Contractor UK Market Report - 2010 ends with a slump

At the end of September, we were able to report average rates reaching a high not seen since March 2008. This giddy rise continued a broad trend of good results through 2010.

But as so often, the New Year brings a taming of the excitement that’s gone before. Average rates across the ten most commonly requested contract IT roles have fallen back to £30.52, from the £32.96 reported at the end of quarter three; a fall of 8%. The news is particularly disappointing, given the steady rises seen through 2010.

There has been one change in the types of role listed in that top ten, with Test Analysts (average rate £25 per hour) replacing the less profitable Support Analysts (rate £15), but the bigger cause in the overall drop has come as a result of sudden declines in rates for Project Managers (£38 down to £33), the somewhat vague title Consultants (£40 down to £29.50) and Architects (£45 to £36.69).

That the biggest falls have come to those more closely associated with the ‘doing’ end of a project lifecycle may suggest a flurry of hiring in Q3 to get projects finished before the year end, and that demand then slumped in Q4. Traditionally, Q4 is a slow time for contractor rates, and the fact that Business Analyst rates have risen, albeit only slightly (£27.13 to £29.50), might suggest planning has begun for a new series of project in Q1 of 2011.

But, where might those projects be? As always, the city seems to be leading the way. Matthew Brown, head of giant, for example, reckons that “banks and other financial institutions are investing heavily to integrate IT systems following the wave of mergers precipitated by the financial crisis. The purpose of these projects is to achieve cost savings, so these projects banks are keen to push ahead with in the expectation of a fairly substantial return on investment.”

The ongoing regulation being forced on the financial industry is having an affect too, with Basel III beginning to be reflected in contractor rates. Basel III contractors can now command £550 per day, with Basel II still on the rise. More broadly, rates for QA (Quality Assurance) contracts are up from £29.50 to £33.75, year on year, according to figures from itjobswatch.

This is backed up by Daniel Mayo, industry analyst at Ovum. His firm has just completed research that points to an increased IT spend in 2010, and that finance firms, “will also be investing heavily in systems that help them comply with the barrage of new regulations brought in since the global financial crisis.”

Separate giant research shows that 30% of contractors felt that financial services would account for the most new jobs in 2011, more than for any other sector (and up from 14.8% for the same question in Q2 2009). This is perhaps prompted by major investment banks including Citibank, Credit Suisse, Goldman Sachs and JP Morgan all publicly hailing their increased spend on IT.

In the broader market the news is less good, according to Alex Farrell, MD of The IT Job Board, whose research looking ahead at 2011 found that 78% of IT managers expect to freeze or cut headcount, while 44% think budgets will decrease.

This isn’t necessarily because there is less work, reckons Farrell, but because resources are being stretched further. “Departments lost staff with core skills, and their entire infrastructure had to be re-worked,” he says, “Today, IT departments are beginning to show signs of growth, and workers are being given bigger jobs and more tasks, which has - inevitably - placed a strain on all parties." These bottlenecks can be good for contractors, of course, but it suggests that firms are not yet rushing out to get in outside help.

One area where he does see growth, however, is .NET. “There will be areas where there is an uplift in IT contractor jobs, for example in .net, which is likely to be down to a lack of skills supplied," he says, and he is not alone.

Matthew Iveson of recruitment firm CV Screen agrees: “We have certainly seen a lot of demand from employers for web development skills over the last year and in particular candidates with experience of PHP. There is also continual high demand for candidates with Java and .NET skills and we have also noticed a large rise in the number of SEO jobs available.”

Ultimately then, 2010 has been good, with rates across the board higher than 12 months ago. And while the slump at year end could point towards a further dip in 2011 and a volatile year, there remain reasons for contractors to be cheerful.

Matt Farquharson 

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