In 2008, there is a possibility of some renegotiations within outsourcing contracts happening under the radar and it is critical for service providers to be extremely vigilant, according to IDC.
The research group recently released a report titled Why are Organisations Signing Outsourcing Contracts with Renegotiation in Mind?, which was based on research that found that during rebid cycles in 2007, between 55 and 60 per cent of outsourcing contracts in Australia were renegotiated.
"This was because of the fact that despite organisations and service providers (SPs) putting in measures to define clear outcomes from an outsourcing relationship, there is still 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 about what to expect from the end-results, hence, being unable to clearly define the outcomes for the service providers before contract signing," commented IDC analyst Aprajita Sharma,.
The report also showed that in 2008 renegotiations will represent a slightly smaller proportion of total contract value (TCV) and will stabilise between 2008 and 2010, accounting for between 35 and 45 per cent of business signed.
"One of the main reasons for renegotiation is the client's initial expectations of outsourcing and the resulting contract 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", Sharma added.
"There will be increased outsourcing activity in 2008 and 2009, even though the average contract size has decreased by about 10 per cent over the last two 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," concluded Sharma.
The report investigated and rated the reasons why organisations are being over cautious and creating leverage through the renegotiation process and blue-sky clauses within contracts.
Len Rust is publisher of The Rust Report