Contractor Meat Market

IT consultants look for permanent positions as clients, agencies slice and dice rates.

Thinking of chucking corporate life for the independent, ever-varied and richly remunerated life of an IT contractor? First, get out a marker, map out and label your skills on your body parts, and imagine being carved up like a roast pig. It will give you an idea of how IT contractors feel right now.

"Its just a meat market," said Ed Dosado, whos been contracting as a desktop and tech support lead for projects such as Windows 2000 upgrades for the past two and a half years. Recently, Dosado decided to leave contracting, thankfully accepting a permanent position in tech support at HealthNet Inc., a health maintenance organization in Shelton, Conn.

Whats got Dosado and others like him so down on IT contracting as a career? Plenty. First, theres a talent glut in the IT labor market. Second, rates are being hacked down. (See Shrinking Contractor Pay Rates) Third, contractors are increasingly being forced to work through agencies—which take a fee—as more hiring companies begin to use preferred vendor lists and Web-based procurement of contracting services.

Dosados not the only one looking to get out of IT consulting. The ranks of IT contractors last year shrank for the first time in four years. According to Joe Blumberg, executive vice president of Specifics Inc., a research company in Atlanta, the number of IT contractors increased by between 10 and 15 percent per year for the three years preceding 2001. Last year, though, the number fell 15 percent.

The moral of the story: Most IT people, even if theyre overworked because of layoffs and bitter because training budgets are drying up, should hang tight with permanent positions.

Its the rise of preferred vendor lists that hurts the most, say contractors, because it affects their autonomy—a defining and cherished facet of the free-agent life. "Many of the better jobs can only be had through a preferred vendor agency," said Wayne Pinkham, an IT contractor who has found himself idle for the first time in eight years. "This locks [independents] out unless we go through a specific agency."

Not that agencies have any choice in the matter: According to Paul Patel, president of Summit Technologies Inc., an IT temp agency in West Hartford, Conn., clients have, during the past four years, begun to use Web-based systems to solicit résumés—a "black box" approach wherein clients pre-select preferred agencies, fixing the rates (and the agency profit margins) theyre willing to pay. To get on a given clients vendor list, agencies have to accept margins that have shriveled to between 20 and 30 percent of billings, down from the 40 to 50 percent they were at before the economy fell.

That has translated into reductions in hourly pay (what contractors get) and bill rates (what agencies charge). But the pain has been felt a bit more acutely by the contractors. Research from Specifics shows that the differential is smaller than disgruntled contractors believe. For example, during the past year, median hourly pay is down 10 percent for Windows NT administrators, whereas billing rates for that job are about even with last years levels.

But the falling rates—and the question of whether theyre being taken advantage of by greedy agencies—wouldnt burn contractors so much if it werent for the perceived lack of loyalty on the part of agencies.

"Most agencies treat their consultants as if they do not work for them," said Pinkham, also in Shelton. Pinkham, an IT veteran of 25 years, has been consulting for about eight years on a slew of projects, from Windows 2000 upgrades to deployments of financial software from Lawson Software Inc. "The consultant is treated as if they are nothing more than a piece of furniture," said Pinkham.

Thats in stark contrast to how IT contracting used to work. Not long ago, for example, agencies practiced benching—paying contractors between gigs to keep them available for the next project. Benching, fairly common when Pinkham began contracting, is now virtually extinct, due to the surplus of skills on the market. "Theres so many people available, its cheaper to take a $100 ad out on [] than to bench someone," said Summits Patel.

For contractors, there is no silver lining to this story. No one knows if or when the market for IT contractors will improve. But there is always the back-door escape hatch of getting out of contracting entirely by—you guessed it—getting hired by a client. Thats how HealthNets Dosado landed his new job. "Im going to take [this permanent position] because Ive been out of work close to four months now, and nothing has come along," he said.

IT Careers Managing Editor Lisa Vaas can be reached at