Federal Government IT Contractor Update

The first quarterly Peoplebank Intermedium Federal ICT Labour Hire Index, released today, suggests demand for contract labour within the Federal Government remains strong – due to seasonal factors – but that the short-term outlook is for a soft market as the Government’s 2% across-the-board efficiency dividend begins to take its toll.

The Index provides a measure of ICT contracts advertised by Government departments – which, representing some 60 per cent of the Federal government’s ICT labour force, provides a bellwether as to the levels and foci of Government ICT projects.

“The Peoplebank Intermedium Federal ICT Labour Hire Index provides the industry’s first statistical validation of trends in Federal Government ICT demand,” comments Peoplebank Chief Operating Officer Mr. Peter Acheson.

“There is no question that until six months ago we were seeing people coming from other States to work in Canberra, with the contracting rates and the projects available amongst the best in the country, and we are clearly not seeing that any more. And for the first time in three years in the new contracts issued in June we didn’t see any increase in contract rates.

“So there is a real danger that people who have come to Canberra from interstate to take up projects will look to other IT projects at State Government level until things pick up. In our view, any increase in demand is unlikely this year, and so we can expect the outlook to remain soft through to December. However we believe that in early 2009 demand can be expected to increase, perhaps rapidly, resulting in a shortage of key skills during the first half of 2009. ” Mr Acheson said

The Peoplebank—Intermedium Index comprehensive review of the Federal Government ICT labour hire market for the 2007-08 financial year shows current demand for contract labour is almost half the level of a year ago. Additionally, the Federal ICT Labour Hire Index currently stands at 1,744, compared with the index base of 1,000 set in the 2003-04 financial year. While this reflects a long term upward trend, it is well below the index peak of 2,056 of August 2007.

This reflects both a significant fall in spending across the board and uncertainty surrounding the independent review of the Australian Government’s use of ICT by Sir Peter Gershon, whose report was recently presented to Finance Minister Lindsay Tanner.

“Government agencies have taken a conservative approach to ICT activities while this review has been underway,” says Intermedium Head of Research & Principal Consultant Mr. Tim Conway, “and there have been relatively low levels of new Government program activity pending completion of other policy reviews. As a result, the Federal Government has slashed spending on ICT labour hire to a low of just over $8m in June 2008, compared with over $40m spent in June 2007.

“The current index position is being sustained by high contractor rates and the seasonal contract renewal peak which structurally occur every June/July, rather than strong underlying demand. That current demand for contract labour is almost half the level of a year ago will undoubtedly put downward pressure on contractor rates over coming months” he added.

“However, while a reduction in contractor rates might be welcomed by Government agencies, they should be concerned if another likely consequence ensues – a reduction in the contractor workforce in Canberra, as footloose, skilled ICT professionals secure opportunities in Sydney, Melbourne or overseas, where demand for key skills remains strong.”

The problem facing the Federal Government is that the fall in demand for skills has been artificially induced, and may have perverse effects by exacerbating skills shortages down the track, Mr Conway said.

“Basically, we’re seeing only ‘business as usual’ activity within the key transactional agencies, with very little new projects.  Yet we know these will come, as the Rudd Government launches its key programs. The danger is that when those programs and associated ICT projects are launched, there will be a shortage of people in Canberra with the requisite skills, and so the Index will climb.  This could well happen over the medium term.”