Posted on 31 May 2016
The Odds of Contract Extension
We are all very familiar as to the reasons why organisations hire contractors. Suffice to say that flexibility of tenure is the key reason – both for the firm and generally also for the contractor. This flexibility provides organisations the opportunity to right-size resource as and when required.
Recently, there has been a lot of discussion with regard to contract lifespan and the key determinants that contribute to this. In our experience, this generally is a function of what has led to the creation of the contracting opportunity in the first place. Be it to back-fill roles where individuals have been internally seconded or to deliver to some very focused outcomes within a defined time period as part of a project, funding envelopes coupled with work estimations are key determinants of how long a contractor is hired for or retained.
Back-filled contractors tend to be hired to deliver business-as-usual activities while the incumbent has been seconded to a project. As a result, these opportunities may last many months and have even been known to last a year or two. When organisations have certainty of the duration of such secondments, especially where they are protracted, a fixed-term contracting opportunity may be created. These tend to be based on permanent employee terms, conditions and salaries, which is not very compelling for the perennial contractor.
Shorter duration contract opportunities usually result from a need to on-board resources (generally at short notice) to deliver to defined project outcomes. These contract terms are usually aligned to contract phases or milestones and governed by financial delegated authorities (FDA) as a project financial control measure. As such, these opportunities come with greater responsibility and stricter measures therefore attracting a price premium.
A quick analysis of our contract data over the past 24 months shows that approximately 25% of all contractors were hired for a period of greater than 12 months. The average lifespan of all contracts less than a year was 20 weeks or approximately five months. On average contracts are advertised for an initial three month term and based on circumstances, are extended on average a further two months.
While circumstances dictate such extensions, there are strategies contractors can leverage to ensure that their tenure in an organisation can be maximised. Check out our previous blog for more detail on this topic.
I would like to hear your thoughts and experience in contract lifespan.