Contractor Fees Drying Up

In a tough market, forecasting, flexibility needed

One evening last march, Tom Raef came home from his job as an independent IT contractor for a dot-com startup and switched on his computer. There he found an e-mail from the folks hed left only minutes before, letting him know that, due to straitened financial circumstances, they could no longer afford his services.

"It was a rude shock," said Raef, in Chicago.

Thankfully, Raef quickly landed other gigs. But his experience reflects the worst climate for contracting hes seen during 20 years as a consultant. Over the past six months, "there are fewer jobs and more people to do them," he said. "Im seeing friends who used to pull down $75 to $85 an hour now settling for $35 to $40."

Industry watchers confirm Raefs observations. According to Sam Bonfante, publisher of Contract Professional magazine, based in Watertown, Mass., contractors hourly rates are down across the board.

According to the most recent results of a survey of more than 35,000 permanent and nearly 5,000 contract employees conducted by the magazine and the online job site Inc., hourly fees for contractors declined 10 percent to 20 percent over the first half of the year.

"About the only skill we see on the upswing right now is SQA, the relational database language, which has jumped from an average of $31 an hour to about $51 over the last six months," Bonfante said. (This may be small consolation, however, given that of the 33 skills tracked in the magazines survey, SQA skills brought the lowest hourly rate last year.)

So, which skills are tanking fastest? According to David Foote, president of Foote Partners LLC, an IT work force research company based in New Canaan, Conn., enterprise applications, database and operating systems skills pay has declined since the second half of last year. Web and e-commerce development skills plummeted in the last quarter of the year but have since leveled off, with big gains in pay for Extensible Markup Language skills. Recent gains in such skills as Oracle Developer, C++ and rapid application development have helped the development tools category recover ground from a similar decline. As for the skills that are holding up, "messaging and groupware skills have been the most consistently valued over the past year," Foote said."

Contract Professionals Bonfante is quick to put the current economic slump into a more realistic light.

"For nine years, weve seen double-digit increases in rates," Bonfante said. "We had an inflated economy and a Y2K panic. This is the first downturn weve seen. It has brought rates back to about the level of the mid-1990s."

Still, experienced contractors are feeling the difference. "I only get a handful of recruiter calls or e-mails a week now. I used to get the same volume of inquiries per day," said Bob Hoeppner, a Visual Basic specialist who works through a contracting agency for, a Web-enabled parking revenue control company in West Hartford, Conn. "Good, experienced contractors are still finding assignments," Hoeppner said. "Mediocre coders who just go through the motions are twisting in the wind a little more."

The key to landing work in this economy, consultant Raef said, is flexibility. Case in point: A year ago, he predicted that companies that had been focusing on Y2K and e-commerce would soon need to start upgrading their operating systems, so he began boning up on operating system technology. That gamble paid off. Today, he has several concurrent gigs, two involving Windows 2000 migration and another installing Citrix.

Keeping in touch with other contractors, often via online forums and bulletin boards, is another way independent developers gauge which skills are trending up and which are losing value, Hoeppner said.

In many ways, its still a good time to be a contractor, experts say. The Contract Professional survey last year reported that contractors, on average, outearn permanent employees in all but two skill categories (LAN/WAN and SQA). Contractors with desirable skills continue to earn more than their counterparts in permanent employment, often by tens of thousands of dollars per year.

And the truth is that the lines between contractor and permanent employee are blurring. As Bonfante pointed out, the average term for a contract these days is 12 months, while the average length of employment for a permanent IT staffer is only 15 months—a barely perceptible difference. "In some sense, everybodys a contractor now," Bonfante said.