Information Services Group (ISG), a leading technology insights, market intelligence and advisory services company, has announced ISG Research showing that outsourcing contract expirations reached an all-time high last year and are likely to remain high in 2013.
A record 901 outsourcing contracts expired in 2012, an increase of 27 percent from the previous year, according to the Momentum Contract KnowledgeBase from ISG. Expiring contracts were valued collectively at $25 billion in 2012.
A total of 886 active contracts valued collectively at $21.2 billion are set to expire in 2013. There are eight different vertical industries with at least $1 billion in expiring contract value and 32 individual contracts worth $250 million or more due to expire. With so many expirations on the horizon, ISG forecasts 2013 to be another very active year for renegotiations and could fuel them to an all-time high.
Based on historical trends, ISG expects about $15.5 billion of expiring contracts to be up for renegotiation in 2013. IT outsourcing (ITO) contracts account for about 75 percent of the expiring contract value in 2013. Infrastructure Only contracts had the highest value among expiring ITO contracts, followed by Full ITO and ADM Only. The service line with the highest number of expirations was ADM Only, followed by Infrastructure Only and Full ITO.
The ISG Research cited three main factors behind the surge in expiring contracts:
— The market is seeing a higher volume of contracts with shorter time frames, so contracts are expiring more rapidly than in the past.
— Many clients are approaching their service providers about renegotiating their contracts midway through the contract to take advantage of cost savings in the short term.
— Clients are more willing to take scope from an incumbent provider and award it to best-of-breed providers, further fueling the number of contracts in the market.
“As client governance processes continue to mature and organizations become more comfortable working with a variety of service providers, they are more willing to consider competing their renewals if they feel they are paying too much or if they are unhappy with their provider, said Paul Reynolds, Chief Research Officer, Momentum. “Incumbent service providers will have to fight vigorously to retain their clients as their competitors will be aggressively trying to steal wallet share.”
First published in Global Services