James Poyser, co founder of inniAccounts and former digital marketing consultant, expresses his opinion on the role of contractors and consultants in the marketplace, the impact of Brexit and how positive uncertainty can be a good thing for independent professionals.
In the four weeks that surrounded the EU referendum demand for contractors dipped by 32.5%, however the market has since returned to pre-referendum levels. Alongside the recent sale of ARM to Japanese tech giants Softbank and FTSE 100 entering bull market territory it appears there’s some confidence at least for the economy. But what is the longer term outlook for contractors, consultants and independent professionals?
The role of independent professionals
To examine the prospects of independent professionals going forward, we need to understand why businesses currently use contractors. Contractors offer rapid access to specialist resources, they can be hired quickly and for the fixed term. This means that contractors are available to complete a specific task and will leave once a milestone is reached or the project is completed or cancelled. Whereas, equivalent permanent employees would need redeployment or perhaps a redundancy offer should a major project be put on ice.
In our experience, we have found contractors are mainly used for three types of projects: change, development and growth.
Change projects typically include regulatory updates, improvements to efficiency and even support for mergers and acquisitions. Projects that revolve around change are generally driven by a need to deliver savings or, in the case of regulation, to allow the business to continue trading.
Many companies have long term product or service development projects, such as designing a new aerospace engine or developing the next version of an enterprise application. These development projects will usually transcend transient economic conditions, such as those that may be produced by Brexit.
Finally, contractors and consultants are often used for growth projects. These are projects where companies are reacting rapidly to capitalise on opportunities to generate revenue. Teams of experts, such as marketers, product managers and developers will often be deployed to kick-start projects in a business.
The economic impacts of Brexit on these three different types of projects will vary considerably.
The impact of Brexit
It is currently too early to understand the impact of Brexit on contracting and consulting. However, we do know from a recent survey of our clients that 23% of companies have put projects on hold and in the weeks surrounding the referendum demand for contractors dropped (though this has now returned to pre-referendum market levels).
On the 27th July the second quarter GDP figures will be released. These figures are likely to reveal the level of pre-Brexit consumer confidence and may help us to understand if we’ll be seeing a recession in the coming year. If consumer confidence is low, and the figures show signs of recession there may be a tightening of project budgets and a slow down in the growth of the contract market for a short term. Should this be the case, experience has shown us that even if demand drops in the short term, the market soon recovers.
Positive uncertainty is good for independent professionals
Looking back at the global recession of 2008, contracting demand dropped sharply in the three months before the UK entered recession. Companies started to hedge their bets and delay or cancel projects – they wanted to control costs ahead of uncertain times.
But as we saw then, business decision makers will look for opportunities to maximise growth. If there’s enough confidence to invest, but not enough to take on permanent employees, this creates the perfect conditions for a buoyant contracting and consulting market.
As we saw in 2008, as companies gained confidence the contracting and consulting market quickly rallied. The market was already recovering whilst the UK was still in deep recession and by the first quarter of 2010 the contracting market was at an all time high. In contrast, it took nearly 6 years for the permanent employment market to recover. It’s also important to note that even through the recession the contracting and consulting market didn’t stop growing, it merely didn’t grow as quickly.
Tips and hints
Should the market shrink and later rally, you need to ensure that you are in the best possible place to take advantage of the sudden surge of available contracts. Assure that for now you have a war chest of funds, savings and lined up work to support you in the short term. If you find yourself without a war chest, focus on keeping yourself in contract. Should you currently find yourself out of contract, and your finances allow it, consider using the time to update your knowledge; learn a new development language or framework or enjoy taking that bit of time out.
While it’s still too early to see the true impact of Brexit, we do know that the contracting market has always been quick to rally in times of economic instability. Though the coming months may see a short term slow down, there will always be a place for contractors in the business market; especially when it comes to change and development projects.