End of big outsourcing deals on the horizon

Multimillion-pound outsourcing contracts are set to be a thing of the past, according to research published this week.

Sourcing advisory firm Morgan Chambers predicts that the £7bn worth of contracts up for renewal before 2008 will be broken up from big, high-value outsourcing deals and distributed among smaller suppliers.

Phil Morris, chief executive of Morgan Chambers and author of Outsourcing Service Provider Performance 2006, says companies are dissatisfied with large outsourcing deals.

‘People are seeing that the perceived advantages of a consolidated contract do not come to fruition,’ said Morris. ‘Smaller contracts are better value.’

Morris says five per cent of total cost of an outsourced project will be required to cover the increased complexity of managing multiple contracts. However, this money is likely to be recovered by a cost reduction as a result of better-value contracts.

The break-up of large contracts will provide more opportunities for smaller suppliers and spark a renewed trend to offshore projects, says Morris.

‘Business process outsourcing contracts are going mainly to places such as the Ukraine and Poland, but there will be quite a lot of smaller scale contracts going to India, Eastern Europe and the Far East,’ he said.

Morris estimates that UK firms will spend between 20 and 25 per cent of their outsourcing budgets on small offshore contracts.

He says the trend for smaller contracts is separate from a perceived trend towards insourcing large contracts, such as the decision by Sainsbury’s to terminate its contract with Accenture and bring its IT services and staff in-house.