Federal market for ICT Contractors: A State of Flux

The third Peoplebank Intermedium Federal ICT Labour Hire Index shows the continuation over 2009 and into 2010 of a long-term downward trend in the Government’s reliance on ICT contractors. Peoplebank observes that, responding to this contraction, ICT contractors are relocating to the booming Sydney and Melbourne markets – with consequences including that the first signs of a looming skills shortage are emerging.

The Labour Hire Index, which measures the average cost of an average unit of labour hire paid by the Federal Government to ICT contractors stood at 1,175 points in December 2009. This was just 15 points below the December 2008 level, but a fall of almost 50 percent against the Index peak of 2,251 points in August 2006.

Plummeting contractor numbers spark contractor exodus

The Index reveals that the number of contractors engaged by Government has dropped by between 20 – 25% in the past 12 months. This – combined with the impact of the global financial crisis in the first part of the year – exerted downward pressure on rates over 2009.

Peoplebank notes that a consequence of the declining market was contractor mobility: with the number of skilled ICT contractors moving to Canberra dropping to almost zero over 2009. Over the past 12 months, there has also been a significant increase in ICT contractors leaving Canberra, most notably for NSW and VIC where major ICT projects, especially in the banking and finance sector, are generating more contracts, with greater scope and/or higher overall value.

This migration contrasts with market conditions in 2006/2007, when up to one in four positions in Canberra were being filled by candidates from Sydney and Melbourne. At that time, contractor rates were substantially higher in the ACT which meant weekly commuting was a viable option.

Longer term decline takes shape in 2008 - 2009

Over the longer term, the Index reveals a sharp decline in demand for ICT contractors from July 2008 to April 2009, despite a spike in the Index at July 2009 (coinciding with seasonal contract renewals and moves by some departments to lock in key ICT contractors).

Forecast for increased demand

While the Government reports (on which the Index is based) are not yet complete for the first three months of 2010, preliminary findings show the Index plummeting from January 2010. This is likely to be a result of Government departments continuing to take stock of their ICT contractor levels, in order to comply with Government mandates.

Despite this, the forecast for the Federal ICT labour market is for a strong increase in demand. The combined influence of several initiatives is likely to be a marked increase in demand for ICT contractors.

Already, Peoplebank – as Australia’s largest supplier of ICT skills – is noting a shortage in key skills, especially J2EE, Java, Sharepoint, .NET, project management and business analysis.

Hourly rates for these roles have commenced rising. For instance, rates for senior .NET developers have risen from $90/hr in November 2009, to around $110/hr in April 2010. Rates for senior business analysts rose from to $90 in November 2009 to $95 in April 2010.

Peoplebank anticipates that the combination of a net increase in demand, combined with a reduced contractor pool, will place further upward pressure on rates. In fact, the recruiter anticipates that eventually, rates will exceed those paid in the previous peak, in 2006/2007.

Jeff Knowles, Acting CEO of Peoplebank commented that market conditions in Canberra are in a state of flux: with the current, long term trend of reduced demand for contractors likely to end, too late for contractors who are leaving the ACT for the high-growth Sydney and Melbourne markets.

“It’s a volatile market: where the downward trend of recent years is likely to be replaced, quite rapidly, by an upward trend in both demand and rates,” Mr Knowles said.

“Based on projects already slated, as well as the likely implications of initiatives such as the Defence white paper as well as the Government’s recent ‘Ahead of the Game’ strategy, Peoplebank forecasts that there will be a significant rise in demand for ICT skills in the medium to longer term,” Mr Knowles said.

“As we are experiencing a net migration of contractors away from Canberra, there is a substantial risk that there will be too few skilled ICT contractors available to meet the Government’s needs.

“This will intensify the upward pressure on contract rates – with the result that departments will face higher costs or risk being unable to secure the ICT skills they need to achieve their business goals,” Mr Knowles concluded.