IT chiefs cutting back on contractors

CIO Jury: Credit crunch making permanent staff more attractive...

IT contractors are finding it harder to secure work, with the joblessness rate among temporary tech staff increasing - an ominous omen that the chill economic winds from the global credit crunch are starting to blow through the IT department.

This is backed up by the latest poll of's CIO Jury panel of IT chiefs - the majority of whom said they are planning to reduce spending on IT contractors.

The state of the contractor market is something of an economic barometer - IT contract work which flows freely during boom years often dries up in leaner times when tech departments with shrinking budgets scale back projects and make do with in-house resources.

Research from contractor services provider Giant Group shows the long-term joblessness rate among IT contractors has risen from a two-year low of 4.4 per cent, at the end of 2007, to 5.5 per cent this month. Fears over job security are also growing, it said.

Matthew Brown, MD of Giant Group, said in a statement: "Job security is now becoming much more of an issue with economic uncertainty on the rise. Contractors may feel less confident taking on work in volatile areas of the banking sector as a result."

However, Brown added: "In some areas demand for IT skills is actually rising in the City. Risk management and compliance are huge growth areas right now. If anything the credit crisis and the Société Générale scandal will accelerate this process, rather than lead to curbs on spending."

But more than half of's 12-strong panel of IT chiefs are feeling the budget pinch as they plan to scale back spending on external contractors - though many are planning to replace these workers with permanent staff to ensure they still have the skills they need to get the job done.

Steve Clarke, director of systems and operations, at ISP AOL Broadband said: "We have significant downward pressure on contract costs but it's going to be more likely we will replace contractors with permanent heads than cutting those heads altogether."

Another IT chief, who wished to remain anonymous, said: "We are cheating somewhat by moving some contract resource to short-term staff contract. This saves money and also gets around our current freeze on full-time hiring."

The Post Office is also going down the permanent staff route. Ric Francis, executive director of operations, said: "We are reducing IT contractor spending but by reconverting to permanent," adding: "We are hiring as we speak."

Mark Foulsham, head of IT at insurance company eSure, added: "We have already reduced contractors by 80 per cent over the last 18 months. This has been achieved through a combination of a move to offshore resourcing and greater emphasis on sustaining permanent staff skills. One of the benefits has been a cost saving of over £1m whilst maintaining delivery capacity."

This strategy of shifting over to permanent headcount may have other benefits to IT departments as Chris Clements, IS director at education software supplier RM, points out: "Whilst growing your IT excellence is a time-consuming activity, in the long run you end up with better quality, retained IP and a lower cost base."

But not all the CIO Jury members are turning away from contractors.

Allan Paterson, director of the IS division for the Isle of Man government, said: "We have no intention of reducing our spending in this area - we see external contractors as a key complementary resource to our in-house headcount, allowing us to both fill key competences that we don't have or that we are gradually bringing on-board, and to cope with variable demand for services."

He added: "Our challenge is to ensure maximum value, and to that extent we do not use individual or 'body-shopped' contractors, rather we use resource contracted from specific service providers who can add value."

Today's CIO Jury was…

Neil Bath, group head of information services, Brewin Dolphin Securities
Alastair Behenna, CIO, Harvey Nash
Nic Bellenberg, IT director, Hachette Filipacchi UK
Steve Clarke, director, systems and operations, AOL Broadband
Chris Clements, IS director, RM
Mark Foulsham, head of IT, eSure
Ric Francis, executive director of operations, The Post Office
John Keeling, director of computer services, John Lewis
Jane Kimberlin, IT director, Domino's Pizza Group
Allan Paterson, director of the IS division, Isle of Man government
Mike Roberts, IT director, The London Clinic
Richard Storey, head of IT, Guy's and St Thomas' NHS Foundation Trust

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