorities as they are at the heart of digital transformation. As CEOs are increasingly being told, digital transformation is the alignment of business and IT strategies to harness digital technologies that place customer needs at the heart of end-to-end business processes. This has impacts on CRM in the first instance, as engaging with customers through digital channels is at the core of the issue.

However, in the broader sense it has implications for SCM/SRM as organisations seek to build value chains in order to meet their customers’ needs. BI encompasses analytics and big data, which provide new insight and intelligence required in order to deliver new customer propositions.

Importantly, it just so happens that Analytics and Digital Transformation are two areas where IT skills shortages are among their most critical, adding further momentum to daily rate increases in their associated ‘solution’ areas. This shows that average rate rises are as much about a shortage of skills in critical areas as they are about demand for those specific technologies.

With these two pressures (or ‘positives’ depending on your view) currently showing themselves to be ingrained in the IT labour market, it is with some confidence that we can forecast rates for IT contractors to rise on average by a further 1.4% in 2015. It may not be reflecting the lofty heights of where growth in demand for their services is apparently reaching, but daily pay for IT services suppliers is experiencing a growth spurt, and it is set to continue into next year.

[1]  PAC’s UK IT Services Daily Rates Database was updated in July 2014.

[2] PAC’s CxO 1800 - UK Investment Priorities - was published in September 2014


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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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