2006: Outsourcing’s Year of Contract Renewals

Yes, offshore firms are making their presence felt. But the incumbents seem to have learned from their mistakes, and are fast making amends, in the process, wining back the confidence of the customers. The result: Contract failures and bitter re-negotiations of 2004 and 2005 gave way to large number of renewals and extensions in 2006. Here is a brief round up

by Imrana Khan



After a series of failures in older outsourcing contracts like the IBM-JP Morgan and Sears-CSC in 2004–05, coupled with consistent rise of the offshore firms from India, many market observers predicted in the beginning of 2006 that it was only a matter of time before the traditional large North American service providers give way to the new offshore service providers and specialized firms. What added to the fears — or expectations — depending on which camp you are in, is the announcement of outsourcing advisory firm, TPI, that as much as $100 billion of outsourcing contracts due for renewal between 2006 and 2007, and the incumbent vendors could well lose their market share.

And they are losing their market share, strictly speaking. However, as 2006 has proved, they are not going anywhere. If anything, they have consolidated their position a little more in last year. So, while still losing a bit of market share to the rising offshore vendors, firms like Accenture, CSC, ACS and an almost-written-off EDS have managed to renew many of their older contracts in 2006, putting to rest speculations that the contact cancellations trend would continue through 2006.

Extensions Galore

The year 2006 saw probably more contract renewals and extensions in recent years. Some of the large renewed deals were GM-EDS deal (part of a multisourcing deal); 7 Eleven-Excellerate HRO contract; BAE-CSC IT contract; PepsiAmerica-ACS BPO contract; Aetna-ACS BPO contract; InBev-Logica IT contract; Barclays-Siemens BPO contract; DirecTV-HP ITO contract; NAB-Accenture FAO contract; CIBC-HP IT contract and T-Mobile-T-Systems contract.

While not many analysts were right about the fate of deals, where they got bang on, was the size of deals: Larger deals of over $500 million were limited in number, thanks to the comfort level that organizations today have with multisourcing and more sophisticated instruments to control those deals.

It was not surprising, hence that most of the renewed contracts were in the range of $50–$200 million. Some of the contracts that were in this range include the Atena-ACS deal ($56 million), Barclays-Xansa ($140 million), AMP-CSC ($146 million), The Whitebread Group-CSC ($48 million), Laurentian Bank of Canada-CGI Group ($100 million), and so on.

The terms of maximum deals were extended in the last months of the year. For instance, the deals like, Eastman Kodak Company-Nortel, Lloyds TSB-First Data International, MERSCORP-EDS, Advanta Bank-First Data International, U.S. Postal Service-HP, Dansk Supermarket-IBM, Ann Taylor-Convergys, Mutual Concept Computer Group-Nexolink, Farm Credit Canada-IBM, 7-Eleven-ExcellerateHRO, CI Financial Income Fund-RBC Dexia Investor Services, Fonterra Co-operative-EDS, U.S. Health and Human Services Department-Thomson Medstat, Duro Textiles-OneNeck IT Services, First Federal-First Data, BT-Capita and Ford-TechTeam.

Winners and Losers

For CSC, EDS and ACS, 2006 was proved immensely favorable. CSC inked several ITO contracts extensions, including the renewal of deals with Airbus North America Engineering, The Whitbread Group, Powercor-CitiPower, OneSteel, AMP, BAE Systems and Schroders. In the same time period, EDS renewed deals with customers like GM, MERSCORP, Fonterra Co-operative, Visanet, AEGON and U.S. Navy. ACS also inked many ITO and BPO agreements with European and American customers such as Aetna, PepsiAmericas, City of Riverside, First Horizon Home Loan Corporation and AmeriHealth Mercy/Keystone.

And of course, IBM also signed many renewal agreements, such as those with Dansk Supermarked, Farm Credit Canada, Symcor and UPM.

