UK billing rates for IT contractors have begun to increase for the first time in several years, but it is still too early to crack open the bubbly. The UK figures may well be little more than an anomaly on the path to continued pricing pressure…
According to a new report commissioned by the Association of Technology Staffing Companies, the average hourly rate of an median-level IT contractor in the UK rose 3.3% in the second half of 2003 to GBP37 ($70.30), which is the first time the industry has seen a rise in billing rates in the past four years. This upturn followed a huge 10% decline in the first half of the year.
The report also shows that there were improvements in billing rates for permanent staff, which initially fell 3% in the first half but then picked up dramatically in the second half of 2003 to show an overall growth of 6% in the year. The annual salary of an equivalent median-level permanent position is now GBP37,000 ($70,300) in the UK.
Consultants with skills in SAP tools continue to command the highest rates at GBP75 ($142.50) per hour, followed by Oracle ERP tools at GBP64 ($121.60), Oracle workflow at GBP63 ($119.70), and ARIS at GBP63 ($119.7) per hour.
Not so rosy elsewhere
But the picture is very different in other major IT services markets. IT contractor rates in Australia slumped during the first six months of 2003 within positions such as group project managers, senior system analysts, and network specialists. Only premium technical roles such as CCIE, SAP, CRM and XML developers experienced an upturn in demand, with salaries as much as 38% above the average daily rate.
In Europe, contractor rates in France and Germany have remained under intense pressure since early 2002 due to the continuing overcapacity in the markets.
This has caused a flurry of merger and acquisition activity in the two regions in recent months, culminating this week with Hewlett-Packard’s $427 million takeover of German IT services firm Triaton from construction giant ThyssenKrupp, which ranks as its largest pure services acquisition to date.
Cap Gemini Ernst & Young snapped up local French rival Transiciel for its IT contractor business Sogeti in late 2003, and in the biggest deal of 2003, Atos Origin acquired the majority of SchlumbergerSema from oil field services giant Schlumberger for $1.47 billion.
Similar story in US
The US contractor market also remains depressed. Despite IT and management consultancies such as Accenture, Sapient and DiamondCluster beginning to see an upturn in demand, they have not necessarily seen an improvement in rates.
These are being increasingly decimated by low-cost offshore contracting by companies like Wipro, Infosys and Tata Consultancy Services, which can reduce the costs of IT contractors by some 30%. This will inevitably continue to have a negative impact on billing rates over the next few years, with a staggering 211,000 US IT jobs per year expected to migrate offshore, taking the total to 3.3 million by 2015.
Today’s prevalence of offshore contractors is likely to keep competition intense and costs low across the board. So while the UK figures could get contractors excited about big price hikes to come in 2004, this is likely to be no more than a blip in the continuing trend towards pricing pressure. It is very likely rates are going to remain tight over the next 12 months, so contractors would be best advised to keep the bubbly on ice a little while longer.
This article is based on material originally published by ComputerWire