Contractors on High Alert as Outsourcing Contracts hit 27% 23 Aug 2013

Contractors on High Alert as Outsourcing Contracts hit 27%

One of the best things about outsourcing is the fact that clients and contractors usually work on contracts, which are negotiable and renewable. Over the past few months there are several contractors whose contracts have come to an end, and so many others whose contracts are almost expiring. According to a survey carried out by Information Services Group ISG, 27% of contracts expired in the last year, and this percentage is expected to be on the rise through this year.

When contracts near the expiry dates, there is a sense of uneasiness that grips the outsourcing contractors especially since they have to renegotiate terms for new contracts. Besides that there is also the fact that performance reviews of the expiring contracts usually carry a lot of weight on the decision to give new contracts or not. According to the ISG, the contract reviews are expected to at least maintain the level at 27%, but the projections indicate that there are several contracts that are bound to expire in the course of the year. This signals a vigorous fight among contractors to keep clients, and for others to attract new ones.

In 2012 alone, 901 contracts expired, with a collective value of $25 billion. This marked a 27% increase from the previous year, though similar projections and tendencies are expected this year, having completed the first two quarters of the year.

The ISG report also indicates that 886 contracts are already due for termination or renewal in the year 2013, with a total value estimated at $21.2 billion. Based on such statistics, it is widely expected that there is bound to be a scramble for clients among the contractors in order to secure longer contracts, or to get new contracts. The remaining part of 2013 is therefore expected to experience several contract negotiations and renegotiations and an estimated $15.5 billion in contracts due by the end of the year.

On further analysis, IT contractors have a lot to smile about since more than 70% of the expiring contracts are in the IT field. Therefore those who have missed out on several contracts should be working on their portfolios appropriately to be able to take advantage of this trend, which is expected to continue through the year and beyond as companies realize the benefits of outsourcing.

The ISG report also determined 3 different factors significant to the expiry of a lot of contracts as identified below:

  • There are so many short term contracts being signed from time to time and as a result these usually expire ever so often. This is also because clients are not keen on being tied down to contractors for a longer time and miss out on opportunities elsewhere
  • Lots of clients initiate negotiation of contracts before their current contracts expire. This is usually done halfway through the term of the contract in order to cut down on costs of contracting
  • Clients have an inclination to consider the providers whose contracts are in force other than sourcing new ones. This is especially so when these contractors offer great services.

– Back Office Pro

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