Oil and gas contractors are next in line, after financial IT contractors, for across-the-board rate cuts by two of the sector’s major clients. But the move is incredibly short-sighted, as skills shortages in the UK and North Sea are only likely to worsen as a result of the cuts, as the best contractors jump ship.
And in the same way that the best financial IT contractors have a ready supply of financial sector clients happy to take them on, so do oil and gas contractors – even more so, as oil and gas contractors can shop for clients in a truly global marketplace that prizes UK and North Sea experience and expertise.
According to the Chemical Engineer’s Richard Jansen, both Amec and Wood Group PSN “have announced that they will be slashing 10% off their UK contractor rates from 1 June”.
Wood Group told Jansen that it is “keen” to retain its contractors, despite the rate cut and hopes to tempt some workers onto its permanent payroll with employment opportunities.
The move is an attempt to contain spiralling operating costs, although in the long term it will most likely end up costing more. Why? Because the contractors with the best skills – the client’s best workers – will head off to find better-paid contracts, leaving behind less experienced and perhaps less able contractors to continue operations less efficiently.
For contractors working on shift-based roles where they might be four weeks on/four weeks off, their work location doesn’t really matter. Granted, it might be difficult to commute to Asia, Australasia or South America from the UK, but that still leaves an awful lot of oil and gas provinces closer to home where contractors can find alternative work and the logistics are easier.
These rate cuts are also set against a backdrop of an existing “brain drain” of skilled workers from Europe to regions such as Russia and the Middle East. Oil and gas recruiter Hays says that Europe is losing expat workers who have come here to work as their home nations try to repatriate them and their valuable skills. And indigenous workers are being tempted by generous packages to work on projects outside of Europe where the local tax regime is often even more attractive than trading as a limited company.
Attempting to stem this tide by offering those who have chosen to work as contractors full-time permanent jobs is unlikely to be an effective solution. Why would an oil and gas contractor take another pay cut to make the transition from being a tax efficient limited company contractor who is in charge of their own destiny to being a highly taxed employee?
Those oil and gas contractors that can’t find other contracts, or who choose to remain, don’t have to simply roll over and accept the rate cuts. There are many strategies contractors can adopt to fight rate cuts, and these have proved to be highly effective for financial IT contractors. So, despite the bullish talk by clients, the fact remains that some rate cuts may not be enforceable across-the-board after all.
But let’s hope that the move by Amec and Wood Group does not spread to other clients in the sector, otherwise we could see an already acute skills shortage reaching dangerous levels, and threatening the viability of new and existing projects.