IT T&M projects pricing increases by 15% due to talent shortage

The IT services industry is facing severe demand and supply imbalance for talent. This, in turn, has led to an increase in pricing by 15 per cent for time and material (T&M) projects where clients pay only for time and resources spent.

Attrition in the IT services industry is upwards of 25 per cent, a record high. Companies are taking all efforts to retain people. including increased compensation and speeding up promotions.

“There has been a labour market reset and those costs will have to be passed on to clients across the industry,” said Cognizant Technology Solutions’ CEO Brian Humphries.

Demand outstrips supply
“It is a war for talent. We spent an additional $1 billion in 2021 on compensation to arrest attrition,” Humphries told BusinessLine recently.

Steve Hall, President, Information Services Group, a global technology research and advisory firm, said an industry talent shortage is affecting pricing on T&M projects, with pricing up by 15 per cent or more.

“Attrition is at an all-time high and providers are having trouble finding people to handle both new projects and the backlog of existing work,” he said.

With demand outstripping supply, both the buy and the sell side are feeling the impact, he said. Ultimately, it could mean performance degradation or bookings not turning into revenue. This, in turn, could cause demand to slow down, he said.

Covid pricing
Talent shortage has been a known problem for quite some time and there are price revisions in specific engagements, especially T&M centric. Some companies spoke of 7-12 per cent and even higher price lifts in some cases.

During the height of the pandemic, many companies pushed their service providers to reduce pricing and so, some hikes are a reversal of that too, said Yugal Joshi, Partner, Everest Group, a global research firm.

“I wont discount companies pushing out some engagements, especially with inflationary and recessionary indicators growing. Some transformation projects may get pushed out as companies focus more on running their operations better. This will also impact modernisation initiatives and cloud migration may end up further taking priority,” he said.

Significant spend share
The T&M model account for a significant amount of third party spends for many companies. This is especially true for application development, platform implementation and quality engineering work where 50-70 per cent of spend can be T&M. Some complex and high value work like technology consulting and implementation of platforms also rely heavily on T&M model, he said. The Hindu BusinessLine