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Shell cuts IT contractor pay rates


8 July 2009

Royal Dutch Shell is the latest British corporation to offer its UK-based IT contractors a speedy exit if they refuse to drop their pay by more than 10 per cent.

In an internal memo last month, the oil giant said that both new and existing IT contractors across its entire operation would cut day rates by 12 per cent, or face termination.

Financial services outfits were the first to issue IT contractors with such pay ultimatums 13 months ago, as they looked to cut costs in what was then only an economic slowdown.

But in the last three months, more than half of clients have tried to tell IT contractors ‘take it or leave,’ after cutting their pay by between 10 and 20 per cent, said Jenrick CPI.

Its director Philip Fanthom reflected: “In most cases there has been a period of consultation with the contractors which has lead to some interesting and sometimes heated debates.”

On the whole, the contract IT staff, as well as their permanent counterparts, felt they were placed “in a situation with little choice – take it or leave”, he said.

Richard Holway, the IT analyst, said “market forces” were working against UK IT contractors, whose offshore rivals promised bigger discounts than 12 per cent, helping explain why the ultimatums are “widespread.”

Yet, until now, the use of the ultimatums in the oil, energy and gas sectors has gone widely unnoticed, partly because of their heavy concentration at financial and IT services firms.

These sectors’ IT contractors will worry that Shell’s pay ultimatum for IT freelancers will inspire its rival companies to follow suit, as was seen in the financial sector after Deutsche Bank initiated it.

“Clients with significant numbers of IT contractors are taking advantage of the downturn in the number of IT contractor vacancies”, said SQ Computer Personnel, an IT staff supplier to oil firms.

“[Clients are] imposing ‘take it or leave’ pay cuts on contractors, usually mid-term during the contract, often despite the success and recession-proof aspect of their industry sectors.”

Bernie Potton, the firm’s founder, said the sectors’ IT contractors were typically being told to cut their rates by 10 per cent, in what was normally an across the board not an individual pay cut.

“Agencies obviously pass this pay cut on to the contractor, taking a 10% hit in their own profit in pound note terms, but maintaining the same percentage margin,” he said.

“Some contractors have got upset with this approach, claiming that the mid-term pay cut is unfair and unethical which it is, but unfortunately it is contractually valid”.

Agents and contractors each taking a 10 per cent hit on profits was “the norm” and “fair,” not least because, Mr Potton claimed, the agency could go into the red if it alone shouldered the reduction.

From the client perspective, then, “the mantra is more for less: ‘maintain or increase service levels but at a lower cost,’” said Mr Holway, who expects public sector IT staff to hear it next, but not until after the next general election.

Confirming that the pay ultimatums for IT contractors are now ubiquitous, Mr Fanthom said: “In the current economic environment, rate cuts are part of life.

“The real question is – how will this affect loyalty and the appeal of clients when the market picks up?”

Jul 8, 2009

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