Contractor Meat Market: Readers Respond

Readers respond to recent article on shrinking contractor pay rates.

Ive been contracting as an Oracle developer for seven years now. A year and a half ago, I quit my permanent job at an Internet startup just before they failed, and I took this contracting gig. I was getting a nice premium rate (for being available on such short notice) up until last December, when the HR guy told me, "Take a 20 percent pay cut or your contract is done." This was two weeks before Christmas! I managed to negotiate only having to take an 11 percent pay cut, but I sure didnt like it. The attitude from the customer Im seeing is, Its a buyers market so, screw the consultants.

I distinguish myself from the herd with "value added" services. For peanuts I provided PL/SQL training for 20+ of my clients developers. When particularly sticky tuning problems pop up, Im one of the first that people turn to. I try to pass on my expertise and knowledge to their staff, so they become better developers. I had a big hand in creating the programming architecture and standards for their database-drive Web applications. I dont merely do the work as directed by the customer; I use my 17 years of industry experience to help the customer design and build highly maintainable systems. For this, I feel worthy to earn a salary thats well above what mid-level developers earn (since Im a senior-level developer). If a client thinks that hiring a mid-level consultant is just as good as a senior-level consultant, and not worth the extra money, I would hasten to point out to them that they get what they pay for. Even in todays repressed IT job market.

Dan Clamage

It was nice to see an article in the press that begins to describe the foul conditions in our trade today. The one thing you didnt mention is that the U.S. government also seems bent on destroying this as a career, through their continued support for the H-1B program. Even though around 900,000 people have lost their jobs in IT, there are still over one-half million H-1Bs in the country, supposedly to alleviate the "labor shortage." Most of us are not against the H-1B program out of xenophobia; rather, we object to the program because it brings in people essentially as indentured servants who are deported the minute they lose their jobs.

It is a travesty that the so-called "free trade" Bush can bring in overtly protectionist tariffs on steel, yet when it comes to IT, he and the whole Congress (with the exception of [Rep. Tom Tancredo (R-Colo.)] and a few others) ignore the gross unfairness of the H-1B program.

Tom Scott

You wrote a very accurate article. It was nice to read the honest truth instead of the many upbeat articles I have seen on Eweek that paint false, rosy pictures.

I have just started on my second year of unemployment here in the Research Triangle Park area of North Carolina after four successful years as an IT contractor. I think an additional contributing factor is an increasing knowledge gap between hiring managers and contractors, both from the recruiting companies and their clients. In the last year I have started two jobs that lasted only one week due to the fact that the recruiter and/or client manager did not understand the requirements. Its a very sad state of affairs right now in medium-sized businesses and the more remote branches of larger companies.

Win Hinkle

I have been in the IT world as an SE for Sarcom and Bank One. When I was let go from Bank One, I went out on my own for six months as an independent and I got only two jobs: one being a data-center move done in a month and the other was some NT admin and server patch work. There is not a market out here for consultants unless youre willing to work for 20 bucks an hour or less.

Stephen M. Antle

For some of us, its worse than you report. My billing hours have been about 200 in the last 12 months. I dont want to try to explain what has made it possible to still be surviving the bills. If what you say is true about an IT skills glut, and I believe it is, H-1B visas should go the route of the stagecoach. There is no need. For corporate executives and politicians to continue to support such a program is unethical and immoral.

I also believe that there is something more complex at work. You mention that rates have fallen. For those of us over 50, that means that we dont get considered for many jobs because the customer expects our rates to be too high. I, for one, would be glad to go back to rookie mode and learn anything useful. Those "trainee" jobs that were available in 1975 when I started dont seem to be available today.

Thanks for your candor.

Mike Fletcher

Regarding the feedback from readers:

I suspect that the younger you are the less boom/bust cycles you have experienced, if any.

I bet the responses follow an age demographic. Examples:

Life is a cycle. Did people really think that the Internet changed all of the rules?

Why are consultants surprised that the market is placing a lower valuation on their skill sets?

No one complained during the go-go days of beamers as a signing bonus. Companys complained/worried about the price they had to pay, but no one paid attention to their concerns about paying young Turks obscene amounts of money because they possessed some skill sets that were required.

I deal with senior leadership each day trying to get our teams engaged. Sometimes, not often, I have to endure a C-level exec or one of their lieutenants reinforcing to me that it is "payback time."

Honestly, I think they have a right to relish making that point.

These individuals are usually the ones who were getting billed $150 to $400 an hour for a consultant, then having to pay for an additional T&E charge of 23 percent (average rate) of the gross billings.

Typically they had projects that start off with the most senior/knowledgeable consultants, who, once the client is "project pregnant," quietly disappear to the next gig, being replaced with a "green bean" consultant at the same (relatively) high rate.

In short, "payback is a _______ (you fill in the blank).

We are going through a typical cycle. What the heck is new? Nothing other than some younger folks are learning about reality. The market is doing what it does, cleaning out excess supply. It is a brutal process, but you learn that you have to manage the downside.

Dan Clamage has 17 years of coding experience. That probably places him in the 38-42-year-old category. He understands that you have to provide value. He has seen/experienced the boom of the 80s, and subsequent busts and booms.

Tom Scott complains about politicians and H-1B. As you well know, corporate leadership of leading technology companies encouraged H-1B visas. They needed additional staff at a cheap labor rate. They lobbied Capitol Hill. Tom Scott, exercise your right to vote. Has he written his representatives? They do listen.

