IT contractors now operate in a market with worsening skills shortages, so have plenty of other options if their client starts threatening rate cuts. At least the good ones do.
The move by RBS to cut its financial IT contractor rates by 10% falls hard on the heels of Barclays’ similar move last month. Both banks are likely to experience long-term pain for very short-term, and short-sighted, gain.
We know that Barclays’ move led to many of its best contractors moving on, leaving behind some of the less experienced and skilled contractors. And, of course, the dead wood.
Loyalty is for pets, not contractors, and you rarely [in fact never] see clients saying ‘well done chaps, market rates have risen so you can all have a 10% rate increase’. Contractors will walk and RBS is likely to suffer the same fate as Barclays.
And astonishingly, RBS is doing this just as the organisation is supposedly investing in improving its IT systems.
Interestingly, Recruiter reports that RBS appears to be carefully adhering to its existing contracts by timing the cuts according to each individual contractor’s termination period. So, contractors are unlikely to find any redress from this scenario as a result of breach of contract for incorrectly applied termination periods.
Most contractors are reported to be on two-week notice periods. So when they walk – as the best ones at RBS will do – does that bank really expect to achieve a well-managed hand-over in a fortnight, and one with a bank holiday weekend in it? It’s clearly nuts.
And the likelihood of quickly hiring a suitably qualified replacement at lower rates is near zero, especially when demand for IT contractors is so high and rates elsewhere are rising.
This move is going to impact seriously on existing IT programmes and projects at RBS, and potentially make shareholders very jittery. It’s difficult to see how RBS could have handled the situation worse.
So, what if you find yourself in the firing line?
There are several possible defence strategies for those contractors with longer termination periods and who may have time to take action.
It is possible that you are in a role that is so vital you know the client cannot do without you, or at least will suffer business-critical damage as a result of your departure. If you are in this sort of position, you could stand your ground. It is then up to your client hiring manager to fight your corner.
Another option is to adopt a ‘safety in numbers’ approach and get everyone in a team or department to say ‘no’ and call the client’s bluff. It is unlikely that an organisation can survive the departure of a whole project or department team, particularly if the project is business critical.
There will be client project managers terrified at the thought of their entire team, and project, departing overnight. And if they do, managers and board members will soon finding themselves having to face hostile shareholders.
But a contract is a contract, and if the bank is so desperate to cut costs and you can get – or have – something lined up, then sometimes it is better to jump ship.
The market being what it is, if you are good at what you do it won’t take you long to find more work. Possibly with a bank that has just cut its rates and is now paying top dollar because it lost half its top contractors within a week and is desperate to replace them.
Confirming this, an unnamed IT agent told Recruiter that the move by RBS was short-sighted: “Around half of IT contractors with skills in high demand such as SAP and Oracle will find alternative contracts.” The same agent also suggested that many contractors would accept the cuts but immediately start looking for alternative work, and so will leave anyway.
Reuben Chase consultant Tim Sohal was happy to go on record, telling Recruiter that: “With a fairly buoyant market, particularly in London, the move will inevitably lead to an exodus for contractors looking to retain the rates they are used to.”
On the flip side, there could be a silver lining, in that being terminated for not accepting a rate cut, and then leaving to be replaced by another contractor is a strong argument for limited company contractors that they are outside IR35.
If RBS follows Barclays’ lead, it is likely we will see more rate cuts in the financial sector before eventually someone will wise up to the fact that it is pointless threatening contractors when they have so many other options. Threaten them, and you’ll lose them. And possibly a great chunk of your share value too.