The Wellington contractor market is changing – watch out

by | Mar 4, 2014

Its a very interesting time for the contractor market in Wellington this year, a number of major changes by Government last year, coupled with some some other factors has made the market tight for contractors and my view is it will get tighter as we head into 2014.
So I thought I’d give my view on these changes, the impact I see and some of the behaviours that are resulting because of it.

The contractor market is tight because…..

Of a few major factors:

  • The all of government recruitment panel, restricted the number of companies who could bodyshop into Government organisations, changing the way people could buy.  This has disrupted the usual procurement flow for people that regulary use contractors and so has slowed the market
  • The all of government panels for services (dev etc) have been awarded to the large vendors (Datacom, Geni etc) and they try and use permanents rather than contractors where possible
  • The pyramid bodyshop schemes are struggling with these new panels, and the blocking of their personal relationships with the buyers, slowing their ability to bodyshop contractors in
  • A Government direction to remove the continuous roll over of a contractor from one project to another (to another, to another) within a government organisation and instead go back to the market each time has resulted in more contractors in the market
  • Government organisations are switching to fixed term contracts rather than hourly or daily rate, reducing their cost and also making sure the resource is consistent for a longer duration
  • Lack of large multi million dollar IT projects in Wellington (seems everybody is waiting for the IRD project, in my opinion not a good move)
  • An election year always results in less government spending, as organisations wait to see what the new government direction will be pst election

 

So what behaviours are we seeing ….

When the market gets tight we see a couple of things happen from a contractor point of view:

  • Some contractors will take permanent or fixed term roles, to weather the storm and return to contracting when the market picks up.  This is also a good time for them to reinvest in new tools and techniques which they can use contracting later
  • Contractors who are doing work they don’t particularly like, stay doing it rather than jumping to a new contract
  • Knowledge of which organisations has work coming becomes far more valuable and tightly held
  • More organisations start to “partner” as they try and leverage other organisations relationships to bodyshop their contractors in
  • Bodyshop organisations push to reduce the contractors rate to enable them to discount the rate to the customer, but retain their margin
  • Customers get a lot more high quality contractors to choose from for each new role
  • Customers will often receive the same contractor CV from multiple bodyshopping companies

 

So what is the bodyshopping pyramid scheme …… 

The bodyshopping pyramid scheme has been going on in the Wellington market for a while now.   Here is an example of how it would work:
1) A contractor has a relationship with us, and so we clip the ticket when we find them work, lets say $20 an hour
2) We have a relationship with another bodyshopping company so when they have a contract for a customer, we place our contractor in the role through them and they clip the ticket say another $20 an hour.  So the customer ends up paying say $140 an hour and the contractor gets $100 of it.
(By the way we don’t play in the pyramid schemes, we think they are dodgy.  For the contractors we work with we only clip $10 an hour between the customer and them)
There  have been examples where the pyramid is sometimes 4 clips deep.
The All of Government guys have cottoned onto this I believe, and the recruitment panel was the first step in regulating it, with most recruitment companies now clipping at around 8-9% from some of the blogs I have read.
Also I have heard rumours that the current focus is to trace the lineage of these contracts to ensure there is only one 8-9% clip on the way through.

And another thing…..

If you have read any of my blogs you know at the moment I’m focussed on the changes in supply and demand behaviour that is been driven by the new internet technologies.
 

supply-demand

 
Most of the bodyshopping models are based based around focussing on the sell side.  Doing the hard yards (and they are hard yards) talking to customers about what they need and when, then trying to find the right resource to fulfill the role, before somebody else does.  The all of government recruitment panels have made this easier for the companies on the panel, as it naturally restricts who can sell (pyramid schemes aside of course).
There has been some innovations in the link side lately, services such as Linkedin where they provide the service of linking the build (contractors) and sell (customers) directly.
To be a financially successful company you need to excel at one of those three capabilities.
Which brings me to the build side.  There are a number of companies that are now trying to control the build side by locking contractors in with exclusivity contracts.  Effectively a contractor signs an agreement that they will not contract through any other bodyshopping company in the market, in return for being offered contract work when the bodyshopping companies secures a contract.
Now this is a very interesting model and for me really shows how tight the contracting market in Wellington has become as contractors seem to be actually contemplating it as an option. Shane

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