Personally, I think H-1B should be rescinded and only a few granted each year (as in a few hundred). Those organizations that need cheap labor can outsource overseas easily enough.

To that point, Accenture is making a HUGE push into India-based outsourcing. They will have a few knowledge workers, project managers, etc. in states working directly with clients, but development is done overseas. SAP has been doing that for some time.

Win Hinkle has been consulting for four years and has been out of work for two. In short, he is complaining, "Where have all the good times gone?" (my apologies to Van Halen and David Lee Roth). J

Robert McCabe
Account Executive
LINDIN Consulting Inc.
New York

As a Marketing & Business Development Manager for an accomplished IT Search firm in Chicago, having worked here almost 5 years, I believe I have another side to the story.

While it looks like the contractors have the short end of the stick right now, from where I sit its the other way around. A contractor can literally pick which agency will pay him more for the same job, which directly relates to how much the corporation is willing to pay that particular agency. Often its just enough for everybody to make a nice profit and the contractor to be compensated nicely as well. However at times it doesnt work that way.

You mention lack of loyalty by search firms... I have to laugh because in my experience, its the corporations themselves that have a problem with loyalty. Even if you are on their golden Preferred Vendors List, sometimes you have to shell out and pay your contractor before the client ever pays you. This can be as much as $100/hour for a high level professional. Usually a firm will pay it for as long as they can, and then theyll have to take the heat when the candidate isnt getting paid, when it was really the end client who didnt pay. There are many reasons that corporations like to work through agencies... it gives them a central point of contact, and the firm handles all the busy work...screening resumes, background checking, paying the contractors payroll taxes and per diem, etc. But in a big company, sometimes paperwork gets lost, processes take time, and there are always mix-ups... heck, some people just plain lie. A couple times, a corporation has completely stiffed us for our fee and weve had to compensate their contractors for the work they did out of our pockets. So instead of making money, we lost it. Is that greedy? I dont think so.

Lane Eddington
Manager, New Business Development
Electronic Search, Inc.

I agree that the market in large corporations is becoming strictly MSP-based. Unfortunately, MSPs tend to select based on the buzzwords in your résumé. That means invariably which programming languages or product modules are listed--because that is the only way they know to reduce the [number of] résumés they must examine.

So, "Cast yourself as a consultant, not a technician" does not work for people like me and several of my employees who are experienced modelers, analysts, designers and project managers. Ive tried working with a number of MSPs, but they instead try to choose based on the programming languages in the environment rather than analysis skills. Even functional knowledge is discounted in favor of these.

This is a sad state of affairs, since poor analysis and design is the cause of most project failures. No amount of technical knowledge can fix missed business rules that cause design changes. Unfortunately, none of the people hiring in the MSPs (in my experience) have ever been involved in development and hence do not know.

Case in point: One of my employees was rejected by two or three MSPs for a specific consulting position at a large pharmaceutical for lack of Documentum product knowledge. The same person was hired by that pharmaceutical through another company where the recruiter/salesman had hands-on knowledge of the industry. Treating these requirements like [its a] meat market is detrimental to the large corporations.

Do the large corporations realize what they are giving up? They are not being presented with the right people because of this layer of middlemen. I think the middlemen work well when the skills needed are cut and dry or low level--e.g., Java programmer. Other levels do not work at all. Ask the corporate managers how many interviews they do now before a suitable person is found. I would suggest the average number of interviews per selection has gone up from before. How much time do they spend (at a higher cost) than before?

The argument for using MSPs was to save time--is this really happening? I do not see evidence of it. Besides, whose time is saved? The expensive IT manager who has to do more interviews? Or the cheaper accounts payable person who has to pay fewer vendors? Has anyone actually done a cost comparison? Or is this another Big Three business strategy that does not do whats promised?

Ulka Rodgers
eTransitions Inc.

One of the sad testimonies of working for yourself is that it is very lonely at the top. Unlike people like me who not only have a very steady pay check and a good support system, the self-employed are always on the move, keeping their ears and eyes to the ground and looking for the next job. If the contractor can build a clientele that keeps him/her employed, he/she may actually become a roving employee. However, it is a very volatile market and one can be out of work in a heartbeat.

I tried consulting back in the 90s when I was laid off and I really enjoyed the experience until my project was over. Then I re-entered the unemployed market and finally landed the job I am at right now. I loved working at home and working whatever hours I wanted, but I still kept an eye out for a permanent job. Consulting is temporary at best, and when you are raising a family, the risk is enormous. Fortunately, my wife had a full-time job to offset this. Now that the market is so soft I would never try it.

Jason McMahon
Dolgeville, NY

Two points come to mind:

As reader Win Hinkle pointed out, there is a serious gap between hiring managers and contractors (or perhaps better put: hiring managers dont know what theyre looking for - this is especially true in my field, software testing & QA). I can rant and rave about this for hours (people placed in charge of testing almost always have no testing experience or background in testing and testing, unlike programming, is not taught).

The second thing that I dont understand, is that if companies are really under severe financial pressure to save money - why do they insist on using agencies? Yes, I know about the centralized billing and prescreening of résumés, but if agencies are taking fees of 30-40 percent (perhaps lower now), and your average contractor is making $100K per year, and your average corporation has hundreds of contractors, they can outsource the screening and billing to me! Why not just insist the contractors are incorporated and bypass the middleman?

John Tyson
Salt Lake City, UT