Outsourcing Contracts Slipping Under the Radar?
Outsourcing Contracts Slipping Under the Radar?
Month Date, 2008: Analyst firm, IDC are warning that many outsourcing contracts could be renegotiated under the radar and service providers need to be on the lookout.
The research gurus at IDC are drawing attention to a report titled ‘Why are Organisations Signing Outsourcing Contracts with Renegotiation in Mind?’ which found that during re-tender cycles, 55-60% of outsourcing contracts in Australia were renegotiated in 2007.
While this isn’t conclusive evidence that outsourcing contracts are being inked with thoughts to a future renegotiation, IDC believes that the figures are due to a general perception that expectations on the scope and levels of service delivery are not being met.
“IDC believes this is also due to organisations being unclear on what to expect from the end results, hence, are unable to clearly define the outcomes for the service providers before contract signing," said Aprajita Sharma, research manager outsourcing and BPO, IDC.
The report has forecast that renegotiations will represent a slightly smaller proportion of total contract value in 2008 and will that this would stabilise before 2010.
Sharma explains that one of the main reasons for renegotiation is the client’s initial expectations of outsourcing and the resulting contracting that is negotiated between the parties. “If clients do not have a solid understanding of their own IT function and performance, or lack a focused IT strategy, then their expectations of outsourcing will be misplaced," she said.
"There will be increased outsourcing activity in 2008 and 2009 even though the average contract size has decreased by about 10% over the last 2 years. Increased activity in offshore outsourcing, which is driving down price levels for service offerings, is enabling organisations to purchase more services within the same IT budgets," concludes Sharma.