Credit crunch: some outsourcing deals likely to end

Financial uncertainty arising from the credit crunch is likely to lead to many outsourcing deals being re-negotiated, reduced in scope or terminated in 2009 – and they may go into dispute, warns international law firm Pinsent Masons.
 
The firm also says that long-term transformation projects may be delayed or terminated, in part because businesses will look to short-term cost cutting rather than to longer-term benefits.

Iain Monaghan, a Partner in Outsourcing, Technology and Commercial Group at Pinsent Masons, said:
 
“Many IT outsourcing deals come under stress during times of financial uncertainty,
for example because a better deal could be done in the depressed market, or because the anticipated level of expenditure on transformation is no longer sustainable.
 
“It is likely that there will be significant pressures on many IT outsourcing contracts during 2009.  As a result, many projects may be renegotiated, reduced in scope, terminated or even go into dispute.”
 
He recommends that businesses review their current outsourcing contracts so that they understand their options – such as get-out clauses – and can plan the best strategy in advance.

Monaghan has written a book ‘Computer Contracts: the User’s Perspective’ and is an expert on contract negotiation.

Some companies may use the credit crunch to outsource, though. Last month [June 2008] a report by the Management Consultancies Association,  which was based on a survey of members of the British Bankers’ Association, found that the credit crunch will “drive a new wave of outsourcing and offshoring in financial services as cash becomes tighter”. 

Links:

Outsourcing – online book by experts

Pinsent Masons – Legal Weekly article 2007

Survey of members of the British Bankers’ Association – BBA website

Credit crunch to boost demand for outsourcing – report of BBA survey

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