Nearly half of IT contract renegotiations result in conflict, new survey shows

IT consultancy firm Alsbridge said that of the 250 senior IT decision makers from the UK, Holland, Switzerland or the Nordic countries it had surveyed, 47% of those that have tried to renegotiate IT outsourcing (ITO) deals have ended up in conflict with suppliers.

"Almost two thirds (61%) [of the IT decision makers] have encountered difficulty in renegotiating with an ITO supplier, and nearly half (47%) reported outright conflict," according to the Alsbridge report. "As a result, they have not seen the benefits they wanted from renegotiation, with 39% saying their objectives have not been met."

Alsbridge said that 26% of respondents to its survey had claimed to be dissatisfied with at least one of their existing IT outsourcing contracts, whilst 76% of the IT decision makers said that they intend to renegotiate at least two of their current IT outsourcing agreements.

Cost pressures persuaded 55% of the IT leaders to enter into IT outsourcing contracts, whilst 40% admitted to signing deals with suppliers and ironing out some of the detail later "when negotiating leverage has typically gone". As a result, those respondents said their objectives from the deals are not being met, because they were either "too ambitious or not sufficiently defined".

Nearly half (46%) of the survey respondents said that their business needs had changed since they had signed an IT outsourcing contract with a supplier and 45% said their contracts were not flexible to enable them to respond to their needs. Technology innovation was the single most cited reason why IT leaders wanted to renegotiate or retender an IT outsourcing contract, Alsbridge said.

"The reasons for this pending shakeup of ITO deals stem from a mixture of poor planning, lack of data and expert advice, miscommunication, complacency and inadequate contractual agreements," Alsbridge said. "Clients and suppliers both bear some responsibility."

According to separate research conducted by technology insights and market analysts Information Services Group (ISG), the UK public sector outsourcing market in the first half of 2013 was €2 billion. The total value of public sector outsourcing contracts in the rest of Europe, the Middle East and Africa during the period was €0.3bn. The ISG figures only account for contracts with an annual value of €4 million or more.

Public sector outsourcing contracts formed in EMEA, including the UK, in the first half of 2012 totaled €3.1bn, according to the ISG figures.