TPI Index shows Q3 drop in big outsourcing contracts

TPI, the world’s leading advisor to global corporations on all facets of their service delivery strategies for business support operations today announced third-quarter developments in the global outsourcing industry through the TPI Index report. The third quarter of 2006 saw a decline in contracts by volume and value from the same quarter last year. The cause of the falling aggregate contact values can be tied to the decline in contract durations, especially for Information Technology Outsourcing (ITO) contracts. Since 2001, the average duration of a Broader Market contract has decreased 12 percent. In ITO, it decreased 18 percent, while for Business Process Outsourcing (BPO) it dropped 5 percent.

“There have been an increasing number of smaller, single-process contracts compared with larger, multi-process contracts in recent years. This trend holds true for both BPO and ITO contracts,” said Siddharth Pai, Partner & Managing Director, TPI India. “Shorter term contracts have become more popular with only 12 percent of contracts signed in the broader market having a 10 or more year term.”

An unprecedented percentage of contract restructurings, with even shorter average contract durations, was the other principal contributor to the smaller total contract values.

Fewer multi-process contracts have been signed so far in 2006 than in each of the past three years. To date, there have been seven, compared with 20 in all of 2004, and 11 in 2005. By total contract value (TCV), multi-process contracts account for only 10 percent year-to-date, compared with 24 percent in 2004 and about 12 percent in 2005.

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