Thinking of becoming an IT contractor? Think again. The last 12 months have proved to be the toughest since the recession in the early 1990s. And next year doesn't look as if it will be much easier.
Contractors have borne the brunt of cutbacks, as employers have sought to downsize their workforce and cut costs. In this downturn, as in the last one, contractors have been the first out of the door.
Market for contractors takes a dive
The job opportunities for contractors have shrunk dramatically, says Antony Millar, an analyst at Ovum Holway. "Throughout 2000 the contractor market shrunk by 3%. At the beginning of this year it looked like there was a recovery, but it didn't last long. From June or July there was a very big dive."
The prospects for next year look equally difficult. Research by Plimsoll Publishing suggests that up to 600 IT suppliers could be forced to merge or go out of business in the next 12 months as businesses continue to hold back their spending on IT.
Those contractors lucky enough to still be in work have to put up with falling rates of pay. City firms began cutting contractor rates by up to 10% in the middle of the year. Deutsche Bank, Citigroup and JP Morgan were among the first to act. But more recently cutbacks have spread to IT and Telecoms suppliers, such as Hewlett Packard, Ericsson and IBM Global Services.
Rates will face further erosion as overseas contractors take advantage of relaxations in the immigration rules for skilled workers. The policy, introduced at the height of the last skills shortage came into force just as the downturn began.
Competition from Indian programmers is growing, and once the euro is introduced throughout Europe, the UK could be faced with an influx of IT contractors from the continent seeking work, says Philip Virgo, strategic adviser to the Institute for the Management of Information Systems. "We will see many more attempts to cut rates," he says. "The rates for people doing bread-and-butter integration work will fall."
Facing up to change
Many contractors are already struggling. Jane Akshar, chairman of the Professional Contractors Group, says that some have been looking for work for up to six months. Some IT jobs, she says, are being offered at rates of little over £10 an hour.
"I have not been working myself since September and have been dipping into my pension reserves and living off that," says Akshar. "Don't get me wrong, that's part of the risk you take as a contractor. We know we get good money when times are good and we are first to the wall when times are hard," she says.
But contractors are nothing if not resourceful. A growing number of freelancers are pooling their resources and competing against established software suppliers and consultancies for their work. "People are banding together to do sales and marketing. They are investing their money and getting together to fund something that as a single contractor they could not do," says Akshar.
Others have decided to supplement their IT income with other work. Colette Mason, a Web consultant with six years IT experience, is running a diving school during evenings and weekends to bring-in some extra cash. "I couldn't survive without the diving," she says. "The contract market is awful. Normally I would get a new contract within a day of finishing the last one. At one point I was getting about 60 calls a week from agents. Now I am getting one call every six weeks."
IR35 rears its ugly head
Julie Stewart, a Web consultant in Scarborough, is earning extra cash from a company offering promotional printing work to local businesses. She took the decision to form the business after the government introduced the controversial IR35 tax rules which penalise contractors. "We are not making a wage out of it yet, but it's actually holding its own. All the signs are that it could be a long-term business," she says.
Mervyn Fernandez, a specialist in integrating legacy databases with the Web, has taken a different approach. He is using the downturn to catch up on voluntary work. He took up an offer of redundancy to concentrate on developing a Web site to link 120 churches in Greenwich.
"I have been doing this as a hobby for two years and have been looking for a way to take the Web site forward a step," he says. "Being offered redundancy was a God-given opportunity."
Learning from experience
For other contractors the slowdown could be a good opportunity to brush up on the skills that will be needed once the upturn begins. "Now is the time to scan the jobs available and see what areas they are in," says Akshar. "Maybe it's time to take up your training options and learn the skills that are still in high demand."
Philip Virgo advises contractors to look for internationally recognised qualifications. This will stand them in good stead if they have to compete against an influx of contractors from continental Europe, or from India which is feeling the effects of the US slowdown.
Predicting how long the recovery will take is difficult. Many do not expect any real upturn for at least a year. But some suggest that IT could see the first green shoots in the first quarter of 2002, as businesses begin work on broadband, and local authorities start getting to grips with their e-business deadlines.
"It's not going to get worse because it can't get much worse," says Virgo. "It looks likely there will be a recovery in the spring, but whether that's a full recovery, or a partial recovery with a downturn in the autumn is not clear."
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