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Further IT outsourcing price cuts expected

The cost of IT outsourcing services will fall by up to 10% over the next two years as the recession continues.

According to the latest research from analyst firm Gartner, the pricecuts are in addition toreductions made between 2001 and 2003 and will take total average reductions to 20%.

Gartner said suppliers will attempt to keep revenuesup by offeringmore deals at a lower price. Meanwhile, customers will be spending less.

"Regardless of the relative strength of outsourcing during a recession, many clients are reporting intense discussion with their suppliers and renegotiation of contracts for terms and conditions, service level agreements, fees, volumes and low-cost offshore delivery locations," said Gartner analyst Claudio Da Rold.

He said most of the cuts will be in new deals, but some will also be the result of renegotiation.

Gartner said the price of datacentre services and helpdesk services will fall 5%, while network services and application hosting will drop by 10%.

Da Rold said suppliers are not reporting any across-the-board price reductions, but applying cuts on a deal-by-deal basis.

Suppliers often make price changes on a bespoke basis for clients. According to a study of global companies carried out by Compass Management Consulting,published this time last year, on 120 outsourcing dealsbusinesses were requesting discounts of up to 23% from outsourcers in return for longer contracts.


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