Contractors are entering May 2013 experiencing strong and growing demand for their core services despite – or in some cases perhaps because of – an overall softening of much of the UK’s labour market. The contracting sector in Scotland is doing well to the extent that it is outperforming the rest of the UK, with a ready supply of contracts and plenty of suitably skilled contractors to fulfil them. Perhaps the most positive news is the renewed optimism among the UK’s largest companies, which form the contracting sector’s biggest clients. This may translate into new projects and contracts as projects postponed due to uncertainty finally get underway.
In this month’s ContractorCalculator market report:
- The latest Recruitment and Employment Confederation (REC)/KPMG Report on Jobs shows a second month of softening contractor demand in the UK, except in the core contracting disciplines, where skills shortages remain
- Scotland’s contract market is outperforming the UK as whole, particularly in the IT and engineering sectors, according to the Bank of Scotland Report on Jobs
- Interim management contractors may be reducing in numbers, but earning more over longer assignments, suggests the latest Interim Management Association (IMA) Membership Audit. But figures from the public sector interim market may cause concern
- The IT contract market grew by 1.7% in the first quarter of 2013, according to the latest quarterly update from Salaryservices and JobAdsWatch, which also highlights an increasingly polarised geographic market for IT contractors
- The latest Deloitte CFO survey shows that the UK’s corporates may finally start to use some of the cash piles they have been accumulating. Spending on new projects should in turn generate demand for contractors.
Core contracting disciplines remain bullish, despite overall market softening
Against an overall backdrop of softening contractor demand, the core contracting disciplines remained bullish, driven by an increasing skills crisis, particularly in the engineering sector.
The latest Recruitment and Employment Confederation (REC)/KPMG Report on Jobs shows engineering and construction moving into second place in the demand league table, displacing another important contracting sector, accounting and financial, into third.
IT and computing spends another month in fourth place, and while growth slowed, it remained positive. Demand for interims also stalled, although the executive and professional category did move up from eighth to seventh place.
Recruiters report that businesses are willing to pay to get the right talent, but are struggling to find people with the right skills and experience
Kevin Green, REC
REC chief executive Kevin Green believes that it is skills shortages that are partly to blame for the general malaise: “Recruiters report that businesses are willing to pay…to get the right talent, but are struggling to find people with the right skills and experience. It’s a worrying trend that is particularly problematic across IT and engineering and at senior levels in other sectors.”
Contractor demand in Scotland outperforms the UK
Contractor demand across several core contracting disciplines grew sharply in Scotland during March 2013. In particular, demand for engineering contractors rose at its fastest pace for 18 months, with the category leaping into second place, after the nursing/medical/care sector.
And according to March’s Bank of Scotland Report on Jobs, IT and computing was in third place. The next ranked contracting discipline was accounts and financial, which is doing less well and only just remaining in growth territory.
“The number of people appointed to both permanent and temporary jobs rose while the number of vacancies increased,” notes Bank of Scotland chief economist Donald MacRae. “These results reinforce the view that the Scottish economy is continuing its slow recovery from recession.”
Another sign that the contracting sector in Scotland is healthy is the balance between increased billings, and increased contractor availability, pointing to the market being well supplied with contractors able to deliver the skills needed by clients.
Fewer interim management contractors commanded higher rates over longer contracts. The number of interims on assignment actually fell in 2012, compared to 2011, according to the Interim Management Association (IMA). However, the value of the interim sector more than doubled since 2006, to £1.5bn in 2012, and the average length of assignments was the highest on record, at 175 days.
The IMA Membership Audit Yearly Report 2012 also highlights how the client mix has shifted since 2011, when 46% of all assignments were in the public sector. By the end of 2012, 72% of interim management contractors had private sector clients.
The IMA’s chairman, and Russam Interim managing director, Jason Atkinson indirectly suggests that this may be down to austerity measures: “The survey results are very encouraging and indicate that 2013 may well be the year that restores our industry to double-digit growth figures –to the levels before major cuts took place in the public sector,”
However such a sharp drop, which also contradicts a separate report by ManpowerGroup and the Report on Jobs above, could be down to something less positive, such as fall-out from the Ed Lester affair. Perhaps the UK’s interims are indeed voting with their feet and refusing to work for public sector clients whose government-imposed rules see them treated as quasi-criminal tax evaders?
IT contract market expands by 1.8% in 2013 Q1
The UK’s IT contract market grew by 1.8% in the first quarter of 2013, when compared to the final quarter of 2012, and demand grew by 1.7% over the same period. Year-on-year, the IT contract market has increased by 6.2%, suggesting a slow but solid recovery.
However, the April 2013 Quarterly Update by Salaryservices and JobAdsWatch shows in stark relief how the IT contract market is becoming increasingly polarised to the South of England, with only 16.1% of contracts advertised in the North and Scotland.
The geographical data is puzzling, considering that the Bank of Scotland Report on Jobs above paints the picture of a robust and vibrant IT contracting sector, and particularly bearing in mind Scotland’s financial capital in Edinburgh and the UK’s gaming capital in Dundee.
Recruiters remain by far the dominant source of IT contracts, with agencies accounting for 82.6% of all contracts advertised. Software houses and consultancies remain the largest consumer of IT contractor services, closely followed by the financial sector.
Although manufacturing is one of the smaller sectors using IT contractors, the number of contracts in the sector has increased by 17.8% over the last 12 months. This may indirectly signify the positive news that the UK’s manufacturing sector is gaining ground, or it could simply be reluctance on the part of manufacturers to hire permanent staff, borne out by permanent role hiring in the sector growing by 5.8% over the same period.
Contractor prospects buoyed by rising optimism in UK corporates
Contractors across all major disciplines may start to see new projects and assignments appear as the increasingly confident boardrooms of the UK’s largest corporates, and contractor clients, start to release the substantial cash piles they have accumulated during the recession.
The latest Deloitte CFO survey, which features a panel of 300 CFOs from FTSE 350 companies and represents major contractor clients, shows “a sharp fall in uncertainty” and “less emphasis on cost cutting and cash”. As confidence grows, projects that have been postponed due to uncertainty are more likely to be launched.
In particular, the survey notes that UK corporates with an international business base are reversing previously bear-like strategies. “International companies, those deriving more than 70% of their revenue from outside the UK, have decisively shifted from a defensive to an expansionary strategy,” notes the survey.
This suggests that, at least initially, contractors targeting large organisations for new projects and contracts might secure more favourable returns from those that have international brands and operations.