IT contracting market steadies as AI demand grows but skills gap stays

The IT contracting market in Australia and New Zealand is entering a more stable period, with project volumes and demand for skills remaining steady. This follows a decade characterised by transformation and recent disruption due to the pandemic, providing both employers and contractors with a more predictable operating environment.

Market stabilisation

"It's been a long time since we've had a contractor market that could be described as near 'normal', but the coming 12 months could well be the time," said Adam Shapley, Managing Director Technology & Technical Workforce Solutions, ANZ, Hays. "With project volumes stabilising and the pandemic well behind us, we have entered a financial year marked only by steady activity. Until history proves otherwise, at least."

AI adoption

Artificial intelligence is now firmly part of the IT contracting sector, with 90 per cent of employers allowing contractors to use AI technologies. However, just over half provide any training or support. Many contractors are keen to utilise AI, as 64 per cent already do so, and 25 per cent have expressed an interest. Firms with established AI initiatives face difficulties scaling due to a shortage of professionals with AI backgrounds, especially those able to move projects from pilot stages to operational deployment.

Enduring skills shortages

Skills shortages continue across the sector. According to Hays, three-quarters of employers are struggling to locate suitable candidates. Intermediate-level expertise in areas such as data governance, cybersecurity, and cloud solutions remains particularly hard to find. This challenge is reflected in persistent competition for contractors able to offer specialised knowledge on short-term or critical projects. "Those organisations that are moving forward fastest with AI are also finding their plans restricted by the market's ability to supply AI skills, although the shortage has yet to translate into a spike in rates," said Shapley.

Human skills valued

Employers are increasing their focus on non-technical aptitudes, including communication, adaptability, and critical thinking. These are seen as essential for success, especially as AI and process automation becomes more widespread. "While AI might be the emerging area of interest, employers continue to place high value on so-called human skills. Communication and interpersonal skills are most valued, which is expected given the responsibilities and level of seniority that employers are seeking within their contract workforce," said Shapley.

Shorter contracts

The traditional long-term engagement model for IT contractors is giving way to shorter, outcome-oriented contracts. This is particularly apparent for roles involving AI. Employers are seeking clearer results from contractor investments, compelling contractors to plan earlier for future roles. "Employers are seeking greater visibility of the results from their contractor spending, meaning contractors will have to adjust their expectations on contract length and plan ahead for their next role earlier in the cycle," said Shapley.

Contractor rates

Recent years of rapid rate increases for IT contractors have slowed, though upward trends persist. More than two-thirds of employers noted small increases over the past year. While contractors feel confident about future earning potential, employers remain cautious and are closely monitoring budgets. "The moderate rate increases seen in this year's IT Contractor Rates Guide may also be a sign that finance and procurement functions have reasserted their traditional role as arbiters of strategic spending," said Shapley.

Employer strategies

Employers are encouraged to use this period of market steadiness to reassess how they engage contract talent. Aligning contractor resources with short-term project needs and longer-term business aims is recommended, particularly as AI integration becomes more common. Prioritising training-especially in AI and data skills-can increase productivity and help organisations attract and retain sought-after contractors. Offering flexible working arrangements is cited as a key advantage in securing talent.

"Communication and interpersonal skills are most valued, which is expected given the responsibilities and level of seniority that employers are seeking within their contract workforce," said Shapley.