What It Means

In all aspects of outsourcing, 2006 was a year of action with lessened hype and more mature approach to outsourcing. Gone were the political rhetoric that marked 2004; gone was the fear that outsourcing, after all, may be losing out in 2005. In fact, like the single-most important thing that 2006 gave rise to —multisourcing — 2006 showed most definitely that you do not necessarily have to spend most of your time and energy in figuring out the next big thing. You should be comfortable with many ideas; many vendors; many models.

The offshore firms learned a lot to get a bigger slice; the incumbents learned new realities and put them into practice. The result was a much more mature option for the customers. Some of the renewed deals have taken into account new market realities. For the customer, it is best of both worlds.

Renewed Contracts in 2006


Month Customer Service Provider Engagement Period
(in years) Value $
(in million) Region
December Eastman Kodak Company Nortel ITO 3 NA North America
December Lloyds TSB First Data International BPO 7 NA Europe
December MERSCORP EDS BPO NA NA North America
December Advanta Bank First Data International BPO NA NA North America
December U.S. Postal Service HP ITO NA NA North America
December Dansk Supermarked IBM ITO 3 NA Europe
December Ann Taylor Convergys BPO NA NA
December Mutual Concept Computer Group Nexolink ITO NA NA Europe
December Farm Credit Canada IBM ITO 5 36 Europe
December 7-Eleven ExcellerateHRO HRO 5 (approx.) NA North America
December CI Financial Income Fund RBC Dexia Investor Services BPO 5 NA Canada
December Fonterra Co-operative EDS ITO 4 NA
December U.S. Health and Human Services Department Thomson Medstat BPO 3 14.9 North America
December Duro Textiles OneNeck IT Services ITO NA NA North America
December First Federal First Data FAO NA NA North America
December Ford TechTeam ITO 3 NA
November TD Banknorth Metavante BPO NA NA
November Siemens Business Services Barclays BPO 2 NA
November Laurentian Bank of Canada CGI Group 5 100 Canada
October Airbus North America Engineering CSC ITO 6 20 North America
October Symcor IBM ITO 3 26.6 Canada
October Farm Credit Canada ISM Canada ITO 5 32 Canada
October Infocrossing State of Missouri BPO 1 18 North America
October The Whitbread Group CSC ITO NA 48 Europe
October Powercor-CitiPower CSC ITO 5 13 Australia
October UPM IBM ITO NA NA Europe
October Marine One Acceptance ACS ITO 3 NA North America
September First Horizon Home Loan Corporation ACS BPO NA NA North America
September DirectTV HP ITO 7 500
September Perot Systems Owens & Minor ITO 5 NA
September Visanet EDS ITO and BPO 10 209
September T-Mobile T-Systems ITO NA 1.28b Europe
August Canadian Imperial Bank of Commerce (CIBC) HP ITO NA NA North America
August Cambridge City Council Serco ITO NA NA North America
August National Australia Bank Accenture BPO NA NA Australia
August OneSteel CSC ITO 37 2 Australia
July AEGON EDS ITO 5 NA Europe
July EMC Unisys ITO NA NA
June REAAL Insurance Unisys ITO NA NA Europe
June East Jefferson General Hospital Phoenix Health Systems ITO NA NA North America
June AIG Technologies Unisys ITO 3 NA North America
June AMP CSC ITO 4 146
June City of Riverside ACS ITO 1 5.52 North America
June AIG Technologies Unisys ITO NA NA
June Barclays Xansa ITO 5 140
June AmeriHealth Mercy/Keystone ACS BPO NA NA North America
May Jetstar Airways Navitaire BPO NA NA
May BAE Systems CSC ITO 5 1.9b
April PepsiAmericas ACS BPO 3 5 North America
March Iron Mountain Symphony Services ITO NA NA North America
March U.S. Navy EDS ITO NA 3b North America
March Schroders CSC ITO NA 235 Europe
January OP Bank Group TietoEnator ITO NA NA Europe
January Aetna ACS BPO 3.5 56
January Thames Water Xansa BPO 2 (approx.) NA