While the outsourcing momentum continues to grow, contract values and their duration in software services segment are declining as companies are renegotiating a large number of old deals to realign their business priorities with changing market trends.The evolution in sourcing strategies is moving a large number of older deals to the re-negotiating table, according to Nasscom's Strategic Review 2007.
An analysis of 64 large deals awarded at the start of the decade reveals that more than half witnessed some restructuring or renegotiations.
About one-fourth of the deals were re-negotiated, incorporating an expanded scope of work with the new deal not always going to the incumbent service provider.
As an impact of restructuring or renegotiations, large deals were split into relatively smaller and shorter contracts distributed between multiple vendors. Consequently, average total contract value and duration reported a steadily declining trend.
In all the deals, the share of contracts worth $50-200 million increased from about half in 2001 to over 70 per cent in 2006. However, the share of large deals with contract value of over $1 billion declined from eight per cent in 2001 to five per cent in 2006.
The declining trend in the average total contract value and duration should not be mistaken for a slowdown in outsourcing momentum, which in fact grew. The number of contracts and service providers signing contracts with a total contract value of over 50 million increased consistently.
The churn is making it necessary for service providers to stay focused on delivering faster and cheaper solutions.
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