From...

March 11, 1999
Web posted at: 11:19 a.m. EST (1619 GMT)

by Leslie Goff

(IDG) -- Demand for information technology contractors should hold steady this year, even as year 2000 projects wrap up in the second half. After that, all bets are off, as many companies are hoping to reduce their use of contractors.

"Because of the labor shortage, we have more contractors than I would like," says Dave Zitur, vice president at Carlson Shared Services, the IT arm of Carlson Cos. in Minneapolis. "I want to invest in our people, in their career development, to get the skills we need and depend less on contractors."

MORE COMPUTING INTELLIGENCE
	IDG.net home page
Computerworld's home page
Computerworld Year 2000 resource center
Computerworld's online subscription center
Reviews & in-depth info at IDG.net
IDG.net's personal news page
Questions about computers? Let IDG.net's editors help you
Subscribe to IDG.net's free daily newsletter for IT leaders
Search IDG.net in 12 languages
News Radio
	Computerworld Minute
	Fusion audio primers

Carlson, a hospitality company that owns several hotel and restaurant chains such as Raddison Hotels International Inc., is using approximately 200 IT contractors in addition to its staff of 700 to 800 IT professionals. That's in line with other large companies, which on average are using contractors to boost their permanent staff by approximately 20% to 25%.

The millennium bug is steering demand this year, but it isn't the only driver. Electronic-commerce initiatives and enterprise resource planning (ERP) implementations also are putting contractors in the fast lane. And although IT managers say they hope for some cruise control after they park their year 2000 projects, the IT skills shortage, ongoing systems maintenance and new development work may keep contractors in gear.

A mainframe shop at a large insurance company, which the IT director asked not to be identified, will keep an average of 200 contractors even after it finishes its year 2000 conversions later this year. The company, which has 1,000 full-time IT employees, anticipates funneling the resources it has been spending on 30 year 2000 contractors into other projects that require contract help.

At Caterpillar Inc., a Peoria, Ill.-based heavy equipment manufacturer, IT managers expect little or no fluctuation in the number of temporary IT staffers after year 2000. In addition to year 2000 projects, Caterpillar is using temporary workers for PC and LAN support, help desk and Unix support, Oracle database administration and development, and client/server applications development.

More of a concern to Caterpillar is the Asian economic crisis, says Ron Rosenow, human resources manager for the company's corporate information services group. The company has approximately 330 IT temporary workers and 1,600 permanent IT staff.

"We try to have enough leased workers in place so that if we get into an economic downturn, we can get by without laying off full-time employees," Rosenow says. "We plan to stay fairly flat, but we might have to reduce the number [of temporary workers] depending on the economy this year. A lot of our business is overseas, and certainly the Asian situation is having an effect."

Rosenow's use of the term "leased workers" highlights another key trend in contractor demand this year. Larger companies have become strict about who they hire, opting to bypass 1099 contractors altogether. Instead, to avoid any Internal Revenue Service scrutiny, they're working with preferred vendors, leaving all hiring decisions to those agencies.

Caterpillar's IT managers have even excised the word "contractor" from their vocabulary, referring to hired guns as "leased workers" instead.

"We like to use firms that have their own W2 employees; we have gotten away entirely from any 1099 arrangements," Rosenow says. "You get to a point where it's hard to distinguish between 1099s and your own employees.We also stay away from incorporated sole proprietors. Things get fuzzy with the IRS rules, so we just prefer to stay away from the independents."

Game Plan Caterpillar works with a list of approximately 30 primary and secondary agencies. The anonymous insurance company works with only one agency, which subcontracts placement of contractors through other agencies. The insurance firm doesn't get involved in choosing the subcontracting agencies, but the terms of its contract with the primary agency bar the firm from hiring any 1099 workers or sole proprietors.

Carlson, which has a roster of 35 preferred agencies, avoids 1099s or sole proprietors, Zitur says. He says he usually hires contractors for periods of about three months, and in addition to year 2000, he looks for workers who have Forte, Web and Oracle Financials skills. "We sometimes use niche agencies that are focused on a specialized skill set, but they still have to sign our contract as agencies — they are not hired as individual performers," he adds. When 1099 contractors sneak in the back door, they're immediately terminated or forced to sign up with an agency to stay on their projects, Zitur says.

An exception to the trend is watchmaker Fossil Watches Inc. in Dallas. With only 16 people on its IT staff and only four contractors, Dan Heard, CIO and senior vice president of operations, says he can manage the situation closely enough to make the necessary IRS distinctions. He says he prefers to hire 1099s to working with agencies because he believes he gets better talent.

"Agencies cost us more money, and we don't get the same caliber of people as when we hire direct," Heard says. "We aren't high-volume, and we don't need people for ongoing support. We look for reliable people with high standards for short-term development."

Because Heard's contractors are hired for a limited time, work on their own premises, use their own equipment and don't draw any benefits, he says he isn't worried about their 1099 status.

Demand for contractors at Fossil should go up after year 2000 testing is complete, Heard says, because of a new focus on an ERP implementation. But contracting resources as a percentage of his software development budget could fall to 15% next year, he says.

Goff is a freelance writer in New York.