Outsourcing 2009: Security Versus Flexibility

Opinion is divided as to whether there has been a move from IT contracting, towards employers hiring permanent staff and former contractors seeking fulltime roles.

Major IT employers such as Gen-i and some recruitment firms say there has definitely been a move in that direction, while others in the industry aren’t so sure. It’s possible that some sectors of the industry are seeing more of a move away from contracting than others.

GOmaniacs recruitment consultant Sarah Lee says there is definitely a shift away from contracting and towards seeking full-time positions by IT job-seekers.

“There are a lot of people who like to take contract work, but who have resigned themselves to permanent jobs, for security,” she says.

That’s not to say there are no contracting jobs on offer, however.

When Computerworld spoke to Lee last month, six positions had just been listed with the firm, two of which were contract-based, she says, and “before Christmas, we signed up two 12-month contract roles in IT architecture”.

Nonetheless, employers are generally hiring fewer contractors, she says.

“They want to fix costs and the only way to do that is by getting permanent employees.”

The move away from contracting is a symptom of the slowing economy, which is set to continue sliding, Lee says.

“I don’t think we’ve seen the bottom of it yet — the next six months will be quite tough.”

The number of job applications for positions the firm fills for clients are up significantly, both contract and permanent.

For lower-level jobs, such as tech support, applications are “through the roof”, and high-end positions are seeing a steady increase in seekers.

Looking at a high-end job like solutions architect, she says, “Six months ago, it would have been a struggle to fill, but now there’ll be two or three good applicants.”

For many contract positions, applications are up 100% on a few months ago, and contractors are becoming more negotiable over pay rates, she says.

However, one area in which contract positions are readily available is legacy applications.

“Skills such as IBM Tivoli are a struggle to find,” she says.

People with specialised experience on older systems, such as those still in use in banking, for example, “are probably safe” from contract rate reductions, she says.

“People who haven’t upgraded their systems need those guys.”

However, not everyone in the recruitment scene has observed a shift from contracting towards permanent positions.

Richard Manthel, managing director of Robert Walters NZ and president of ITCRA, the IT Contract and Recruitment Association, says “I’ve spoken to our contract team [at Robert Walters] and we’ve seen no trend of IT contractors moving to permanent roles.”

In the wider recruitment field, “there’s no strong trend to indicate contractors are moving to permanent for security.

“You can always expect a couple of pockets [where the move is happening] — every client is different.

“But there hasn’t been a shift in general terms.”

Helpdesk and junior IT roles are areas where contractors may be seeking permanent roles, Manthel says, but on the whole, “more seasoned and experienced contractors will ride out the downturn and will continue to contract”.

In tougher times, some employers actually prefer to hire contractors over permanent staff, he says.

“In downturns, companies will look to the flexibility of contracting.”

Generally, the IT industry is in steady mode, he says.

“The outlook is quite good — it’s time for people to take stock of their IT systems and the efficiencies that can be gained.”

While he’s not expecting to “see massive IT projects kick in”, the IT sector “won’t be affected too much” by the current downturn, he predicts.

Emma Alexander, manager of Icon Recruitment, says that “on the contracting front, the only projects going ahead are ones with really quick ROI.

“Contracts are shorter than in previous years — once they are finished, contractors are being terminated. One to two years ago, a three to six month contract would be extended. We’re now finding that extensions aren’t as frequent.

“Companies are looking at fully utilising internal staff before extending contracts, and companies that have had long-term contractors are offering them permanent roles — the contracts aren’t being renewed.

“There are a lot of contractors sitting on the bench, looking at permanent roles.”

When companies are looking at where they can make efficiencies, “contractors are the first to go”, she says.

However, “when projects are approved, they’ll bring the contractors back.”

Permanent roles are seeing more applicants, Alexander says, “but not in all areas — there are still pockets where there are skill shortages, such as SAP and .Net development”.

Areas where staff aren’t so much in demand include test analysts, she says.

“When there were a lot of large projects on in Auckland, there was demand for test analysts.”

Now, however, because of the maturity of those projects, the need for that skill isn’t as high.

“There are still some projects in the initial stages, but business analysts and architects are needed — test analysts will be needed later.”

Government is one area where demand for IT services is remaining steady, with many IT vendors active in the capital for that reason, Alexander says.

At Gen-i, there’s definitely been a move away from employing contractors and hiring fulltime staff, says chief executive Chris Quin.

“My view is there has been a pretty fundamental shift in resource availability. Demand has been exceptionally strong for the past two years, which strengthened the contractor market.”

The buoyant conditions “made it possible for people to stand in the market as contractors and be 100% guaranteed employment”, Quin says.

“Now, there’s more of a possibility for employers to be able to choose between candidates.”

Gen-i has reduced its contractor headcount by “more than 100” in the past three months, he says, and the reasons aren’t due to the time of year or a slowdown.

“It’s not seasonal and it’s not due to less growth — we’re still growing.

Now, “you can hire and place people who want to be permanent and want to be part of the business,” he says.

“That’s good from a customer delivery point of view, because you can pay them at fair market rates compared with the rest of the team.”

At the height of the contracting boom, some contractors “were charging rates that weren’t equitable with [permanent] people who were doing a great job.”

There’s no single area where contracting has declined more than others, Quin says.

“I couldn’t pick out one particular skill set, but the contracting market was especially strong in design and project management.

“Now, we’re able to get great people into permanent roles in those areas.

“We’re seeing quite a number of people who have said they’d do nothing but contracting, who are [now] seeing the benefits of permanent roles.”

Gen-i has a policy of not putting contractors in management roles.

“It’s very important that people in management roles be committed to the brand — we don’t put contractors into those roles.”

There will always be a place for contractors at Gen-i, “in areas where demand will be variable”.

Where things went wrong during the contracting boom of the past two years, Quin says, was “when you wanted the job to be permanent, but couldn’t get permanent people and put a contractor there.”

The contracting scene in Wellington remains stronger than elsewhere, because of ongoing public sector work, he says, “but to nowhere near the same extent” as in the boom days of 2007 and 2008.

So how are contractors themselves faring? Computerworld talked to one, and while that’s hardly a representative sample, his comments are revealing.

Berend de Boer, who specialises in web architecture and software engineering, says “I had a fairly rough time from June until September, when there seemed to be little work.

“But after that, I’ve received more than enough work, actually.

“At the moment, a company pays me a guaranteed minimum amount of hours, so that takes the stress out of finding work.

“There seem to be less people building new systems at the moment, but despite that, I built an interesting new system between October and December for a New Zealand company.”

Generally, it’s maintenance of existing systems that is keeping him and the wider contracting market going, “but I’ve heard rumours there might be a fairly large new system coming.”

De Boer isn’t restricting himself to the local market.

“I’m also doing some work for a large US company that is migrating its websites to Drupal,” he says, adding somewhat wistfully: “Unfortunately, I asked to be paid in New Zealand dollars.”

As to whether there’s a trend of contractors switching to fulltime work, he says he considered it himself during his less busy period from June to September, but “fortunately, that wasn’t necessary.”

His advice to contractors in the current environment is to “be flexible”, and while he acknowledges that work in the form of new systems being built isn’t as prevalent as it was, “I personally don’t know any contractor who has switched to fulltime work, nor have I heard of people doing that”.