In defence of IT (and Government) Contractors

Bad Data poster_V5Labour, who had one of the highest contractor rates ever, has seen fit over the past fortnight to have a go at the IT Contractor. This is a time honoured tradition that never fails to get a rise from the public in an attempt to show that National is allegedly misspending taxpayers money. It is a cheap stunt, whoever does it, and it is counter-productive.

Let’s get a couple of things straight up-front.

First, there are some contractors that shouldn’t be contractors. If you have a contractor that has been there for over a year, then you really need to ask whether or not that should be a permanent role.

Second, I am by definition a contractor, despite the fact that I run a small boutique company with specific skills sets. So I need to declare my interest.

The headlines of course are always great for a Dominion Post reporter. They fall naturally into a “click bait” category that gets people “outraged”, ensures many hundreds of comments, and so return visits, which drives up their online advertising revenue. Unfortunately they don’t take the time to analyse the actual data, because if they did, the argument would collapse.

There is an assumption that contractors are paid more. While that may be the case for highly-specialised roles, or Consulting Companies, generally the rate that is charged is about the same as a salaried employee. In fact, in some cases, it is a lot less.

Yes, some agencies get rid of their staff only to hire them back as contractors, usually at less of a cost than employing them, and in those cases, the staff feel they have little choice but to accept the deal. Lower skilled workers often fall into this trap, or younger players.

The cost of contractors is largely inflated by the fact that government has put “procurement panels” in place. This means that I can’t go directly to an agency unless I am on their panel. Getting on the panel, via RFP, is impossible for a sole-agent due to the cost and time it takes. Therefore, most contractors have to go through one or more panels to get work. Each of those panels takes extra money.

Here’s an example. I was approached by an agency to do a high-risk, time critical programme, about four years back. I quoted them $135 per hour. The going rate for the programme management role at the time. But I wasn’t on that agency’s panel and it had been farmed out to Hewlett Packard. Problem was, I wasn’t on Hewlett Packard’s panel either. So in the end I went through DTSL who added $15 per hour and then HP that added a whopping $150 per hour. In the end I was being charged through at $300 per hour.

I spent the first three months wondering why staff were giving me black looks, they assumed I was pocketing the total.

So it’s government, and you, Labour, that have some questions to answer about the sheer cost of contractors thanks to that panel system.

I’d like to point out that I use a couple of local agencies to find me work, I’d also like to point out that they tack on $5 to $10 per hour and that comes with a set of services for both me, and the customer. We like them.

Contract work is often short and part time. That’s because an agency doesn’t need my skill set 100% of the time, usually if they do, they hire a full-time employee. I get brought in with a short, sharp, set of tools and experience that is designed to assist at a point in time. Most of my engagements last six months.

Agencies continue to hire the “Big Six” Consulting companies, which count as contractors. In that case the hourly rate is very high for potentially less-skilled resource. We all know that those companies snaffle up university grads, train them over a couple of months, then send them into accounts at a very high-rate in relation to their CV’s. This is an area that should be examined.

Contractors have to pay for their own holidays, training (which is increasingly critical), fringe benefit tax, personal tax, company tax, GST, ACC, indemnity insurance, forward tax, accountants, and all of our own software tools including accounting, time sheets, office software, desktop software, any other specialist tools that they need.

Contract rates in New Zealand have not gone up in the past five years, they have gone down.

Just as their are ineffective contractors, there are also ineffective full-time employees. As a contractor, if you don’t perform, a company can terminate your contract with almost zero notice, employees are protected.

The knee jerk reaction to this is often to purge contractors. This is extremely disruptive. I have seen entire projects and programmes fail because a call has come from on high to cull contractors, often costing millions to re-establish.

I choose to be a contractor because I am measured on my delivery alone, it gives me a lot of different work, I alone am accountable for my work, and I like having a customer, rather than a boss.

So here’s to contractors, and employees, none of us go to work to do a bad job.

And as to politicians trying to score cheap shots, come and work with me a week before you put out amateurish data and press releases.


  1. Ian, as you say, contractor bashing is a time honoured tradition. Its unclear to me what triggered the panel strategy, whether it is now a formal government requirement, or a follow the herd phenomenon. In any case it is pretty clear that government agencies are often paying inflated costs for otherwise individually available contractors who are having to work through large panel firms, whilst the real value of supposed backup, oversight etc seems doubtful.

  2. Ian, kind of agree with some of what you say, but disagree with a lot more. Most contractors earn more than (plenty more than) $60 an hour. Yet a lowly $60 an equates to $117k per anum and while there is no leave (annual or sick) so you could knock off 10% there is still the need to provide real estate and all the over overheads associated. Then there are the sheer volume of contractors who have done more than 2-3 years. I heard of one at 6 years!

    There is a difference between what you say you do – short assignments to provide specialist assistance – and the fact that many govt agencies have replaced perms with contractors who might as well be perms.

    I too have done contracting and am all for it for dealing with special requirements (expert skills required, short time frames, etc) but that is not the majority of contractors working in govt today.

    1. Yeah I hear you. I guess we don’t have good metrics and that was partly my point on Labour’s press release. I guess maybe I am different, and part of a newer breed. I bring my own tools, pay for them, and I have my own office for example. To be honest, it allows me to be more effective.

  3. I definitely agree with you on this: “I choose to be a contractor because I am measured on my delivery alone, it gives me a lot of different work, I alone am accountable for my work, and I like having a customer, rather than a boss.”

    I mean, I can’t think of any other thing that’s a better feeling than getting the credit for all the work that you’ve done all by yourself. And you definitely see the whole fruit of what you worked for.

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