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According to the group, a sharp increase in the number of small agencies and portals in competition with established IT recruitment specialists chasing volume business with large contractor users has flooded the marketplace.
The group says the increase, combined with the introduction of IR35, has meant clients are now introducing more stringent terms and conditions on agencies.
It warns the domino effect on the market will be an increase in liability for agencies who will raise their costs in response and be forced to reduce margins to an unsustainable level. Certes says this would further be exasperated by contractors’ expectations of immediate payment and client demands for longer credit terms.
Robert Lindsey, Chief Executive of Certes, said: "The margins that volume users are prepared to pay for their contractor resourcing services have halved in the last five years and now barely cover costs. Couple this with the increasing expectations for higher levels of service from clients and contractors and it’s easy to see that it won’t be long before the resulting squeeze on agencies means an increasing number of them choosing to exit the marketplace. Those that are left will concentrate on areas where they can make profits which could mean that few if any will represent IT contractors in the way they traditionally have."
Other than making profits, Certes says agency margins cover a number of costs, the most significant being those associated with the working capital that funds the time lag between contractor billing and client payment.
Mr Lindsey added: "Now that margins have been squeezed to a level that only covers costs, they don't leave any room for profits. The danger of this is that the quality and choice of candidates available will be compromised.
"The market must understand that if staffing agencies cannot make a profit they will have no incentive to remain in this business. If this happens it really is uncertain what will happen to the IT contractor industry. I don't think this industry can continue without agencies because they offer too much benefit to both parties"
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Richard Powell, Shout99
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